Holding Citigroup accountable
Since the financial crisis, Citigroup and other banks have been hardwired for greater safety but not for governance.
There's still a governance gap, or a difference between the interests of shareholders and the actions of management. Closing the governance gap involves a greater link of strategy with execution and incentives.
More involvement at annual meetings can help. These provide transparency in literally the only forum where investors hold boards publicly accountable for answers to their questions. I'm not talking about check-the-box regulatory and public relations concerns versus matters that are most important to the long-term performance of stock prices.
Citigroup has made progress over the last few years but its upside could be even greater if it were to further narrow its governance gap. For my part, I plan to attend Citigroup's annual meeting on April 25th in the East Village of New York City. Below are 10 questions that I intend to ask to the Chairman Michael O'Neill and CEO Michael Corbat.
Proposal 1: Election of Directors - Chairman Michael O'Neill
1) NEW CHAIRMAN: How much longer do you plan to remain in your position (you are two years away from mandatory retirement at age 72), how will you define success, and how will you choose a successor? (another bank CEO?)
2) CHAIRMAN AND CEO POSITION SEPARATION: Will you advocate for another independent Chair or would it be possible to give both titles to the CEO? Is there ever a good time to give both titles to one person?
3) NEW DIRECTORS: Citi's board of directors has had complete turnover since 2009. What board member qualifications do you prioritize? Does Citi have enough non-US board representation given its global strategy?
Proposal 3: Executive Compensation - Chairman Michael O'Neill
4) PEER GROUP: Why is Citi the only large US bank to use different peer groups for compensation and financial comparisons? For financial comparisons, Citi includes Barclays, Deutsche Bank, and HSBC, which rank last in the peer group for each ROE, ROA, efficiency and net income. Yet, these underperformers are excluded for the comp peer group.
5) PAY-TO-PERFORMANCE LINK: Since Citi missed its 2016 targets and the "grades" on the report cards show that 36 of 42 marks were at least slightly below what was required, why not pay down less based on recent sub-par performance and pay a lot more if and when targets are reached?
6) SUBJECTIVE RATINGS: For the CEO and all other executive management, the non-financial scores (30% of the weightings for evaluation) are always higher than for the financial ratings. How do you justify these high ratings?
Proposal 6: proposal to review a break-up - Chairman Michael O'Neill and/or CEO Michael Corbat
This proposal requests to have an independent committee review the merits of divesting non-banking activities.
7) STRATEGY: The annual report says that "Our confidence is rooted in a deep conviction that at Citi, we have the right model, the right strategy, the right customers and clients, and the right people in the right places to meet our updated targets." Yet, how is this the case given missed 2016 targets, worst-in-class ROTCE and ROA (vs US peers), and an ROTCE target set in 2013 that was revised to get met four years later (2019 vs 2015)?
8) RESTRUCTURING: Is the problem with Citigroup structural or managerial? If structural, why not pursue a Restructuring 2.0? If managerial, how do you adjust? In either case, how can the CEO letter say so definitely that "Our restructuring is over?"
9) GLOBAL CONSUMER: How can you be satisfied with the performance of Global Consumer given growth and returns below US peers? How much longer will it take for long-term investments to pay off? What is special about an approach that targets the US, Mexico, and Asia? Under what circumstances would you sell Mexico, or at least make that model look more like the rest of Citi?
10) STOCK VALUATION: Why wouldn't the worst-in-class stock valuation (below tangible book value) imply a need to change course? Isn't the stock market saying that some combination of targets, strategy, and execution are wrong? If not, where is the stock market wrong about Citi's prospects?