Ethical Analysis of Citigroup

Comp either Assessment An Analysis of CitiGroup 1 Comp any(prenominal) Assessment An Analysis of CitiGroup Introduction With origins dating back to 1812, Citigroup (Citi) is a global diversified pecuniary function holding company providing both(prenominal)(prenominal) individuals and institutions with a broad range of fiscal products and services. These services include consumer banking and credence bodily and investment banking securities brokerage transaction services and wealth controlment.Headquartered in Manhattan, NY, Citi currently has all oer 260,000 employees servicing 200 million customer accounts in more than 160 countries around the globe. Citi is organized into two di slews Citicorp and Citi Holdings. Citicorp manages the consumer and institutional encumbrance client business, magical spell Citi Holdings manages the brokerage and asset management divisions. Based on pecuniary data obtained from the Citi website, the core st business (i. e. Citicorp), represent s 92. 9% of the $19. 4 gazillion ($US) of the 1 quarter 2012 revenue.The total revenues of Citicorp argon geographic every last(predicate)y diversified across the globe with North the States representing 40% of the total, Asia at 22%, Latin America at 20% and Europe, Middle East and Africa (EMEA) accounting for the be 18% (Citi Financials, 2012) Over its 200 year history, Citi has been a leading pi whizer in fiscal services starting in the 1920s by meet the first major U. S. bank to offer compound engagement on savings accounts. Also, through the acquisition of Second National Bank, Citi has the attribute of being the first bank in New York to succeed steal banking services for women.Further groundworks include offering unsecured personal loans and customer checking accounts in 1928 and 1936 respectively (Citi Time breed, 2012). Citis original representation of offering traditional banking services evolved as they grew, however, since the financial crisis of 2008, Citi ha s been selling off many of the non-core procedures to revolve around on the traditional banking model. The refocused mission as readd on the corporate website is We strive to constitute the best out finds for our clients and customers with financial solutions that argon simple, creative and responsible. (Citi, 2012) The purpose of this paper is to conduct a review and overall respectable opinion of Citi which will include an overview of the mission, vision and time values, ethics and respect edicts, attractership, corporate fond responsibility as tumesce as the corporate governance structure. cathexis, ken and Values Clicking on the Our Company link of the Citi website, you ar immediately skeletal to the bolded text stating the corporate vision 160 Countries. 1 Vision. Citi works inexhaustibly to provide consumers, corporations, governments and institutions with a broad range of financial products and services.We strive to create the best outcomes for our clients and customers with financial solutions that ar simple, creative and responsible. (Citi, 2012) It is unresolved that Citi has a vision that places them as the global bank focused on client service, innovation and financial responsibility. Expanding upon the vision statement is the mission statement of Citi and the principles that guide them. The Mission statement is Meeting the Worlds Challenges. Seizing its Greatest Opportunities (Citi Mission, 2012).The quaternary break principles that guide the company as they endeavor to deliver on their vision and mission are Common Purpose Ingenuity leading and Responsible Finance. Based on the stated vision, mission and principles, in my opinion, Citi post be described as a focused team, rewarded based on talent and merit, operating in an innovative culture with one clear goal to deliver transparent and prudent financial products globally. I interpret the written vision, mission and directional principles of Citi to be quite inspirin g.Ethics and Compliance regulations In too soon 2005, Charles Prince, then chief executive officer of Citi announced a bold dodging to transform the financial giant that was Citi. His plan, known as the Five raze Ethics Plan, was designed to improve estimable training focus on talent and development integrate ethics into performance appraisals and requital improve communications and strengthen honorable controls. (Restoring Ethics, 2012) As the successor of blond Weill, who, Johnson (2012) suggests typifies the respectablely neutral leader (p. 19), Prince faced considerable skepticism on whether his plan could work in such a large and daedal make-up that had a history of signifi plentyt regulatory scrutiny, and was linked to many of the biggest scandals in corporate history (e. g. Worldcom). trance Prince had some critics, he likewise had some support. In the January 28, 2005 edition of BusinessWeek Online, Prince was described as a smart, luculent thinker and an diff erent quote made by an analyst wasI believe that non-charismatic Prince is going to be a more positive legions at Citigroup than the other three charismatic CEOs going back to the 1960s. (Restoring Ethics, 2012) I believe he vision that Prince delivered after victorious over from Weill, continues to be embraced by the current Citi CEO, Vikram Pandit as well as the jump on of Directors. single of the key responsibilities of the Citi Board of Directors is to review and approve the Citi jurisprudence of Conduct (the jurisprudence). The Code