March 25th, 2010
One Year On…Citigroup Scores Then and Now.
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.
Tags: citigroup director shakeup a success?
