From Citigroup to China, a story of intrigue

The US presidential elections are a global phenomenon. This is not only because the decisions made by the US President have a funny way of affecting people in many other countries, but also because of the global reach of the US media. People in Chennai seem to know more about how hurricane Sandy was affecting the US than about how cyclone Nilam was affecting them at about the same time.

The US media was broadcasting, in breathless detail, every step of the election process and there were lessons for those who want to learn. An important lesson should be about the transparency of the US system that includes the problems and manipulation of the funding process, debates.

In particular, the process by which the parties have their primary in each state (the Democratic Party did not, since the President was seeking re-election and there were no challenges in his party) allows any aspirant with some support to try his or her hand to seek the nomination. The person with the greater support emerges the winner.

This is an eye-opener in many parts of the world, which, even if they happen to follow a democratic system, has party functionaries and their relatives standing for election, with merit considerations taking a backseat. In India, where individuals or families own the party, the euphemistic term ‘consensus’ or the phrase ‘let the party leadership decide’, means cronyism is preferred.

POLITICAL INTRIGUE

In diametrical contrast to the US process, China, which is also going through a leadership transition, seems to prefer intrigue. The long-drawn-out backroom process has even influenced court decisions in the recent Bo Xilai corruption and Heywood murder cases. The process also came into play in the attempted media blackout of the news about how Prime Minister Wen Jiabao’s family got rich on his coat tails, made public by the New York Times .

Reports suggest that former party leaders, such as Jiang Zemin, influence the process. One wonders how much of this is to protect one’s legacy, and how much is to ensure that the new leaders don’t institute inquiries into the previous generation. Analysts watch for how long the clapping goes on at the Party Congress after a leader’s speech. Taxi drivers in Beijing have been instructed to remove door handles and disable the windows, so activists seeking reform will not be able to throw leaflets onto the streets. All this would be good drama and not worrisome if we were not talking about the leadership of a presumptive superpower.

CITIGROUP TUSSLE

The corporate world seems to prefer the Chinese rather than the US system. Have you heard of any corporation that asked all its employees who they thought should be the next CEO? I rest my case!

Recent events at Citigroup, the financial institution, present us with a case study. Initial reports that CEO Vikram Pandit had stepped down from his position made many wonder. It was not expected, and while not being the most popular person around, he was recognised as having stemmed the bleeding at Citigroup after the 2008 financial crisis.

But a Machiavellian process appears to have been at play. Michael O’Neill, Chairman, a former banker, and at one time in the running for the post of CEO when Pandit beat him to it appears to have been moving around the chess pieces.

In 2009, the board had apparently initiated a process to plan for the CEO’s succession and Michael Corbat, who was heading European operations, was identified as among the top candidates.

However, it seems Pandit was not getting along as well as he should with the board and also with the regulators. On top of that, the bank’s stock price had fallen by about 80 per cent since Pandit had taken over as CEO.

In mid-October, O’Neill apparently decided it was time to make his move. Reports say that he had checked with Corbat two weeks earlier if he was ready, and then got him over from Europe to wait in the wings at New York. O’Neill then presented Pandit with a choice to either resign or be fired. When Pandit decided to resign, O’Neill and a couple of directors are said to have begun informing other senior executives of the change and also immediately appointed Corbat as the new CEO.

The President of the bank, John Havens, a close associate of Pandit, was also asked to resign immediately and was replaced. O’Neill is quoted in the press as saying: “No strategic, regulatory or operational issue precipitated the resignation, nor is there another shoe to drop. There is no issue of conduct or ethics.” In my mind, this leaves only one reason for Pandit’s firing: O’Neill’s displeasure.

Company executives were as surprised as market analysts who did not expect a change in the leadership so soon, since Pandit had indicated that he would be around for many years.

Citigroup is not your corner store; it is the third-largest bank in term of assets in the US. We may be a long way from democratically selecting leaders of corporations, but intrigue and opaque transitions, whether for a country or for a corporation, should belong to an era long gone.

(The author is Professor of International Business and Strategic Management at Suffolk University, Boston, US. >blfeedback@thehindu.co.in )

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