Business Blog: Hoover’s Business Insight Zone

Caveat: Floyd Norris is a crackerjack financial journalist, a doyen of the field, and he deserves a broad margin of benefit of the doubt when he talks about … well, pretty much whenever he opens his mouth to talk about business.

What I’m reacting to is this post from Norris’s NYT blog, which addresses the same Citigroup conference call we discussed last week:

Citi’s Woes

Citigroup’s conference call, which just ended, got a a little contentious.

Two analysts asked, in language only slightly more polite than this, “Why didn’t the board fire Chuck Prince? …

I’m not at all sure a new boss would help that much now. Citi has big problems because it has been aggressive in a lot of businesses that relied on the continuation of easy credit. …

Nothing a new boss could do will cure those problems. We’ll just have to wait and see how bad it gets.

The caveat above notwithstanding, here’s my take: No, no, no. There’s a level here where Norris is absolutely right, and another — I think more important — level where he’s certainly wrong.

Where he’s right: Citi is wound tightly into risk scenarios that you don’t just unwind overnight. It takes time to work these things off your books, as Norris ably explains elsewhere in his post. So, sure, a mythical new CEO, whether it’s Jamie Dimon or Lloyd Blankfein or the ghost of J. Pierpont Morgan himself, couldn’t just step in and unwind these positions.

But that’s hardly the commanding issue at stake here. Citigroup’s current issues, the ones that deserved being highlighted in last week’s earnings call, are about its strategic approach to credit and risk over the past few years. But the larger issue is whether the bank is headed in the right direction as a whole. Many sane observers answer that question with a clear “No.” And how do you change the overall direction a company is headed? Not, usually, by throwing up your hands and saying that changing the CEO wouldn’t make any difference.

Chuck Prince signed off on the strategy that has now come back to bite Citi in the backside. He appointed the leaders who executed against this strategy. He’s the one who has talked the talk but failed to walk the walk in terms of getting Citi back on track. It’s not like the bank is hemorraghing, but it’s hurting, especially when you consider how well peer institutions like JPMorgan and Goldman are weathering the credit storm. That is Prince’s fault, because he’s the CEO. The buck must stop with him. It comes with the territory.

Now, just because the buck must stop with Prince doesn’t mean that he must be canned for Citi’s current performance. But he is rightly subject to scrutiny on this question: Given what we know about Chuck Prince, is it likely that he can lead Citi in the right direction going forward? When the answer to that question is “No” — as many already believe it is — you remove him.

If nothing else, the sitting-on-hands approach demoralizes the Citifolk in the many layers below Prince, who look upstairs to see a boss who’s failing to deliver, yet continuing to hold his job and to be richly rewarded for it. It’s hard to insist on a culture of excellence when excellence isn’t demonstrated at the top of the ladder.

Oh, and at the technical level of what to do with Citi’s balance sheet, I also have no doubt in my mind that Jamie Dimon or Lloyd Blankfein or the ghost of J. Pierpont Morgan would do better than Prince at dealing with Citi’s woes. Prince has had long enough in the CEO suite to establish his level of performance — and it’s not nearly as high as Dimon’s or Blankfein’s. That being so, Citi could certainly do better than to stand pat with Prince at the helm.