May 15, 2014

In the late 80’s I was at lunch with a friend, John Henske, then Chairman and CEO of the chemical giant Olin Corporation. I was CEO of a small technology company in Connecticut. On that day, a Wall Street Journal article reported that a mid-level Olin executive in Atlanta was indicted in a kick-back scheme involving a few thousand dollars. “Not a good day,” I commented facetiously.

John responded: “I envy you – running a small company, one you can get your arms around. I haven’t the slightest clue about what goes on in the bowels of Olin. We’re just too damned big.”

His comment still resonates whenever I read about a major company under fire because the senior management allegedly did not know what was happening below the executive floor. We can’t deal with problems; we’re too busy resolving crises.

Today the NY Times reported that CITIGROUP belatedly discovered their Mexican arm, BANAMEX, was guilty of fraud: the bank was lending money, on favorable terms, to OceanograFIA, a financially-troubled supplier to PEMEX, the government owned oil company. What a surprise!

Anyone who has done business in Mexico (or in much of Latin America) knows that the rules of engagement are not as ‘lily-white’ as Washington would like one to believe they are in the U.S.

To believe that an executive of a major American bank would not know that Mexican business is systemically corrupt is laughable; but, if one believes CEO Michael Corbat, it took thirteen years for CITI to learn that truism.

CITIGROUP acquired BANAMEX in 2001 during Sandy Weill’s acquisition oriented tenure as CEO. Where were the lawyers who conducted ‘due diligence’ and/or the auditors who examined BANAMEX’s books prior to CITI’s acquisition? Did they misrepresent the facts; or did CITI’s board paper over the risky aspects of the deal pandering to Sandy’s voracious appetite? But to claim they didn’t know? Sorry, boys. That pig won’t fly.

Now that the Mexican defecation has hit the oscillator, eleven low level officers of the bank have been fired. According to the NY Times:

Some of the employees had worked at BANAMEX for as long as two decades and were not involved in the fraud directly. The bank fired many because they had not taken steps to detect the fraud or had ignored warning signs about the client.

Excuse me, Mr. Corbat, but isn’t that exactly what CITI’s senior management has done?

Once again, the top guys at a major bank, with shocked expressions of disbelief, skate free hiding behind a phalanx of lawyers, auditors and a pliant Board of Directors while lower level people, under pressure to please the boss, go on unemployment or to jail. And it all came to light during a federal investigation. These firings are a sham designed to placate the investigators and bank regulators.

In response, Corbat said: “We are reviewing our controls and processes in Mexico and strengthening any area we think falls short of our global standards or best practices.”

Standards?  Best Practices?

What corporate psychobabble and Bull S#*t!  Corbat should have the courage and dignity shown years ago by my friend John – and resign.

You are welcome.