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CitiGroup Ethics

Summary/ Recommendation

Most organizations of today have accepted the relevance of ethical standards in governing their activities.

In the development of an organization’s purpose, such standards must be examined as they reside at the heart of strategic management

Why Ethics?

CitiGroup Ethical Policy

CitiGroup Ethic Practice: Bad Publicity

  • CitiGroup, has good corporate governance policy: However the practices seem to differ :
  • Recommendation:
  • We recommend that CitiGroup should decentralise the monitoring. Smaller units should be created in each subdivision, to monitor performance, audit financial statement.
  • They should focus on developing a competent back office.
  • They should carry out risk evaluation before embarking on CSR.
  • Continous training of staff to improve ethical culture

This has been plainly stated by Citi group in their principles statement: “Responsible finance: Conduct that is transparent, prudent, and dependable.”

The four main reasons for an organization to give attention to ethics are: Legal, importance to society, part of the professionalism of a business, and for the self-interest of the organization.

The bottom line of ethics is the fact that it must be embedded as part of the organization’s purpose, not just as an extra proposition

Citi Group’s reality has been involved in a number of issues with ethical concern.

  • Former Chief executive Sanford Weill, who had an aggressive style, driving ethics to the back seat, and promoting the culture of “greed is good”.
  • Paying almost US$5 billion to cover legal actions arising from its relationship with the bankrupt telecoms company Worldcom.
  • Paying US$75 million to settle a suit over its role in the collapse of the telecom network provider Global crossing.
  • The company was forced to shut down its Japanese branch after repeatedly breaking local rules

CitiGroup: Ethics

Ethics: CitiGroup

  • Possibly with the resignation of Prince in 2007, a more recent report highlights some unethical actions the bank has been partaking in. These include:
  • Practices to rip-off costumers:
  • Overdraft fee abuse.
  • Abusive practices involving credit cards: inappropriate marketing to students, which usually includes a reward to be given to students for applying for them. All these “benefits” of course, before financial crisis hit.
  • Citigroup also has very questionable accounting practices, with a lot of off-the-books accounting. They have also had to pay millions due to “close-fraud complaints” relating to mortgage investments.
  • As Prof. Charles Elson Weinburg Centre for Corporate Governance at the University of Delaware said in reaction to Prince’s ethical scheme, “Ethics is something you learn as a child; teaching it doesn’t make you an ethical person. To teach ethics to make people ethical, that’s a bit strained.”
  • With a change of governance, from Weill to Charles Prince, more ethical standards were placed in an effort to change mindsets from focusing on short term profit to long-term reputation.
  • Prince’s five point plan included ethics hotlines to be set up for employees, together with continuous reviews, training and compensations, to embed ethics of the highest standards into the organization
  • “2004 was not a good year for us. There are places where we have done some things we should not have done. We need to make things right and express our regret. We need to move on and make sure we are learning from it.” Sallie Krawcheck (Citigroup)

Introduction

Citigroup: Corporate governance, CSR and business ethics

Citigroup started as one of the largest financial services groups in the world (Citigroup, 2013). Citigroup’s original corporate forerunner was established in 1988 under the law of the state of Delaware. In 1998 Citigroup merged with Travelers group and Citicorp plc to formulate a financial service model to fulfil its customer’s financial obligations (Lynch, 2012,Citigroup, 2012).

Financial Postion of CitiGroup

2011: $10.6 (First profit since the financial crisis 2007)

2008:Citi Group p Goverment loan of $45 issued )

2007:Fiancial loss due to enonmic crisis

2004: $86.2

2003: $77.40

2002: $71.30

2001: $67.40

2000: $63:60

**The figures are represented in terms of Billions**

CSR

Citigroup growth in revenue and income (Lynch, 2012).

Corporate Governance

Citi's Mission: Enabling Progress

Citi's Core Values include:

Common Purpose: One team, with one goal: serving our clients and stakeholders.

Responsible Finance: Conduct that is transparent, prudent and dependable.

Ingenuity: Enhancing our clients' lives through innovation that harnesses the breadth and depth of our information, global network and world-class products.