outlines Citis principles, values and standards of practice for all employees of 2 Citi and as such can be viewed as Citis ethics code. Employees are expected to read and sign the Code, not necessarily as a condition of employment, but as a globeized agreement to assume by the standards of behavior outlined thitherin.Although not a formal trend of employment, the formal approach to signing the Code can be viewed as being integrated into HR practices. A point of interest is that Citi withal strengthens the employee requirement to abide by the code by stating that even if an employee doesnt return a signed copy, they are still bound by its lines and conditions. In fact, in the introduction to the Code, Citi is clear that failure to stick with to the Code can result in immediate termination of employment. The current revision to the Code was made in 2011.The code is available in 26 different languages. While in the past, employees had periodic training on the Code, it appears that the training was ad hoc, but according to the incarnate Citizenship Report, in early 2012, Citi rolled out a formalized ethics training program for all employees. In addition to the Code that exists for all employees, there is an extra Code of Ethics that applies solely to the elderberry bush financial executive directors (CEO, chief financial officer, etc) and financial administrative staff.While it may appear that this is a sign of a mellower honourable standard at Citi, as with the NYSE requirement for a firm- capacious code of ethics, Sarbanes Oxley man escorts a requirement for a separate Code of Ethics for ranking(prenominal) executives. In reading both the firm-wide Code as well as the Code of Ethics for the senior executives, its interesting to note that the Code of Ethics reads like a very compliance based document, while the firm-wide Code reads more like a call to action for all employees to act with the ut more or less integrity. In fact, the word integrity appears 9 time in a relatively short document.In all mediumness to Citi, they do specify that the Code of Ethics should be considered a supplement to the firm-wide Code and they provide a link to the Code as part of the document. Citi as well has a set of ethical principles that applies to suppliers. In short, Citi expects that suppliers adhere to the same graduate(prenominal) standards of practice that governs Citi. The key areas that the principles apply to are ethical business practices (Integrity, transparentness and community engagement) human rights in the workplace environmental sustainability and management systems and implementation.Further education on these principles is available at http//www. citigroup. com/citi/citizen/people/ renewing/supplierprinciples. htm. integrity last point regarding the ethical policies of Citi would be that they operate a 24/7 ethics hotline where employees can makeup ethical concerns and remain anonymous to the result that the law will allow. While it is unclear if the hotline is operated fissiparously of Citi, (it appears as if it is not) there is a strong focus on confidentiality and although I was unable to pose the name of the individual, the Code identifies that Citi has an ethics officer. leadershiphip It is the responsibility of a leader to effect and foster the fundamental lawal climate. The leaders ability to cast bum or shed light will permeate throughout an organization and ultimately shape the culture. In short, regardless of who is named the formal ethics officer, the leader of the organization is charged with that duty. Citi is managed by an executive team of 24 senior leaders from key regions and divisions across Citigroups global network. While the ethnic origins of the executive are not specifically mentioned, there appears to be a wide range of ethnic backgrounds on the executive direction.Unlike the Board of Directors however, the executive committee has solely 1 woman, Cece Stewart who is the president of US, Consumer and Commercial Banking. Citi maintains a honorarium philosophy that attempts to align salary with their overall Mission statement. The key objectives of this philosophy are to enhance shareholder value attract talent recognize contributions manage peril provide independent oversight and transparency to all stakeholders. You can visit http//www. citigroup. com/citi/investor/data/comp_phil_policy. df? ieNoc ache=340 for further information on Citis compensation policy. Some evidence to support the integrity of Citis compensation practices would be that, according to the 2011 Proxy Statement, as part of the process for making fillip awards for 2011, the Personal and Compensation committee considered the April 2011 say on make voting which received as 92. 