Vikram Pandit needs PR 101

Posted: September 21st, 2009 | Author: | Filed under: Business, Journalism, Video | Tags: , , , , | No Comments »

The other night I attended a Q&A; between BusinessWeek editor Steve Adler and Citigroup CEO Vikram Pandit. It was part of a series called “Captains of Industry” and I’ve been to some talks with other business leaders in the past. Usually Adler focuses on their personal story and character, rather than on the specifics of the business they run. This can work in interviewees’ interest: they BENEFIT from being candid/controversial/self-deprecating to counter popular perceptions of business leaders as cold and calculating and give wise-older-person guidance to the mostly young professionals who seem to populate the audience.

Now in Pandit’s case, the setup for personal storytelling seems ideal–his unpopularity is stunning, there are tons of young confused would-be financiers in New York hungry for advice, and he’s got a great narrative: an Indian immigrant running an American giant at a time when India is on the rise.

But instead, Pandit flat-out refused to answer questions about himself as a person, almost as though he didn’t understand that it was to answer those questions that he was there. Even Adler seemed flummoxed–I’ve never seen him or anyone actually admit mid-interview that the chat wasn’t going to plan. It didn’t diminish my already considerable esteem for him as a reporter: after all, the questions he asked were much tougher than the drivel Charlie Rose put to Pandit in the fall. Indeed, it somewhat comforted me as a young reporter that even veteran aces get phased sometime by their sources.

Here’s the thing: Pandit had a few decent and interesting things to say about Citi itself, successfully avoiding the ugly truth about the company without outright lying. That made me think he was operating in the persona required of him at a CEO conference call, where hedging is key and ‘no comment’ is sometimes appropriate. He seemed to simply not understand that what this event called for was precisely the opposite. Is that Pandit’s stupidity, or a massive PR fail at Citigroup where someone forgot to brief the boss about what to do? (I’ve seen this problem before–there are many executives who seem not to understand how much they benefit from taking a side, even if its risky, in their answers to questions, and how much more cynical and hostile press coverage gets when they try to please.)

Watch the video and let me know what you think. It’s about an hour long, so if you’re rushed, these are some highlights (not verbatim, I don’t type that fast):

Q: Sheila Bair—isn’t that kind of a bad enemy to have? The FDIC?

A: I’m not gonna comment on any regulator. [Maha: What a terrible way to start out the dialogue.]

After getting all that TARP money to stimulate lending, are you lending?

We’ve now loaned beyond the TARP money and beyond that, and beyond what we’d normally been lending. [You mean you’re making riskier loans than you would make without government pressure to start lending? I’m not sure I like that…] In fact, if there’s not enough credit in the market, it’s because the ‘shadow banks’ can’t get enough money from the bond market, which they use to make loans.

I interviewed Obama and he was talking about regulatory reform and seemed frankly quite annoyed with the banks. His speech was not received very well on Wall Street—what was your opinion?

It’s exactly the right principles. We need capital standards that are not pro-cyclical, measures for liquidity, we need to regulate the shadow banks, we need a level global standard. There is going to be a change on Wall Street; there is change at Citi. We’ve gone from a very balance sheet-heavy, risk-oriented business to a client business. That means we’re gonna be 40% smaller. We want to go back to the old partnership structure on Wall Street—that’s probably the last time when compensation was designed in such a way that you really had skin in the game. You can’t go (exactly) back to that structure, but you can think about long term approaches, claw backs, other things.

So the Consumer Protection Agency, you’re okay with that? [Most execs oppose]

I’m okay with that except that I don’t know what it is yet. In the Great Depression, you needed investor protection and you got the SEC. So now we need consumer protection. That’s a good thing, to make sure that banks do right by their clients, but you have to balance that with the fact that these are also businesses [and businesses can’t profit by doing right by their clients?]

We have a piece in BW proposing a global regulator. What’s your thinking about that?

Well, let’s stick with the US for the second. [Blatant cop-out]

But isn’t it all connected? You have an extraordinarily global business, how can a US regulator govern that?

But that isn’t the case. We have business in 109 countries, and so we have 109 regulators. That doesn’t get at systemic issues, and that’s why the Fed is our primary regulator, making sure that we’re a systemically sound company. Moreover, the Fed works with the other central banks, and we’ve never seen coordination as good as we’ve seen during this crisis. And that’s clearly true on the central bank level, that the facilities and tools to handle the liquidity crisis were done together. Practically speaking, I don’t know how you would get all these countries to sign up to one regulator, and I’m not sure you need it as much as you need the same types of rules, the same types of capital requirements, same types of accounting standards. [Okay, but what about a body akin to the WTO to ensure that the principles are common?]

You’ve been on the record saying you have to compensate people enough to get the best talent, but there’s been a lot of public outrage, especially about Andrew Hall.

The principal issue for me is that you want a structure that drives them to take the right kind of risk, to make sure that they’re aligned with the interest of the shareholders and bondholders.

Since you have such a consumer business, and since you’re heavily funded by the taxpayer, even if you’re doing all that alignment, aren’t there some sums that are just too much? Take 100 million dollars—is that too much for someone to make?

Yes

But if you have a contractual commitment, that creates a different issue for you?

In that particular case, that’s one of the legacy businesses, and we’re transferring it and moving it on. [Translation: Well, in that case, he wasn’t 100 million dollar talent]

Bernanke suggested we’re done with the recession. What’s your sense of that, and what kind of recovery will we get and what will the future look like?

