Executive Commentary
As prepared for delivery

CEO Vikram Pandit: Responsible Leadership

Vikram Pandit, CEO, Citigroup
Carey Business School
Johns Hopkins University


May 24, 2010

Thank you, Dean Gupta, for that gracious welcome.

Good evening distinguished faculty, parents, families and friends. And to the Class of 2010 - future leaders of the global business community- Congratulations on your graduation!

I appreciate the opportunity to do something few commencement speakers have ever been fortunate enough to do. That is, address graduates of a school that is new and yet has already made its mark as a superb academic institution - A school born with a long and venerable tradition of excellence – and the ability to produce the highest caliber leaders of the future.

I truly welcomed this opportunity to speak to you but it would also have been terrific to be sitting out there with you, as a new graduate, because the vision of Dean Gupta and all of you associated with the Carey School is inspiring.

  • The school's statement of its mission says you are "dedicated to improving lives on a global scale by addressing pivotal social issues."
  • Carey believes "The world needs leaders who understand how business shapes the future and influences our behavior across industries, continents and cultures."
  • Your school seeks "the transformation of business education to reflect our principles of humanity, compassion and opportunity."
  • Ultimately your goal is to create a "new breed" of business leader.

And that is our most urgent need in business – leadership with a broad education, not simply training, and a commitment to the common good. I must admit, for a number of reasons, I wouldn't have minded spending the past couple of years here with you in school.

On the other hand, I have also been receiving a rigorous education - on the front lines of the financial crisis. That perspective has taught me to value more than ever what your education here – and what the potential of each and every one of you as leaders – mean to the future of America and the whole world.

We have just been through one of the worst financial crises in U.S. history. Indeed, we are still feeling the aftershocks in Europe, and millions of Americans are still experiencing its devastating impact. We also have a long road before us as we deal with the aftermath of extraordinary measures taken by governments to stabilize the world economies.

Unfortunately, for over two centuries, we have endured economic crises resulting from the conflict between private economic power and the public interest. Here in the 21st century, we have still not figured out how to foster a healthy financial system while limiting its excesses, how to prevent the chronic and devastating damage from private economic power overwhelming public interest.

My generation is now doing everything we can to create the architecture for a financial system that works in society's interest. Our hope is to leave your generation with a system that promotes common goals that are in our common interest, where self-interest does not sacrifice public interest. But, as John Kenneth Galbraith said, "Little is ever new in the world of finance. The public has a euphoric desire to forget." That still remains a significant challenge to make sure that your generation and future generations do not forget the hard lessons we have just learned. We will be leaving to you lessons we have learned - for individuals, governments and private institutions.

Hopefully we will also be leaving you a solid foundation on which to build. Its ultimate construction and success will depend on the leadership of your generation.

Today, I thought I would share with you some insights based on my experience with the crisis.

  • First, from the perspective of one large institution that had to navigate a perfect storm.
  • And, second, from a more macro level, with some priorities for your generation of leaders.

I became CEO of Citi at the end of 2007, just as the crisis was emerging. In the months that followed – as first Bear Stearns and then Lehman Brothers unnerved the markets – we reoriented our company. I first tried to understand what happened. Like other financial institutions in the years leading up to the financial crisis, Citi was a creature of an environment that seemed to offer a bottomless pool of credit and capital.

The financial markets had convinced themselves that traditional measures of risk were archaic, and that risk in the system was actually declining. Pressures on companies came from many quarters to keep up and become bigger. Greater leverage and larger loans seemed to be the way. That seemed safe and profitable for shareholders.

At the same time, Citi was trying to be all things to all people. That was a distraction from truly understanding customer needs. And just as the world was overextended to the American consumer, so was Citi. It's hard to be good at everything and it's incredibly hard to have crisp management without focus.

As others before us have learned, success depends on clear focus, understanding why customers need you and understanding what you are good at – what's in your DNA. To us, this meant going back to the basics. And ironically, to a company that looked much like the one before a great deal of its growth occurred. An expensive decision, but that is exactly what we did.

Our principles today are:

  1. Focus on being a bank – not a supermarket. That's our DNA. That's what we do best.
  2. Serve client interests first, and,
  3. Lead with our competitive strength: our global footprint. In particular, use it to take U.S. companies into growing global markets.

We executed on these principles as quickly as we could. Before the end of 2009, despite the deep financial crisis and the severe challenges Citi had faced, we:

  • Cut our size by half a trillion dollars
  • Sold over 30 businesses
  • Cut our annual expenses by $13 billion
  • Rebuilt and focused our management team
  • And, became one of the best-capitalized banks in the world. We also repaid the TARP investment the government made in December 2008 with a substantial return for taxpayers, and the value of the equity investment the government made in Citi has increased.
  • We continue to owe a large debt of gratitude to taxpayers.

The effectiveness of our execution was evident in our first-quarter results this year, and while there are still challenges in the economy, we believe we have all the elements in place for long-term profitability and success.

That is a testament to the leadership of the 263,000 people at Citi. You learn a lot about leadership in a crisis. There are leaders everywhere and at every level. People can come together or be torn apart. We had a clear strategy.
We had a credible plan for execution but not without significant challenges. Our people pulled together with complete dedication and unwavering commitment to the task at hand. They led the way with me.

Now, let me share some broader insights, beyond Citi, together with the priorities I see for future business leaders.

Citi's problems closely paralleled weaknesses in how the country pursued the American economic model. Not only did the U.S. become intoxicated on credit, but we failed to grasp the importance of new global forces driving economic growth. We also did not perceive the weaknesses in our regulatory structure. As a result, governments around the world had to incur enormous debt and central banks had to step in with unprecedented ways to stabilize the economy. The aftermath of the financial crisis leaves us with significant challenges that require a new level of leadership.

