Sandy Weill surprised a lot of people when he announced last week that big banks should be broken up.
Weill quit as Chairman of Citigroup in 2006 after a career in banking that culminated in building Citigroup into the behemoth that it is.
Each time he completed another merger or acquisition, he was hailed as a visionary and compensated generously by his fawning board of directors.
He championed the reversal of the Glass Steagal Act, a law that was on the books from 1933 and helped keep retail banking separate from investment banking, so as to not mix up businesses that had very different risk tolerances.
Coming after all this, Weill on a television programme towards end of July said, “I am suggesting that (the banks) be broken up so that the taxpayer will never be at risk, the depositors won’t be at risk. Mistakes were made.”
APOLOGY SANS INSIGHT
Do we take Weill seriously? In an earlier bout at the confessional, Weill who had handpicked his successor, Chuck Prince, announced that the choice was a mistake. Maybe he was in another one of those moods?
But the public is not particularly happy with banks these days and Weill’s statement added fuel to the smouldering fire. On the other hand, ‘big bank’ supporters criticised Weill for this reversal of his views.
Let’s look at this differently. It is to the benefit of our collective learning when we find someone who looks back and re-visits his major decisions and lets us know about how he now feels about them. Makes these people almost human.
Some strategic decisions are hard to assess otherwise. Company CEOs are paid the big bucks because they are required to make decisions today, the results of which would be known only well into the future. These decisions put the company at risk and the rewards are great if they work out.
Sometimes they don’t, like at Citigroup, and it is nice to hear from the person responsible for the decision to admit that it has not worked out. Of course, it would also help to know why.
Unfortunately, we don’t get that insight from Weill. He doesn’t say he was wrong to have supported the break-up of Glass Steagall, or that it was wrong to build the financial services conglomerate.
He just thinks that the world is different now from what it was 10 years ago, and he thinks the world hates bankers now, and so big banks should be broken up. He continues to think he made the right decisions. After all, he does not say ‘‘I made a mistake’’ but says “Mistakes were made’’ in third person, which is what attorneys advise their clients who are in a confessional mood.
MORE TO COME
Changed circumstances that re-focus us on past decisions also highlight the knife-edge of these decisions. C. Michael Armstrong, when CEO of the telecom giant AT&T, spent about $100 billion (about Rs 50, 000 crore) to acquire cable companies hoping to bundle Internet, television and phone service.
Unable to generate the revenues to meet the debt obligations, he had to split AT&T in 2000 into three companies; an act then considered as a failure of his strategy.
Subsequently, it turned out that WorldCom, an upstart rival against whom AT&T seemed appeared to have fared poorly, had fudged its numbers, and really AT&T’s performance was not bad. Moreover, his strategy came true for other providers like Comcast (which he went on to lead) and Verizon.
Similarly, Gerald Levin, CEO of Time-Warner, the media giant, was setting the company up for success in the future when he merged it with AOL in 2001.
When it turned out that AOL had fudged numbers and the merger did not make much sense from a strategy point of view, they split-up eight years later. Levin, looking back in 2010, took responsibility for the merger saying it was ‘the worst deal of the century.’
Another event due for a review is the 2003 invasion of Iraq and the subsequent ‘reconstruction’ by the US. A recent evaluation by the Office of the Special Inspector General for Iraq Reconstruction, a federal agency, has said that 719 people, about half of them Americans, were killed working on projects to rebuild Iraq. I was surprised to see an accompanying comment that the US government has no central database on war dead.
Various reports suggest that the US military lost 4488 personnel, its allies lost 300, while the number of Iraqis dead is estimated at over 100,000. All to get rid of one man? When are we likely to hear from the US government that the Iraq war was a mistake?
Weill, in a sense, is in keeping with what seems to be a tradition of the ex-leaders of Citigroup. Richard Parsons, recently retired Citigroup Chairman, has also said it was a mistake to allow big financial conglomerates to form. John Reed, who was co-CEO of Citigroup with Weill, is said to have disagreed with Weill on many things related to the running of the company, which led to Reed’s quitting while he was co-CEO.
But he beat Weill to the confessional. In 2008, Reed said that the merger of Travellers Group Inc. (headed then by Weill) and Citicorp (headed by Reed) was a mistake which failed to benefit investors, customers and employees.
But it certainly personally benefited the two who made it happen, namely Weill and Reed! Perhaps in a few years, after the current CEO of Citigroup, Vikram Pandit, retires, we will get a confession from him, too.
(The author is a professor of International Business and Strategic Management at Suffolk University, Boston, US. email@example.com)