I was surprised earlier this month at the sympathetic tone of Robin Pogrebin’s article about ex-Citigroup CEO Sandy Weill’s philanthropic activities, in the November 7 New York Times. On the one hand, Weill’s philanthropy is impressive: the Times reports he and his wife have given away around $1 billion so far over their lifetimes, to worthy projects ranging from the Weill Cornell Medical College, to the Weill Music Institute at Carnegie Hall, to the Weill Bugando University College of Health Sciences in Tanzania. Well done, Sandy! But on the other hand, Pogrebin gives scant reflection on where that $1 billion came from in the first place. (By coincidence, Citi apparently paid Weill $1 billion, all in, in the decade prior to his retirement.) Weill’s fortune came about, of course, as a result of Citigroup’s earnings-much of which, we now know (thank you subprime mortgage lending!), were illusory during the time Weill approached retirement in 2006. And a good deal of the blame for why Citi ran off the rails can be laid at the desk of the fellow who created the company. Which is to say, Sandy Weill.
I worked for Weill for a time at Smith Barney, and admired him. But I suspect (as do others) that as his career progressed he got a little too far out over his skis. His ultimate creation, Citigroup, ended up being a vast complex of disparate, cobbled-together businesses that were never properly integrated and became impossible to coherently manage as a whole. IT spending was chronically short. In some units, compliance turned out to be spotty. I suspect that, in the end, Citi got undone by subprime lending the way it did simply because there was no mechanism in place to prevent that from happening. Regardless, by the time Weill left Citigroup, we now know, the company was a doomed enterprise.
And yet he gets to keep the $1 billion? Let the liberal New York Times, if it likes, write fawning profiles of local benefactors. But for all the business-bashing it engages in, the Times might also find resources for an article (in which Sandy Weill would be exhibit A) on why executive compensation clawback provisions, especially in financial services, are a good idea. There’s not much positive I have to say about the Dodd-Frank bill, but its clawback mandate is definitely a idea whose time has come. The 2008 financial panic was a complicated event, but I don’t think it’s too much to say that if comp clawbacks had been around in the early- and mid-2000s, the panic wouldn’t have been as severe as it was and might not have happened at all. Clawbacks certainly would have made the ensuing taxpayer bailouts a whole lot easier to take.
It’s ironic, too (and a little offensive), that as figures like Sandy Weill end up getting lauding profiles written about them, the executives who actually had the wisdom back then to not put their institutions at risk, people like JPMorgan Chase’s Jamie Dimon and Wells Fargo’s John Stumpf, find themselves vilified regularly. Weill made money for his shareholders when everyone made money for his shareholders, but left his company a ticking time bomb. Want evidence? As you read this, the S&P 500 is hitting all-time highs. Wells Fargo and JPMorgan Chase, similarly, are at or near all-time highs. Meanwhile, Citigroup, two bailouts later, is still 90% below the peak it set way back in 2000. Thanks, Sandy! But at least Sonoma State College has a new recital hall.
What do you think? Let me know!