Spero Consulting

Archive for November 29th, 2008

The Curi­ous Case of Robert Rubin

The week­end edi­tion of The Wall Street Jour­nal has a front page inter­view with Robert Rubin: Rubin, Under Fire, Defends His Role at Citi.

We’ve crit­i­cized Citi’s board in the (recent) past, and we’re still par­tic­u­larly fix­ated on the fact that few direc­tors had finan­cial indus­try expe­ri­ence. That seems nei­ther wise nor even pru­dent for a finan­cial insti­tu­tion with over $3,000,000,000,000 of assets. (That’s $3 tril­lion, but we like to write it out for effect, because it seems like a lot of money.)

As the arti­cle men­tions, Mr. Rubin was “the only board mem­ber with expe­ri­ence as a trader or risk manager.”

Since 1999, Mr. Rubin has made about $119 mil­lion from Cit­i­group while hav­ing no oper­at­ing respon­si­bil­i­ties. We have absolutely no prob­lem with that, and, in fact, are look­ing for sim­i­lar “work” our­selves. (Inter­ested par­ties may use our con­tact form.)

Where we do have a prob­lem is his insis­tence that none of Citi’s prob­lems is his respon­si­bil­ity. As the inside head­line reads: “Rubin Blames Citigroup’s Woes on the Broader Finan­cial Cri­sis.” He almost seems to imply that Cit­i­group is a hap­less, unwit­ting vic­tim of some­thing big­ger than itself – some­thing it couldn’t be expected to con­sider, man­age, of fathom: “Nobody was pre­pared for this…”

In that case, exactly what type of stew­ard­ship, guid­ance, and pro­fun­di­ties did he provide? 

Sup­pose it is true that Citi and its board were fault­less. Shouldn’t they have been able to con­sider how they might be dam­aged by a gen­eral down­turn or a finan­cial cri­sis that was no fault of its (their) own. Thus, our lit­tle proof-​by-​contradiction shows the silli­ness of the argument.

More­over, we doubt that even the gullible buys the story that Citi was sim­ple a vic­tim of exoge­nous fac­tors, which were unpre­dictable and beyond its control.

There is a cri­sis of con­fi­dence, but that cri­sis erupted and sur­vives because mar­kets and investors real­ized the large finan­cial insti­tu­tions, includ­ing Citigroup, were far less com­pe­tent invest­ing and trad­ing than they pre­vi­ously believed, i.e., that in ret­ro­spect, pre­vi­ous reported prof­its were unreal and unsustainable.

Citigroup’s share price of $8.29, which is about dou­ble where it was last week­end, has lost about 85% of its value in two years. (In the first three years of the Great Depres­sion – 1929 — 1932 – the Dow Jones Indus­trial Aver­age lost the same per­cent­age with­out a back­stop by gov­ern­ment.) That is an indict­ment against Citigroup’s way of doing busi­ness far beyond the gen­eral con­dem­na­tion of the finan­cial ser­vices indus­try in gen­eral and with all of the sub­si­dies pro­vided by tax pay­ers through the var­i­ous recent gov­ern­ment guar­an­tees and bailout measures. 

Clearly, investors find fault with Citi’s strate­gic and oper­at­ing deci­sions. So, if Mr. Rubin wasn’t mak­ing oper­at­ing deci­sions, what type was he mak­ing? If they weren’t strate­gic, what remains? As other crit­ics note, Mr. Rubin is “try­ing to have it both ways.”

Of course, his pos­tur­ing is silly, as it was he, him­self, who pushed senior man­age­ment to bear more risk in 2004 — 2005. If that’s not a strate­gic, board-level, decision, what is? From our read­ing, it seems that he may now be try­ing to blame a con­sul­tant for sug­gest­ing the board instruct man­agers to take addi­tional risk.

He also blames senior man­age­ment for not exe­cut­ing the strate­gic plans prop­erly and risk man­age­ment for, well, weak risk management. 

“I wouldn’t run a finan­cial insti­tu­tion based upon someone’s view about what mar­kets would do.”

Of course, as the arti­cle explains that is exactly what he did in 2004 — 2005. (We wouldn’t doubt that he did it at other times, too, but don’t have the time or energy to search for quotes or sto­ries.) Well, he didn’t do it based upon some­one else’s view; instead, Citi’s strat­egy seemed to be based upon his own views. (We could well imag­ine board­room dis­cus­sions where inex­pe­ri­enced direc­tors imme­di­ately defer to the for­mer Trea­sury Sec­re­tary and Gold­man Sachs Co-​Chair.

Now, Mr. Rubin should know that devel­op­ing and acknowl­edg­ing such a world-​view is exactly how finan­cial insti­tu­tions are run, whether that view is explic­itly stated or not. (If it is not explicit, then not pro­vid­ing such a view and or con­sid­er­ing its impli­ca­tions seems neg­li­gent at worst and imma­ture at best, ergo, our title.) What else could strate­gic and oper­at­ing plans be based upon? How else could risks be mea­sured, uncer­tain­ties be con­sid­ered, and con­tin­gen­cies be planned? Or are those con­sid­er­a­tions too much like work? If so, it is not dif­fi­cult to see why Citi is where it is at this Novem­ber, and that is com­pletely con­sis­tent with both a spe­cific and the more gen­eral cri­sis in confidence.

As we see it, Mr. Rubin is seventy-​years-​old. He should grow-​up and accept the respon­si­bil­i­ties that come with his posi­tion and rewards, and stop behav­ing like a petu­lant teenager.