9% favorable. Perhaps the vote was biased up as a result of Pandits decision to only aim a total compensation package of $1 for 2010, and most of 2009?While I was unable to find any concise data that represents the put up gap between the top executives and the effort line employees, I am pretty confident that for all of 2010, and the better part of 2009, the CEO was the net paid employee of Citi. The table on the following page provides some compensation data for the past 3 years for the key senior executives of Citi. 3 Change in Value of Deferred All Other Compensation Compenstion ($) ($) 0 0 0 73,047 51,995 49,117 0 0 0 0 14,70 0 0 3,750 14,700 9,800 14,700 14,700 9,800 14,700 14,700 Executive Member Year Salary ($) 1,671,370 1 125,001 500,000 500,000 416,667 500,000 500,000 500,000 500,000Bonus ($) 5,331,452 0 0 2,200,000 Stock Awards ($) 0 0 0 Option Awards ($) 7,839,581 0 0 Total ($) 14,857,103 1 128,751 7,160,916 4,728,462 5,063,817 12,984,481 9,509,800 11,276,454 11,354,536 0 0 11,446,900 10,116,895 10,400,007 Vikram Pandit CEO John Gerspach CFO John Havens COO Brian Leach Chief Risk Officer Manuel Medina-Mora CEO Latin America 2011 2010 2009 2011 2010 2009 2011 2010 2009 2011 2,333,333 2,039,836 4,166,667 4,583,333 4,750,000 2,719,781 9,000,000 10,327,374 434,380 5,400,000 2,039,836 5,000,000 3,400,000 2011 2010 2009 546,966 546,966 546,966 4,181,214 0 0 3,998,939 2,719,781 7,450,911 0 9,328,010 361,984 2,119,018 163,047 0 0 0 Source taken from the 2011 Citi Proxy Report While on the surface, multimillion dollar compensation packages may appear egregious, however, for each of the executives above, ap proximately 50% of the total compensation package is deferred and/or exists under a multiyear vesting provision that is not only trussed to tenure at Citi, it is directly tied to the performance of the organization. For 2011, there does appear to be a traditional pay gap between the CEO and the other Cs and I suspect that the gap widens significantly as you move down to the front line workers.By looking at just the total cash (salary and bonus) ingredient of the compensation packages that range from a low of $2. 5 million to a high of $7 million, many people will undoubtedly quality several of the other condemning emotions. But to add a junior-grade perspective, for 2011, Citis charitable giving was more than 2 times the value of the total (cash and deferred) executive compensation of the individuals above. Also, at a total of $6. 4 billion, the 2011 commitment to climate change initiatives represented over 8% of Citis 2011 revenues, and almost 60% of net income.I must admit, b esides a undersized wallet envy, I feel mostly admiration for the work, both affectionate and economic that the leadership of Citi has done that started in 2005, was derailed during the financial crisis, and has continued over the past few years. Based on this evidence, I would challenge an averment that the current management is hoarding rewards at the expense of all other stakeholders. When Prince took over leadership of Citi in 2005, his calm, intellectual demeanor was quite the pivotal of the larger than life charismatic CEO that preceded him.Since taking over from Prince in 2007, Pandit appears to piddle followed by example and has demonstrated some precious self-sacrificing actions as he navigated Citi through the biggest financial crisis since the Great Depression. Despite the critics of the financial manufacture, Citi, through sound leadership, ranks well on the triple bottom line accounting mensurals that forms the launchation of Corporate kind Responsibility. Co rporate Social Responsibility (CSR) One of the biggest criticisms of CSR account is that it is simply a public dealing tool designed as window dressing to improve image.After the financial crisis of 2008, no other industry would have as many critics as the financial industry. To provide a little evidence of the integrity of an organizations CSR claims may help st soothe the critics. Since the early part of the 21 century, Citi has been consistently been a constituent company of the Dow Jones World and North America Sustainability Indexes as well as the FTSE 4Good Index, and in 2011, Citi also became a fragment of the STOXX international ESG Leaders indices. It is clear that the CSR activities of Citi are being recognized extracurricular the organization and may have a little more credibleness than window dressing.Citi defines its Corporate Social Responsibility framework as Global Citizenship. The three key focus areas of their citizenship efforts are delivering financial sol utions at inexpensive costs, sustaining the environment 4 and valuing Citi employees. Progress towards these three focus areas are provided as a summary page within the Global Citizenship report, but also as separate publication (attached as Appendix A). in that location are four key rhythmic pattern for Financial Inclusion performance indicator. First, they provide charitable contributions (Strategic Giving), which at $121. 9 million for 2011 (1. % of net income), and represents an average yearbook growth rate of 13% since the end of the financial crisis in 2008. Second, is beautiful Business Lending, which at almost $8 billion for 2011, has grown by 75% since 2009, and actually surpassed the 2011 goal of $7 billion. nd The third metric is the provision of affordable housing lending, which at $2. 0 billion, places Citi, for the 2 true year, the top affordable housing lender in the US. The final metric under Financial Inclusion is Global Microfinance. In 2011, Citi has provide d microloans to almost one million lenders of which 92% of loans where to women.Under sustaining the environment performance indicator, Citi includes metrics for e-communications, clean energy, glasshouse gas emissions and using ESRM screening criteria for financial transactions. As one of the initiations leading credit card companies, Citis movement towards paperless statements has, at 29% penetration (2011), doubled since 2008. Under the clean energy metric, in 2007, Citi announced a 10 year, $50 billion commitment to activities say at mitigating climate change. As of the end of 2011, 5 years in to the program, 73% of the total has been committed.Under the greenhouse gas emissions metric, in 2005, Citi announced a 10 year plan for a 25% reducing in greenhouse gas emissions. As of 2011, there has been a 13. 