Citigroup chief executive Michael Corbat is a company lifer, having spent his entire career at the banking giant or its predecessor companies. Three months into the job, Corbat named his two lieutenants, Jamie Forese and Manuel Medina-Mora, who have also dedicated nearly their entire career to Citi. The move provides the bank with what it needs most – continuity and control – but it also further insulates Citi from outside opinions and ideas, in what could be a dangerous move.
Corbat likely chose co-presidents with strong ties to the bank to re-instill confidence in the Citi name for both shareholders and employees and to limit the chaos that’s inevitably created when a new CEO is named, said Jesse Marrus, founder of Wall Street career search firm StreetID.
But with its top three men knowing nothing but Citi life, the bank is taking a “tunnel approach,” Marrus said. “It’s always good to have different perspectives,” he said. “Otherwise, you run the risk of blindly following the status quo and being resistant to change.” Citi declined comment.
Chris Apostolou, a former economist who’s now the managing director at London-based Arbitrage Search and Selection, has seen the reality of an insular culture first-hand while working in the banking industry in Japan, where executives are often company lifers.
“It’s clear what happens when people want to stay with the same firm their whole life, it becomes riddled with internal politics, a failure to take risks, or, at its worse, corruption,” Apostolou said. “Rewarding loyalty sounds good at the outset, but really you want to employ the most able, not the most loyal.”
In the aftermath of its 2009 bankruptcy filing, General Motors, with its executive team filled with lifers, was often criticized for its insular culture and its lack of exposure to how other industries and companies operate. Former chief executive Rick Wagoner, a longtime GM employee who resigned after watching the company fall on his watch, took much of the blame. Failures at IBM and Kodak provide other glaring examples of the risks posed by a static culture, said Rob Kleinbaum, CEO of management strategy firm RAK & Co., and a former GE executive.
At the same token, Corbat is taking over a business that may have poured too much money into bloated, less predictable businesses like investment banking and equities.
“By all accounts, [former Citi CEO Vikram] Pandit was forced out by a board looking for a smoother and more predictable business,” said Peter Laughter, CEO of Wall Street Services, a New York-based financial services recruiting firm. “With Forese and Medina-Mora as co-presidents, Corbat has known entities who have an in-depth understanding of the banks strengths and weaknesses and will be highly effective at executing his strategy.”
Another reason for optimism is that when Corbat sided with loyalty, he chose men who have proven loyal to Citi, not himself. Most other bank heads have historically favored lieutenants who are “their guys,” who, above all else, will have their back. Corbat chose company men, people with a unique knowledge of an organization undergoing massive changes.