If we want to learn from the past, and act on the lessons of this crisis, and address the challenges of the aftermath, I suggest these five imperatives for leadership as my generation goes forward – and as you join in, with your own fresh thinking, energy and drive:

First, commit to preserving and strengthening the American economic model – ironically, the model that has proved to be vulnerable to crises with a reckless disregard of the common interest.

Capital finds its way to the right place very fast in America. Individual initiative and risk taking are at the heart of American business. Entrepreneurs come up with thousands of ideas. Capital and ideas connect to create sizeable businesses. The Googles of the world are merely the latest proof point for this dynamic historical pattern. For two centuries, the U.S. economy has consistently proved to be a strong model for generating growth.

Every time there is a crisis, a new breakthrough follows – not just new businesses but whole new industries, higher levels of growth and productivity, expanded opportunity for everyone – and new ways to improve life for people everywhere.

With 10 percent unemployment and questions about economic strength, let's get America's formula back into full action. We know that the model is prone to excesses, but we do not have to be passive about it. Let it work its magic once more – but with thorough, honest and permanent integration of the severe lessons we have learned from the latest financial crisis.

Second, commit to building public-private partnerships.

Critical to the American success story has been the ability of the public and private sectors to work together to connect talented people with opportunities, and to connect capital with entrepreneurs to drive economic regeneration.

Today, with our government saddled with debt, everyday it feels as though we are running out of financial resources to grow or invest in infrastructure or energy efficiency. As Tom Friedman stated in his column yesterday, this kind of world requires leadership at every level within government and business. And leadership is defined by him as ‘taking innovative actions that generate new capabilities and resources – and being smart and disciplined about every dime we invest.'

Third, think – and act – more globally than ever.

There are a few simple steps. For instance, the term "common interest" has an almost purely American connotation for us. We must define it globally. We can't afford not to. But we have to act as well as think in accordance with global realities. We need to ensure U.S. international competitiveness and relentlessly advance our export economy as we understand and capitalize on the great new drivers of economic growth in the world – like a rising middle class of hundreds of millions of people in emerging economies.

At the same time, America must continue to be the place where the world's best talent wants to go. Our universities – and our borders – must remain open and attractive to the world's best minds. Now is not the time to relent.

Four, revive – and sustain – confidence in our financial system.

The imminent reforms from Washington will help. However, we have to keep a close eye on how they work and what their shortcomings may be. And where we see problems, we must act much more quickly and decisively than we did in recent years.

In any event, we must keep working on transparency in financial transactions. Markets cannot function without transparency. Think about this: in our age of Facebook and Twitter, you can easily learn the details of your neighbor's personal life, but virtually nothing about a $100 million, market-moving trade in Triple AAA corporate bonds! There's a real disconnect here that needs to be fixed.

While legal and regulatory reform are absolutely necessary for a sound financial system, one obvious lesson from repeated financial crises is that there is no correlation between the enactment of more laws and the end of serious financial collapses. Clever individuals with new technologies will always find a way around the letter of the law.

That is why we need to establish a culture of responsibility in our organizations. And lead this cultural offensive by personal example. This is the fifth and last imperative.

Everywhere in America, we need a new commitment to responsibility:

  • In our personal lives, a commitment to disciplined management of spending and saving.
  • In government, a commitment to cut deficits, support investment and act on critical priorities like energy policy.
  • And in private-sector institutions, like mine, a true commitment to act not just in the stockholder's interest, but in the common interest.

Leaders have to take the initiative to internalize an acute sense of responsibility in their organizations. That is the surest way to change behavior. We won't change old habits quickly, but it's up to leaders to show the way.

That's our job, and there are different ways to approach it. At my institution, we constantly ask ourselves three questions:

  1. Do our actions create economic value?
  2. Are we truly working for customers' interests?
  3. Are our actions serving the interests of society as a whole – in the U.S. and globally?

In any situation, the answers to all three questions must be "yes."
And I have committed myself and my senior management to use this self-examination to develop our new culture of Responsible Finance.

Of course, it is easy for leaders to make bold proclamations of cultural change. In the face of everyday pressures, however, it is much harder for us to live up to our words. Competitors, shareholders and the large sums of money with which we are entrusted exert intense, constant pressure.

We cannot be even reasonably sure we are behaving as we should unless there is never-ending, candid introspection – ceaseless questioning of our actions and motives. A responsible leader has to require that this questioning process become integrated into the culture of his or her organization. And leaders have to be sure their colleagues see them practicing what they preach.

Genuine questioning, however, also requires the leader to foster individual and organizational courage. People have to feel they are expected to speak up when they see private economic power overriding common good. They have to know they will be heard, and not dismissed – literally or figuratively. That is a particularly tough challenge, but we have to overcome it.

From all the priorities I've felt free to lay out for your lives today as you take on the mantle of leadership, you can see the big drawback in graduating from this great school: our expectations of you are extraordinary.

At the root of all these priorities is a centuries-old dilemma tailor-made for the aspirations of this particular institution: how to make sure that ingenuity, creativity and entrepreneurship consistently serve the common good. How to preserve and strengthen all that is essential to the American economic model, while restraining its impulsive behavior. That is particularly important today as we unleash our economic model to address the challenges in the aftermath of the financial crisis.

As I look at all of you, I cannot help but be optimistic. You did not come to this innovative school to tackle mundane challenges or absorb conventional wisdom. And you are leaving with the education, perspective, commitment and drive to solve the challenges we face.

I am thrilled to be part of your big day. My sincerest best wishes to all of you. I trust I will be hearing much about your achievements in the years ahead.