6% part reduction since the 2005 baseline. In 2011, the integration of environmental and social factors into the traditional risk management screens for project financing co vered over 400 projects globally. Citi appears to have a significant focus on environmental concerns through written policies and statements as well as real action. Further information on Citis position on the environment and their ESRM polices can be found at http//www. itigroup. com/citi/environment/ The final area covered under the report card is the metrics that cover the way Citi values their employees. The key metrics are training rapture diversity and employee volunteering. Citi has a very divers(a) workforce, and though 61 network groups consisting of 15,000 employee extremitys in 18 locations around the world, Citi encourages employee diversity and support. Employee satisfaction has been increasing since the end of the financial crisis and at 73% satisfaction for 2011 it represents an overall 10% increase since 2009.It is unclear whether the increase in a result of simply happy to have a job in a tough economy, or true job satisfaction, in any event, Citi appears to have a more satisfied workforce. Employee training has seen a remarkable increase since the 2008 financial crises. Training activities cover areas such as, leadership, management, product and compliance and since 2008 training hours have increased by over 80% at 38. 4 hours per year per employee. Employees of Citi provided almost 800,000 hours of volunteering activities during 2011, almost 30% growth over 2010.It seems that giving back to the community not only is evidenced by financial metrics but also by the employees action. Although Citis key performance indicators focus on Financial Inclusion environmental Sustainability and Valuing our Employees, the Global Citizenship report is quite extensive and can be viewed as a supplement to the Citi Annual Report. In addition to the three key focus areas covered above, the report also covers corporate governance, which is covered in the section that follows, as well as, how Citi serves the customer and maintains sustainable and diverse tag on chain relationships.The report outlines both Citis achievements as well as the challenges they face and breaks down Citizenship on a regional basis. In guiding their citizenship activities, Citi uses a stakeholder engagement approach to and identify their stakeholders as Customers Investors Employees Regulators Suppliers Community Leaders Non-Governmental Organizations (NGOs) Socially Responsible Investors Media and Competitors. The communication channel used for each stakeholder and examples are included as Appendix B.Corporate presidency Corporate Governance has been define as The framework of rules and practices by which a dialog box of directors ensures accountability, fairness, and transparency in a companys relationship with its stakeholders (financiers, customers, management, employees, government, and the community). (Governance, 2012). As an appendix to the annual proxy statement, Citi provides the Citigroup Inc. Corporate Governance Guidelines. Consistent with the overall corporate mission, the corporate governance mission isCitigroup Inc. the Company) aspires to the highest standards of corporate governance and ethical conduct doing what we say reporting results with accuracy and transparency and maintaining full compliance with the laws, rules and regulations that govern the Companys businesses. (Citi Governance, 2012). This comprehensive document outlines the guidelines and policies with respect to the responsibilities, term, expected qualifications, and compensation of the Board and the committees thereof.Of historied mention in the governance policy would be the restriction against mesh topology directorates, the requirement for personal inception ownership, and the annual review and assessment of add-in performance conducted by the Nomination, Governance and Public affairs Committee. 5 One shortfall of the policy would be the lack of any set term for a board member. While there are two schools of imagination with respect to pert inacious term appointments, in my opinion, the advantage of bringing in fresh ideas with new board members would outweigh any potential bolshie of knowledge that would exit with an entrenched board member.I believe staggered board appointments with fixed term would be an enhancement to the Citi corporate governance policy. As mentioned in the Ethics and Compliance Codes section above, as a requirement to list on the NYSE, a company is required to have a formal code of ethics. In addition to this requirement, the NYSE also requires a minimum standard for the independency of directors. To meet the regulation, Citi would need a minimum of 9 independent directors. At the end of 2011, 11 of the 13 member board were independent. The two connected members were Pandit, and the Citi Chairman, Michael ONeill.The remaining board members consist of a diverse group of active and retired business professionals, a philanthropic tush president, a former state federal reserve bank official, a lea der from the investment management community as well as Ivey league academics. Although only 3 of the board members are women, almost 40% of the members are visible minorities which