A Question For Citigroup’s Board

Thinking about the impending appearances of Chuck Prince and Robert Rubin in front of the Financial Crisis Inquiry Commission, Andrew Ross Sorokin of The Times posed a harsh question:  “As a thank-you present for running the bank into the ground, the board gave Mr. Prince a parting gift valued at $12.5 million…. Mr. Rubin and Citigroup’s other directors decided to pay the $12.5 million bonus knowing very well that Citigroup’s market value had dropped by $64 billion during Mr. Prince’s tenure.

“So the simple question for Mr. Rubin and Mr. Prince is, Why?”  (See, “Now to Explain the Party Favors.”)

The question reads like a lawyer’s rhetorical ploy, designed to convict with sarcasm rather than really inquire into the underlying motives.   But, seriously, there is a question here, and do doubt there are answers, even if we have to dig for them.

Sorokin makes clear that the Board’s action was not a crime, so answering the question is not about collecting evidence so much as simply understanding the behavior.  Could it be a reward for a good-faith effort, if not an actual achievement?  Could it be a way of saying: “We don’t think you are to blame”?  Or, rather, could it be that not giving a bonus would have been considered a slap in the face, akin to an insult, and the Board did not want to humiliate Prince?

Or is it just a convention, something expected, like a Holiday gift to the doorman or one’s barber?  Wall Street bonuses, like salaries, have acquired a symbolic status, and it would have to be a sizeable tip not to be embarrassing to the giver or the receiver.  On the other hand, conceivably, it wasn’t a bonus at all, as it seemed, but part of the compensation plan negotiated in advance, what has become known as a “golden parachute.”

My guess is that it was business as usual, something the Board took for granted.  If so, it reflected their sense that the assets of the organization were theirs to dispose of in accordance with traditional practice. They probably felt that they didn’t have to justify such matters.

Such underlying beliefs reflect a sense of proprietorship.  Technically and legally speaking, they are surrogates for the stockholders, accountable to them.  But I doubt they feel that way – certainly in the absence of any significant shareholder action to hold Boards accountable for their actions.  To all effects, they became the owners.

In other words, I suspect, the Board never asked the question of what the bonus was for – or even thought it.  It didn’t need to be asked because there was no question about it worth thinking – except perhaps the final figure arrived at, and that was probably suggested by a subcommittee if not a consultant to HR.

The Board probably rubber-stamped the amount, as it rubber-stamped the entire procedure.