Lately, Citigroup appears to be putting its best foot forward. Its CEO provided a very confident (albeit doubtful) front during the recent congressional hearings held by the Oversight Panel for TARP. President and CEO of Citi Mortgage Mr. Sanjiv Das also appeared reasonably confident in Citi’s ability to ‘assist’ underwater homeowners in the recent House Financial Services Committee hearing.

It appears that these Citigroup executives are not too far from the mark…and not just based on their behavior or how confident they were at congressional hearings. Based on recent SEC filings and published information, Citigroup appears to have taken a lead over both Bank of America and Wells Fargo so far as InvesGuard’s non financial scores are concerned.

Look at InvesGuard scores for Citigroup, Bank of America and Wells Fargo below:

A legend of the scores and what they mean has been included at the end of this post.

InvesGuard scores and grades companies based on non-financial information. Different parameters are considered including:

1. Number of transactions between the company and its directors (other than director fees) that may give rise to conflict of interest situations.

2. Directors who also perform consulting services for the company resulting into reduced Director Independence.

3. Level of transparency in Board Audit Committee reports.

4. Relevance of experience of Board members especially those who hold Board level finance, credit and risk committee positions in the financial industry.

5. A look at the quality of a company’s guidelines, charters, principles etc under which it operates.

6. Social and environmental factors such as lending practices, emissions, waste management, recycling etc.

For 2009, Citigroup’s chief area of improvement has been its Board of Directors. Although concerns continue over some aspects, the Citigroup Board is stronger than it used to be. Out of 9 parameters or ‘Core’ comparison events between Bank of America, Citigroup and Wells Fargo, Citigroup has scored the highest or shared the highest score for 7 of these ‘core’ events. These core events include such parameters like CEO and senior management effectiveness, aligned director shareholder interests etc.

Of the three companies, Wells Fargo has by far performed the worst on the Board of Directors and Senior Management front. Its poor scores will get even worse for 2010 with the jump in CEO and senior executive pay without any apparent long term strengthening of shareholder value. Hitting it the hardest, is Wells’ absence of a Board level Asset Quality committee. Even its Board level Finance and Credit committees appear to have some directors with less than relevant experience.

InvesGuard’s Internal Control Environment primarily includes a comprehensive review of a company’s Board Audit Committee including quality of this committee’s reports, its members, their compensation, as well as its charter. Conflict of Interest is also considered within the Internal Control Environment category.

For 2009, all three companies did not explicitly prevent their directors from providing consulting services to each of these companies. Providing consulting services has the potential to take away the independent perspective that directors are expected to provide. It could potentially cloud their judgement. In fact, Citigroup paid consulting fees of $100,000 to Director Joss during 2009 in addition to regular director compensation.

For more detailed information on these scores please visit our store at http://store.invesguard.com/ or send me an email at tejus@invesguard.com

Check back later this week when we will be adding final 2009 JP Morgan Chase and Goldman Sachs scores.

Legend for the scores used in the graphs

From the time we started presenting InvesGuard’s scores on the non financial metrics of public companies, Citigroup has been our ‘poster boy’ for poor corporate governance. Click Sample (Citigroup) to see its scores as they stood in April 2009. Overstretched directors (2 directors were held 4 public company directorships. 3 out of 14 directors were CEO’s of other public companies.) and ill suited directors were the top concerns at Citigroup then.

In addition, InvesGuard also scrutinizes experience and backgrounds of directors especially in the case of financial and banking companies in order to ensure suitability for the Audit, Risk, Credit and other ‘finance centric’ Board Committees. In this area too, Citigroup as it stood in April 2009 left something to be desired. 2 out of 5 directors on the Board’s Audit and Risk Management appeared to lack experience that could be considered essential to providing audit, financial and risk management oversight specific to a company in the financial industry.

As a result of recent changes in the composition of the Board’s Audit committee, all directors on this committee now have relevant and adequate financial industry experience. In addition, Citi has now created a separate Board level Risk Management committee. The primary aim of this committee is to provide ‘oversight of Citigroup’s risk management framework’. Of course, only time will tell whether the members of this Board committee have been performing their job adequately.

CEO Vikram Pandit’s testimony before the Congressional Oversight Panel on March 4, 2010 attributed ‘questions about the Bank’s financial condition’ to the ‘quality of some of our assets’. Previously, oversight of asset quality was not within the purview of any Board Committee. With changes to Citigroup’s overall Board composition and structure, the newly formed Citi Holdings Oversight Committee is tasked with the responsibility to oversee the management of ‘the special Asset Pool (including assets covered by the loss-sharing agreement with the U.S. Government). Another new Board Committee which is the Risk Management and Finance Board Committee is now responsible for ‘oversight of Citgroup’s risk management framework, including the significant policies, procedures and practices used in managing credit, market and other risks…..” Although both these committees do not directly cover areas such as oversight of the adequacy of allowances for loan and lease losses and related written policies and procedures, yet the enhanced oversight measures provide some degree of comfort. Again, with the changes in Board composition, both these committees are staffed with directors with previous banking and financial industry experience. Last week, we blogged about Lehman’s poor choice of directors. Directors with zero financial management or banking background were in charge of providing risk management oversight.

By installing directors with more relevant experience, Citigroup has taken a step in the right direction. Let’s hope these steps keep it on the right path.