Well, you really have to disaggregate the world. Look at Latin America and there’s something real going on there. The same is true

in India, some SE Asian countries. China’s government is going to do ANYTHING to ensure they have a good growth rate, so they will do well. Russia is benefitting from the fact that China is doing well and it needs energy . Thing I’m trying to get at is that there’s a picture in the emerging markets that suggests a good recovery, a sustained recovery. In the US, we like what we’re seeing: stability. But we’ve got to realize that this recovery is happening against the backdrop of some imbalances in the economy, and because the basic structural imbalances are so strong, the Chairman is probably right that it won’t feel like a recovery. [This is correct–the US will have the slowest climb.]

You grew up in India. Tell me about what that was like, where you grew up, what your parents did…

I had a good childhood. [No one suggested otherwise–what’s he hiding?] I grew up in a wonderful home with a very supportive family.

[Adler pauses. Must be thinking ‘That’s it?’] What did your father do?

He worked for a pharmaceutical company in India. I came to Columbia when I was 16. Don’t you want to talk about that?

Well, I find it interesting that you’re the CEO of Citi and you grew up in India. What did you think you were gonna do at that time? What did you want to be?

Well I have a 16 year old son now and he doesn’t know.

I can see now why I’ve found nothing in writing about this, because you clearly don’t want to answer. [Getting annoyed] I think this requires further explanation, why you’re so…

It may, but let’s just talk about the economy. [Epic PR Fail. People gasping in the audience.]

You spent a long time at Morgan Stanley, were very successful there, and were regarded by many people to be the heir apparent, but then there were a series of power struggles, disputes in the company that involved the CEO Phil Purcell and in that you were perceived at the opposition and were ousted and were no longer there. Do you have any reflections on that, about office politics, about organizations, what did you come away with? Or do you disagree with my description? [Gotta love Adler–pulls no punches]

I’m not gonna agree with it. But I can say I really enjoyed my time there, but you come to a point where its really about where you can go from here and a lot of that was about the strategic direction of the business and as I looked at where things were going, it became clear that it’d be better for all of us if I wasn’t there. It wasn’t an easy decision for me, or for the company, but I’ve had a great time since then and I was just greatful to have a platform where I learned a lot.

Very diplomatic. [Yes, but given that Purcell himself left under less than auspicious circumstances, that books have disclosed most of the dirt already, there was no risk to being more candid and a lot to gain.]

You became CEO of Citi only 10 months after joining Citi and you joined Citi because you had started a hedge fund that was bought by Citi. Did you anticipate when that deal happened that it would be so sudden or was this unexpected? [Many people think the hedge fund acquisition was a ruse for getting Pandit the CEO job]

Nothing was expected. In fact, we sold the company because we thought it would benefit from the distribution that Citi had and we were looking forward to working on that. And that’s why the whole team came with me. [Doubtful, since the hedge fund wasn’t doing very well when acquired.]

You replaced Chuck Prince, and he had replaced Sandy Weill. Sandy has been very critical of Chuck’s tenure and said that one thing he (Sandy) was really bad at was CEO succession. Do you any thoughts on how Citi had been managed prior to your tenure?

Well, everyone made great contributions. You go back to John Reed, he really created the consumer bank. Sandy brought in great emerging markets acquisitions. And Chuck did a great job turning a collection of acquisitions into an operating company. Where we went wrong, was we overstayed some businesses for too long, we overstayed some people for too long and we acquired too many consumer assets at the top of the market. When I got there, I found a management team that was not what you wanted. [Um…those seem like some pretty big failures–tell me how that fits into everyone’s great contributions?] But we’ve turned that around. [Tell that to Sheila Bair]

But you’re clearly turning away from a financial supermarket model that Sandy built and back to a traditional banking model?

Well it’s about looking at your DNA and seeing what you’re actually good at. And what we have is that we knit the world together. I talk to the CEO of Pepsi and she says you know we couldn’t live without Citi because we’re in so many countries. And I hear the same thing from Muhtar Kent who is the CEO of Coca-Cola and I often say to our people it doesn’t matter if you like Coke or Pepsi. It’s still Citi inside. [Note that the CEO he doesn’t name check is the Indian one–what’s his tick about highlighting his Indian roots?] And you look at that and say what are the individual small entities that make that possible and ironically that’s not all old or new Citi. It’s the investment and corporate bank, it’s the cash management services and it’s retail commercial management. But when you put it together, it does look like were returning to our roots as a traditional bank.

Is there an emerging market you’re excited about that no one talks about?

Well, they’re actually so interconnected. Take Brazil, it needs commodity prices to be high, which depends on other countries. So the bigger question that really interests me is this long term question of, if there’s so much growth in emerging markets, and given the demand for resources that that implies, how can Africa be so behind? Is that economically possible? If you really believe in an emerging market story you are going to believe in a development cycle for Africa. And you’re seeing it—in South Africa and elsewhere, the Brazilians and Chinese are investing there and there’s something going on. That’s something that will be great for everybody. [I agree with this, and have been following this game myself]

On structured finance—will it ever return to 2005 levels?

Think about how securitizations work: you took a pool of assets, and created tranches of securities from Triple A to equity. And there were a lot of things in that pool that people did not understand. And the way people got comfortable with it was to rely on the ratings agencies to tell them it was triple A. [And it wasn’t] Now suppose you can’t rely on the ratings agencies [because they blew our trust]: are you gonna be able to do the work to understand if it’s a triple-A or not. So the volume of activity that can be sustained by investors doing their own work is far smaller than the amount that can be sustained by their relying on the ratings agencies to tell you it’s a good security. How does this market result in any size? And that’s at the heart of the shadow banking which is why you’re not seeing credit flowing there.

On commercial real estate:

We found every pothole along the way but I don’t think we stepped into this one.

What should bankers have learned from this crisis and have they?

The issue is a fundamental one about market structure and economic principles—what is it about the markets that did not allow us to see it coming? It’s really in this area of behavioral finance, the fact that not every part of the market are always rational are something we’ll have to deal with now. [I know where he thought of that]

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