When bank boards flex their muscles
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Vikram Pandit’s resignation might have come as a surprise to just about everybody, but the bank’s website seems to be fully updated: go to the board of directors page, and there’s Mike Corbat, CEO.
A couple of things are worth noting about that page. Firstly, Corbat is only CEO: he isn’t chairman as well. That would be Michael O’Neill, dubbed the “hands-on chairman” by the WSJ, who seems to be throwing his newfound weight around just seven months after taking on on the job. The rest of the board is reasonably impressive too: a good mix of independent thinkers from many walks of life. None of them can reasonably be considered to have been beholden to Pandit — and certainly none of them is beholden to Corbat.
That’s exactly as it should be. The CEO’s job is to run the bank, to answer to the board, and to get fired if he doesn’t perform. Which is what seems to have happened with Pandit.
Meanwhile, further downtown, the exact opposite is happening. Where Citi’s powerful board acted decisively after yet another set of weak results, Goldman’s powerless board is simply sitting back and watching their bank report a much more solid set of earnings. Just how powerless are they? Let me answer that for you:
Every day, on average, investors buy about $1.2 billion of Citigroup shares, and about $500 million of Goldman shares. Without that steady buy-side flow, the stocks — and the banks — would collapse. And while investors care about earnings first and foremost, they also want to know that they’ll ultimately receive those earnings, rather than just seeing them disappear into the pockets of management, or be wasted on silly acquisitions. Governance matters. And on that front, if on few others, Citi can credibly claim to be leagues ahead of Goldman.
As for Corbat, I have no idea how he will perform as CEO. But I can say that the choice of Corbat is clearly a vote for Citi’s global franchise. If Corbat cuts back anywhere, it will be domestically, in the US, rather than in the faster-growing regions of the world where the Citi brand remains strong. Much was made of the fact that Pandit was an Indian leading a big US bank, but in fact Corbat has more international banking experience than Pandit had. He’s also more wonk than visionary. Which is probably a good thing.
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Ah, Felix, you get it! Earnings only matter if shareholders have reason to believe they will ultimately profit from those earnings.
Some tech companies would do well to remember that.
Speculators, I mean investors, are so used to getting little or no dividends they have forgotten why corporations even exist. It used to be to spread the burden of financing a company among many owners, but now they just exist as a vehicle for its management.
If the government stops the double taxation of corporate profits, publicly traded companies will have no excuse to not pay a reasonable dividend, and then there will be a great metric for those “investors” to judge performance.