Citigroup and Old Lane: Executive Recruitment Run Amok?

Full disclosure: I used to work at Citigroup. Or, more specifically, Citicorp. I spent 10 great years there, learned an immense amount, built long-lasting relationships and made a little cash in the process. It is the place where I launched my career, and for that reason I will always have a special affinity for the firm. But after hearing the rumors and then reading about Chuck Prince's plan to buy Vikram Pandit and Old Lane for the immodest sum of $600-$800 million, I almost tossed my cookies. It is clear what is going on here: this is the single largest executive recruitment fee ever paid. And it is apparently what is necessary to get a person of stature and talent to take the lead of Citigroup's Alternatives business, which has been an underperformer for quite some time, and to serve as another contender for the top slot at the mother ship.

Let me tell you, dear readers, this is a sad, sad comment on the state of Citigroup's business strategy, leadership and attractiveness to outsiders. Because if the largest financial services firm on the planet can't attract top people, straight-up, they've got problems far larger than the cash they're spending on Old Lane. And herein lies the problem for shareholders.

The merged Citicorp/Travelers enterprise has always been a source of much confusion and frustration for me, seeing first-hand how the cultural artifacts of a merger can damage healthy, flourishing businesses. Citigroup's Alternatives business has been unstable for a long time, with senior managers and teams cycling through as its strategy and performance has been inconsistent at best. In my experience, sound business strategy and management has a few key hallmarks:

• Knowing what your strategy is;
• Clearly communicating that strategy to all key stakeholders;
• Developing a tactical plan to execute the strategy; and
• Keeping complexity to a minimum.

Citigroup Alternatives and Tribeca has never quite fulfilled its promise, and is certainly not of a scale commensurate with the resources, breadth and relationships of the firm. It has tried on many occasions to remedy this problem, but time and time again it has not been able to get its strategy straight and/or garner the requisite support from Senior Management in order to succeed. Citigroup is a big place, with lots and lots of politics and entrenched interests (like most Wall Street firms), but does not have - and to my knowledge never has had - an embedded alternatives asset management culture - ever. Citicorp didn't have it. Salomon Brothers didn't have it. And the combined entity has been trying to have it for the past 7 years, but with minimal success. I know people who have interviewed for top jobs at Citi Alternatives and walked away with the sense that they might not receive the support necessary to succeed. This is a sure-fire way to make sure you'll never get the best people for the job. Adverse selection in action. Unless, of course, you are willing to lay out up to $800 million to buy someone.

Success in business strategy means having a good plan, having good tactics to support the plan and keeping things simple. I'm not sure I see how adding a $4 billion hedge fund with limited history, middling performance and an outsider who is immediately considered a threat to long-time Citigroup leaders is a good thing. Does this all of a sudden fix Citigroup Alternatives' fundamental problems? No. It makes them bigger. Does this automatically add value to Citigroup as it adds a seasoned Wall Street pro to the Chuck Prince succession mix? No, it will likely create a highly adverserial, jealous Citi management elite who see Vik getting rich, getting a big job and being talked about as the potential front-runner for the top spot. Do you think Vik and these guys are going to hug and go bowling together? I don't think so. It just muddies what are already pretty muddy waters, and makes an already complex and contentious situation even more so. In short, I just don't get it.

I mean, I get it. The act is called desperation, and it's one I've seen many times before. And it's not pretty. But one thing is for sure: Citigroup will go down in history as paying the biggest search fee ever. And it is unlikely to be topped any time soon.

Comments

[D. Lowe]

I totally agree having worked at Citi for 6 years. It has definitely gotten worst in culture and quality of work product. In short, I don't want to work, and it says a lot about its senior management, for a company that decides to lay off over 15,000 people and move a lot of the jobs overseas but at the same time decides to pay 1 person and his team $800 million. Sad.

DRL