naked capitalism

This news item verges on funny.

Readers may have taken note of the fact that Citigroup was ordered by the FDIC to conduct a review of management. The floundering bank hired Egon Zehnder. The New York Times indicated that the resulting report was awfully favorable, given that the bank is one of the biggest messes in the international financial arena. If management is not to blame, then who is?

The management review, requested by federal regulators after months of turmoil, gave Citigroup’s senior executives good marks over all and took a satisfactory view of the leadership of Vikram S. Pandit, the chief executive, said the person and others with knowledge of the situation. Still, the report took a harsher stance on some of Mr. Pandit’s top deputies.

As we remarked yesterday, “Stress tests redux. If this is the conclusion, clearly there is something wrong with the scorecard.”
It’s pretty obvious what happened here. Egon Zehnder is a search firm. Search firms have recently gotten into the very curious business of doing senior management assessments in recent years. No one would deem it logical to engage a mergers and acquisitions banker to evaluate how well a business was performing, yet we have people with similarly narrow competence making broad judgments that are beyond their expertise, their claims to the contrary. But this shamanism is well accepted in boardrooms these days, since having outside parties vet decisions is yet another way to shed responsibility.

So how does this look from the Egon Zehnder end? Follow the money. Citi is a big meal ticket. The FDIC, who asked for this review, is in no way, shape, or form the client. The purpose of this exercise is to deliver a credible sounding report without annoying Citi so Zehnder can use this entree to deepen its relationship and win search mandates, or at least more management reviews.

The problem is that a report that would not ruffle Citi was unlikely to be seen as credible by anyone with an operating brain cell, including the FDIC. From today’s Wall Street Journal:

Some officials at the agency have expressed doubts about the rigor of the report, which was based partly on interviews of Citigroup executives who were asked to rate the effectiveness of their colleagues, these people said. While the findings still are being reviewed, the skeptical reaction could cause the FDIC to give the report little weight during the next regulatory assessment of the New York firm’s management….

The report awarded strong overall marks to Citigroup’s management team and to Chief Executive Vikram Pandit in particular….

The FDIC began sifting through the findings this week.

People familiar with the situation said the FDIC signed off on Citigroup’s selection of Egon Zehnder to conduct the management review….

Now, though, some FDIC officials are skeptical of the findings. One person close to the agency described the outside report as “a total whitewashing.” Some agency officials also are having second thoughts about the qualifications of Egon Zehnder, which largely runs executive searches for clients.