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A look at what Citi was about
2nd company on the 2005 Fortune 500 list
Business Segment:
1)Distributing Biased Research
2)False Rating
3)Deceptive Lending Practices
4)Helping Enron Corporation in Swindling
5)Spinning WorldCom Executives
6)Corruption in Banking in Japan
1) Distributing Biased Research
Research analysts were providing favorable coverage of companies
Research analyst were getting compensation out of each evaluation.
Spinning activities
Reforms:
Investment Banking executives were forbidden to talk to the client who was also in contact with the research analyst.
2) False Rating
Jack Grubman maintained his assigned Buy rating to WinStar even when WinStar
was on the eve of bankruptcy
Settlement Charges
SSB agreed to pay $5 million
.
3) Deceptive Lending Practices
Widespread deceptive and abusing lending practices
$215 million
4) Helping Enron Corporation in Swindling
The Securities and Exchange Commission initiated enforcement proceedings with
Citigroup for assisting Enron in producing misleading financial statements
$120 million
5) Spinning WorldCom Executives
SSB wrongfully provided favorable ratings on the company. Telecom analyst, Jack Grubman, provided the coverage.
6) Corruption in Banking in Japan Bank
Officials at Japan’s Financial Services Agency began investigating Citigroup
transactions linked to money laundering, as well as loans that were used to manipulate publicly traded stocks
Termination of Banking operations in Japan
Organizational Issues
1. Business Strategy/Mission Statement
2. Corporate Culture and Legacy
3. Operational Risk Management
4. Failure of Senior Management
1. Business Strategy/Mission Statement
• Through a series of big mergers and acquisitions, citigroup made itself turn into giant financial group.
Maximum revenue and rapid growth remained the
dominant business strategy of CitiGroup
Like CEO of the Company, ambition of the
Company was immense in terms of earning money
a lack of firm base of ethical code of conduct provide environment of corruption to thrive.
2. Corporate Culture and Legacy
Sandy Weil asked Charles Prince to keep up with the legacy he’s leaving behind
This careless behavior is depicted by Sandy Weil’s statement:
“I don’t think [Citigroup is] too big to manage or govern
at all . . . When you look at the results of what happened,
you have to say it was a great success.”
Sandy Weil did not give heed to training and development programs of employees
3. Operational Risk Management
4. Failure of Senior Management
the root of the situation
and lessons from the repeated massive scandals
that beset the company for four consecutive years.
1. Build a corporate level strategy
Create a culture of compliance
Compliance must align with company objective
2. A shift from aggressive risk-taking approach
Continue with risk activities that are within the ethical boundaries
Focus on customer satisfaction with legal compliance
3. Hire external consultants to implement change
Consultants should specialize in advising banks on Basle II compliance
New recruitments should take place
4. Test opinion among existing staff and potential recruits
Investors like Saudi Prince Alwaleed bin Talal backed Prince’s plan
Other stakeholders will be motivated to invest in a company that is set to avoid future scams and settle past scams
5. Implement a staggered bonus scheme for performance appraisals
Drives employee retention
Increases levels of loyalty and motivation
What should Prince do?
Short term effect: there won’t be any change
Long term effect: the organization can expect new investors to come in
Regulators fear that excessive penalties would increase systemic risk
A new set of rules will bring a change in their work culture and working style
People are resistant to changes in a work environment
• Invite all the BODs and senior management to a meeting.
• Discuss the 5 points ethics plan and ask for their input so that a mutually agreed code of conduct and mission statement can be designed tailored for all business needs and accepted by everyone.
• Send the signed hard copies of this code of conduct to every attendee of the meeting and get it attested from them.
• Discuss the idea of recognizing, encouraging and rewarding employees for practicing ethics
• Ask them to formulate a team designated for implementation of this program
• Also, direct them to start recruiting new employees
• Give them the task of designing an online portal with the help of Company’s web developers for receiving feedback from employees and for reporting any unethical activity observed at the workplace.
• Introduce the idea of compliance and ethical control committees along with their responsibilities.
• Employees found violating the code of conduct or reported via the portal will be investigated by Ethical control committee
• Circulate the newly designed mission statement and circulate the newly designed training schedule.
• Inform all the Executives of the company via email that the new code of conduct has been made the part of their KPIs and employees will be evaluated against it
• Slowly build up the confidence of the employees in the five way plan.
• Take feed back from diferent group leaders and employees refarding the five point plan and ethical culture of the company
• Invite all the senior marketing managers and public relations executives.
• Discuss the new five-point plan implement it in the company image..
• Discuss the professional and ethical training of the senior management .
. Decide on a training schedule for the staff incorporated .
• Inform about the new company image by hiring of new people, ethical training and transparency policies.
• Introduce them to steps taken to improve ethical dealings and transparency in operations.
Questions?