Former Chairman, Citigroup It is vital for banks to acknowledge that they carry a share of the blame for recent events, says the former Citigroup Chairman, but it is not nearly as clear-cut as some commentators maintain.
The communications environment in which banks will wish to seek to restore their reputations – individually and collectively – has never been more difficult. On the one hand, we have a relentless, 24/7 global media, as part of which online “bloggers” pedal views and rumors that can be transmitted to mainstream audiences at the touch of a button. With 200m customers around the world, all of whom have friends and most of whom now have a new way of making themselves heard, that is especially challenging. Anything that a single disgruntled person says about a business can quickly gain wide currency.
Another communications issue is that financial journalism, having moved from its own sections to the front pages of many newspapers, has grown more voyeuristic. It is no longer merely about which companies are doing well and which ones are doing badly: it is about company A’s chief executive going through a divorce or some other aspect of his private life invaded. Quite apart from the personal pain this inflicts, it can be damaging to an industry’s broader image. What is being said may be a temporary consequence of the low regard in which financial businesses are currently held, or it may be a more permanent feature of the landscape. Let us hope it is the former rather than the latter.
The events of last year unfolded with a breathtaking speed that no one fully foresaw. Had you asked me at the beginning of 2008 whether we would enter 2009 with the US Government potentially owning 10 per cent of our business, and with 75,000 fewer employees than 12 months previously, I would have been skeptical as would most others. We knew the possibility (though not the probability) existed that there would be further losses to come, but our senior management team felt, as did the industry, it had a good handle on the situation.
It is vital for banks to acknowledge that they carry a share of the blame for recent events – but it is not nearly as clear-cut as some commentators maintain. It would be different if the rest of the world really had known what was going to happen, or if bankers had hidden their heads in the sand. It is important that executives do admit to some responsibility – and some are. A number of individuals, myself included, feel remorse and have publicly said so. Others are losing their jobs as part of management reorganizations.
Trust will be further restored when the issue of bonuses is fully addressed – but you are already seeing a healthy reaction from the banks themselves in this regard. A lot of people have not received any sort of bonus for 2008 – and others had them much reduced. In normal times that would naturally be difficult for individual institutions: the main consequence of paying people less, after all, is that your competitors rush in and hire them. These times are very different: what we are seeing now is a sea change in compensation practice across the whole sector in response to media pressures, public opinion and (above all) the market place. Ultimately, it is the shareholders who will insist on redressing the imbalance.
In the search for new models, banks will try to develop a compensation system that is less asymmetric than in the past. Profits increased over the years, but so did the risks – and that wasn’t always factored in as people walked away with rewards for transacting business that subsequently proved to be loss making.