Are you spending more of your time on that dialogue?
Yes. Four years ago, we might have spent five minutes on accounting-policy issues once a month. Now, in my weekly staff meetings, we typically spend 15 to 20 minutes on such issues, plus special meetings. It’s been very demanding.
In the wake of a lot of negative publicity last year, Citigroup has made it a point to present itself as a leader in business practices and corporate governance. During your second-quarter earnings call, Sanford Weill said, “We got the message on reputational risk.” What exactly was the message you got?
he message is that the world has changed. We’ve changed from a period of excess, from a period of glorifying IPOs without profits and dot-comers who went to work and then six months later became multimillionaires on paper. Complicated off-balance-sheet structures were considered clever, and people were lauded for creating complicated structures and attempting to evade things. [Even] your magazine was part of that.
I think the message we got was that it’s time to get back to integrity and good disclosure and good corporate governance. And frankly, I think everybody feels better about that. At Citigroup, we feel we should help lead that process. We should lead by example, because we have some influence on how the rest of the business community acts.
We’ve tried to work hard regarding instituting a number of reforms in how we operate the business, what we do and don’t do with our customers, and how we handle corporate governance at Citigroup itself. We’ve done everything from eliminating cross-board seats to expensing stock options, establishing business-practices committees within each of our businesses, and putting in the reforms you saw in the corporate investment bank. Everything from separating research from investment banking to establishing the net-effect rule about which structured financings we are willing—or not willing—to do with customers.
Of all the firms involved in the global settlement, it’s safe to say Citigroup made the most public statements of contrition—within the obvious bounds of what could be said given the litigation that is still pending. Yet Citigroup also wound up paying the largest fine. Is it possible that publicizing your internal reform efforts actually cost you more, or made you more of a target for regulators?
In hindsight, some of the industry practices around research, around IPO allocations, around structured products were inappropriate. They seemed appropriate at the time. If I can talk about structured products, bankers viewed their job as structuring things subject to accounting firms and law firms signing off on their accounting and legal appropriateness.
We decided we’d have to take some responsibility for how and why our clients do things, and how they disclose them. I don’t know whether that sets us up to be more of a target or less of a target with the regulators.