also includes the Chairman and the CEO of Citi. Simply put, the Board of Directors of Citi is comprised of a very comprehensive representation of their stakeholder groups as identified in Appendix B.As of 2011, there are 5 standing committees of the Board study Risk Management and Finance Executive Personnel and Compensation and Nomination, Governance and Public Affairs. A separate Charter exists for each committee that outlines the mission, duties and requirements regarding independency of the committee members. The Audit and Risk management committee is comprised of all independent directors. ONeill is the current Chair of the Executive as well as the Personnel and Compensation Committees (non-voting) and he sits as a voting member of theNomination, Governance and Public Affairs Committee. Among other roles, the Nomination, Governance and Public Affairs Committee is responsible for the environmental sustainability and stakeholder engagement activities of Citi. Since 2005, non-employee directors receive $75,000 per year confident(p) a deferred stock award valued at $150,000 on the date of issuance with a 2 year vesting period. With the requirement to own stock of Citi, as well as the deferred vesting of the majority of the compensation they will receive, directors of Citi are incented to act in the best interest of the organization. moment Investigations As a publicly traded, multinational, diversified financial services organization, incorporated in the U. S. , it should not come as any surprise that in the course of their business dealings, both the organization and the individual staff of Citi will be subject to SEC litigations and investigations on a frequent basis. In fact, a hunt on the SEC website (http//www. sec. gov/litigation. shtml), and filtering the search parameter s to include only Litigation and Regulatory Actions you will actually find too many to list.In fact, since January 1, 2005, there have been a total of 284 Regulatory Actions and 140 Litigations that has Citi named. It would be quite misleading to state that all litigations listed Citi as the defendant, however from my brief review of some of the search results there appears to be complaints related to the accounting treatment of credit derivatives, fair value misstatements of sub-prime mortgage exposure, many of which listed most of the financial services industry. There was however one interesting investigation made in 2008 that questioned the independence of the Board of Directors.While I cant comment too a good deal on the ethical leadership of the firm leading up to the financial crisis, evidence such as the highly publicized investigations, along with the exponentiation in Worldcom and other major financial collapses, certainly cast a shadow on the past activities. However, d uring the tenure of the current CEO, as well as his predecessor, the Board of Directors appear to have addressed many of the high level governance ethical shortcomings that were past investigations by the SEC.Conclusion Perhaps the most difficult aspect of conducting a review of an organization is coming to a definitive stance, based on concrete evidence, on the tier of ethical culture that exists inside the organization. Without living inside an organization, how can you state that ethical conduct permeates across all aspects of the firm activities? Operating in an industry that has undoubtedly has the highest level of public cynicism regarding ethical conduct, how could anyone take the stance that any financial services company scores well from any ethical standpoint?Despite this challenge, my impression from this review is that Citi does indeed rank well. Since taking over the firm in 2007, carrying on from Princes Five dose Ethics Plan, Pandit, has lead the firm back on firmer financial ground by shedding much of the troubled assets and refocusing the operation more towards a traditional banking model. Despite participating in the tarpaulin and subsequently paying back all funds borrowed, under Pandits leadership, Citi has become one of the best capitalized banks in the U.S. He won high 6 praise from public opinion by accepting a total compensation package of $1 for most of 2009 and all of 2010, becoming undoubtedly, the lowest paid employee of Citi. Those types of unselfish acts, despite his personal net worth, should be viewed as a sign of an admirable leadership style. The critics statement that he doesnt need/deserve the money is, in my opinion, ludicrous and shouldnt overshadow what is a truly admirable action.An ethical culture starts with an ethical leader posed ready to lead by example and in my opinion, by his example, Mr. Pandit ranks very well. In addition to the profit motive, Citi approaches it business with a demonstrated commitment to env ironmental and social key performance metrics, savory with all stakeholders, going above and beyond the simple legal requirements and playing as an agent of moral influence with suppliers.Adding to this ethical framework a very committed CEO, a strong board representing stakeholders, and ethics training, its hard to argue that the firm lacks a robust ethical framework. It appears as if the vision of Prince continues to be embraced by Pandit and Citis current leadership. While it may be a long road ahead in the woo of public opinion, Citi appears to be on the right track to shed the degree of cynicism the financial industry has, but like most future outcomes, only time will tell. 7 References