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Citi Group

Restoring Ethics and Image Before Growth

CitiGroup

Introduction

A look at what Citi was about

  • One of the most profitable companies of the world in 2005

2nd company on the 2005 Fortune 500 list

  • 2005: Net income of USD 24 billion (US GDP: USD 13,000 billion)
  • Employees: USA (141,000 full time employees, 7000 part time employees, Outside USA (146,000 full time employees)

Business Segment:

Business Segment

The Transition - “Don’t screw (the legacy) up”

Transition

  • Biased research

  • Misleading research

  • Chinese firewall

  • Fiduciary duty to customers

  • Stock market manipulation

Key terms

Main Problems and Reasons

Problems

Scandals

Scandals

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

Problems

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

  • There was no risk-control system for mitigation of circumstances.
  • There seems to be no check & balance or monitoring of the procedures.

4. Failure of Senior Management

  • Citigroup’s managers failed to understand

the root of the situation

and lessons from the repeated massive scandals

that beset the company for four consecutive years.

Solutions and Recommendations

Solutions and

Recommendations

Solutions

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

Recommendations

What should Prince do?

  • Have authoritative and persuasive in his approach to implement Five Point Plan
  • Chief Administrative Officer must hire his own team
  • Monitor employees and managers
  • Administrative team should identify trouble areas
  • Introduce pilot programs

Effect of new plans on Citigroup’s investors

Short term effect: there won’t be any change

Long term effect: the organization can expect new investors to come in

Effects

Effect of organization’s size and complexity on the continued problems

Effect of organization’s size and complexity on the continued problems

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

Communications Strategy

Communication

Strategy

Internal

Stake Holders

Internal Stake Holders

Team leaders

Purpose: Senior leadership to embody organizational values.

Board of Directors and Senior Management

Message: Restoring good ethical practices.

• 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.

Medium: Meeting

Purpose: Initiative of employee recognition and recruitment program.

HR Executives

Message: Rewarding good ethical practices and bringing in new people

• 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.

Medium: Meeting

Purpose: Formation of Compliance/ Risk management and Ethical control committees.

Lewis and Business Heads

Message: Advantages of strengthened control

• 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

Medium: Meeting

Purpose: Restoring Ethical practices

All Employees

Message: Compliance to the new Code of Conduct

• 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

Medium: Newsletter

Purpose:

To discuss the five point plan

• 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

Message: Initiative take by CEO to restore ethical practices

Medium:

Town Hall Meeting

External

Stake Holders

External Stake Holders

Purpose: Discussion based on current and future company image

• Invite all the senior marketing managers and public relations executives.

• Discuss the new five-point plan implement it in the company image..

Marketing and Public Relations Dept

Message: Restoring the name of the company.

Medium: Meeting

Purpose:To outsource the ethical training.

Professional ethics training and consulting firms

Message:To Finalize all the details of the ethics training

• Discuss the professional and ethical training of the senior management .

. Decide on a training schedule for the staff incorporated .

Medium:

Press Release

Purpose: Inform about the new ethical direction of the company

Stock Holders

Message: Newer ethical direction and transparency

• Inform about the new company image by hiring of new people, ethical training and transparency policies.

Medium:

Mail

Purpose: Creation of new public image

Customers

• Introduce them to steps taken to improve ethical dealings and transparency in operations.

Message: New Ethics culture and transparency in practice

Medium:

Press Release

Conclusion

  • Maintaining a strong, prosecutable compliance work environment
  • Keep a close eye on Citi group’s various executives
  • Should not expect immediate results of ethical trainings, he should allocate time and resources to ethics implementation

Possibility of enforcing an ethics program in an organization

Possibility of enforcing an ethics program in an organization

  • Though difficult, it’s not impossible!
  • Communication barriers
  • Focus on the long term rather than short term goals and objectives
  • New recruitment into the organization can help continue with the program
  • One drawback — financial strain. It will require some budget to observe the program and make sure it is embedded within the system
  • A good option: Better pay can lure recruits over the ideals of ethics

Mitigating negative responses

  • Inform stakeholders about the implementation of the plans
  • Project the advantages of the plans by convincing the stakeholders
  • Project on the remedies to be followed in case of any unforeseen events

Questions?

Q&A

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