Citigroup: A Symbol of Board Resurgence?

The Harvard Law School Forum on Corporate Governance and Financial Regulation 2012-11-05


Editor’s Note: Ben W. Heineman, Jr. is a former GE senior vice president for law and public affairs and a senior fellow at Harvard University’s schools of law and government. This post is based on an article that appeared in the Harvard Business Review online.

At the center of the corporate wreckage of the past fifteen years — the accounting scandals, the outright fraud, the environmental disasters, the financial meltdown — sits the boards of directors. Their failure to choose the right CEO and to provide appropriate oversight on core risks and opportunities has, in my view, reflected a broad failure of the corporate governance movement and its reliance on directors to effectively to oversee the corporation and its business leaders.

Yet, the recent fall of Vikram Pandit, Citigroup CEO, underscores a basic truth: Independent boards of directors are still the best mechanism — or the least worst one — for holding business leaders accountable, even if many boards have failed in their attempts to do this, often in spectacular fashion.

Much of the Citigroup commentary has focused on the behind-the-scenes campaign of Citigroup board chair William O'Neil to oust Pandit and his stark ultimatum during a one-on-one confrontation: resign now, resign at the end of the year, or be fired.

Many have criticized O'Neil for his ham-handedness, saying this was rude to Pandit, demoralizing to essential Citi leaders, lacking in clear public rationale. A minority, however, has said such CEO separations are invariably messy, bringing to mind Lady MacBeth's advice to her husband about murdering the king: "If it were done when 'tis done, then 'twere well, It were done quickly."

But the tactics surrounding the decision should not obscure the potential importance of the decision itself. Are boards of directors now more than in the past focusing on their fundamental task — critically evaluating the leadership and the management of the CEO? Are they now much less hesitant to force changes at the top of the corporation due to performance on fundamentals, not just scandal or stock price variation?

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Benjamin W. Heineman, Jr., Harvard Law School Program on Corporate Governance and Harvard Kennedy School of Government,

Date tagged:

11/05/2012, 13:32

Date published:

11/05/2012, 12:51