Leadership: Talented people with the best training who thrive in a diverse meritocracy that demands excellence initiative and courage.

Positive CSR

CitiGroup Positive CSR

CitiGroup Negative CSR

The Economic Co-operation and Development (OECD) defines corporate governance as:

“Corporate governance is the system by which business corporations are directed and controlled. The corporate governance structure specifies the distribution of rights and responsibilities among different participants in the corporation, such as the board, managers, shareholders and other stakeholders, and spells out the rules and procedures for making decisions on corporate affairs.

Citi Foundation invested $76.5 million in programs that support the economic empowerment and financial inclusion of more than 1.1 million people globally.

Since 2006, Citibank employees have been regularly involved in a voluntary initiative called Citi global community day.

Over 150 employees took part in the latest GCD, they worked for 16 non-profit organizations and contributed CZK 800,000 ($39,692) to the community in Czech Republic.

Citi Foundation supports economic empowerment and financial inclusion of low-to-moderate income people for individuals communities where they operate. Their core focus areas include:

Enterprise development

Disaster response

Microfinance

Youth Education and livelihood (outside the US)

College success (in the US)

Financial capability and asset building

In 2000, Citigroup was the largest financier of oil pipeline and industry and also the 2nd largest funder of mining, Forest and paper products.

In 2001, they were the largest financier of the coal industry and fossil fuel industry

In 2002, Citigroup was involved in financing environmental destructive projects around the world such as Peru’s camisea natural gas project and Ecuador's controversial OCP oil pipeline

CSR

  • Lead and founding partner of the financial inclusion 2020 project.
  • Citi and Kraft provided nearly $500,000 in donation to power causeworld's launch
  • In 2011, CEO Vikran Pandit announced Citi"s disaster relief in Japan, which include $2.4million in aid efforts from Citi and Citi Foundation
  • Citi sponsored New York City bike sharing program- Citibike

Some Corporate Governance overview

Why Corporate Governance?

Overview of CitiGroup's CG Structure

How CEO influence Governance of Citigroup

  • “A FORMER CITIGROUP INC. EXECUTIVE WAS ARRESTED ON ALLEGATIONS HE EMBEZZLED MORE THAN $19 MILLION, 2010
  • CITIGroup Response:

In a brief statement, Citigroup said it was “outraged” and that it’s cooperating fully to ensure Foster is prosecuted.

  • Share holders voted against increment in Executive Director Salary.
  • CitiGroup involved in FINANCIAL STATEMENTS Fraud (Eron Scanadal)
  • The irony in the aftermath is how a good percentage of the prior board who oversaw this failing is still there--even the chairman.
  • CEO Vikram Pandit Suddden Resegination

Good corporate governance:

- Reduces market vulnerability to financial crises,

- Reduces transaction costs and;

- The cost of capital, and leads to capital market development.

Weak corporate governance frameworks:

Reduce confidence, and can discourage outside investment.

-Could lead to potential loss

Board of Directors: Provide effective governance over the Company’s constituencies around the world.

Number and Selection of Board Members : The Board has the authority under the by-laws to set the number of Directors ranging from of 13 to 19.

Communications: Senior managers speak on behalf of the company

Evaluation of Board Performance • The Nomination,of a comittee to perform review

Director Independence: At least two-thirds of the members of the Board should be independent.

Interlocking Directorates: No inside Director or Executive Officer of Citigroup shall serve as a director of a company where a Citigroup outside Director is an Executive Officer.

Recoupment of Unearned Compensation and Other Recoupment Rights : CitiGroup will remedy any* misconduct by an executive officer

  • 1998-2003 Sanford Well:
  • He emphasized the need for managers to make deals and merger. He was profit aggressive and rewarded managers ability to bring profit.
  • Repercussion: Paid over $300 million on law suit
  • 2004-2007 Charles Prince:
  • He strengthened controls and corporate governance. But they made a loss of over $12 Billion.
  • 2007-2012 Vikran Pandit
  • He resigned after the failed FED stress testing

From a governance perspective, a sudden CEO resignation is distressing, a sign of instability, and clearly counter to any established succession planning process.

  • Cn March 15 2012 CitiGroup fails Red stress testing
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