Sandy Weill's Monster

It's called Citigroup, and it's really big and complicated. Even its deal-addicted boss hasn't quite figured out how to manage it.

(Continued, page 2)

Right now, the solution he could most use--just how to manage this spread-out thing called Citi--seems not quite in his grasp. He recognizes that the company's a monster. So apparently do his directors, who recently asked him, he says, to cut down the time he's been spending on outside boards. He is complying by stepping down from Du Pont's board, though he's staying on as a director of AT&T and United Technologies. But even if he cut out all extracurricular activities, Weill would still be trying to tame a tentacled leviathan with the same techniques he used on little old Commercial Credit.

One fix on the management challenge comes from a 15-year Weill veteran, Charles "Chuck" Prince III, general counsel and co-chief operating officer (though that title, as we'll explain, doesn't mean exactly what you'd think). Prince believes that no company has ever bitten off the mouthful Citi is chewing: "You've got five or six or seven businesses--credit cards to mortgages to personal loans to investment banking to commercial insurance. They relate in important ways, but they're different. And they're all over the place. No one has ever had a company as broad in geographic scope"--we're talking 101 countries--"as broad in product set, and as deep in size."

And then he adds the cruncher: Citi absolutely, unquestionably expects to grow by acquisitions. Citi is Sandy Weill's business, and one thing he does for a living is buy companies. "We're in the acquisition business" is the line they use around Citi. Key pickups of the past year: investment bank Schroders in the U.K., Bank Handlowy in Poland, subprime lender The Associates, and the most recent, European American Bank of Long Island. That last is a prize example of either the boss' opportunism or addiction, take your pick. Weill wasn't looking to add retail branches at all. But then EAB turned up, available for just under $2 billion, and Weill--who is to businesses what Imelda Marcos was to shoes--just couldn't say no.

This leads to an obvious question: Given Citi's complexity, shouldn't Weill just chill out for a while and buy nothing? After all, Weill and his Travelers colleagues are still learning what it means to be global. True, Weill has traveled the world in the past couple of years, getting to know every local dignitary and Citigrouper possible. He even--can you name another multinational CEO who's gone this far?--donned a turban and Nehru jacket in India in 1999 and, in an elegant ceremony, reaffirmed his marriage vows with Joan, his wife of more than 40 years. Still, he's nouveau worldly, so how about a moratorium on buys? Weill says that certainly wouldn't be a good idea in the emerging markets, where Citi hopes to raise its market shares--typically in the 3% range--by making acquisitions. About really large buys he is more equivocal, though he says he wouldn't want to rule them out entirely (you can sense his adrenaline racing here) because that might cause Citi to miss something in this "exciting kind of world that's always changing." Adding his 2 cents, Prince points to all the shareholder value that's been created by Weill's ways: "If we were to say, 'Now we're going to stop,' we would be turning away from one of our key success factors."

Interestingly, one person who might vote for a slowdown strategy is the retired John Reed, 62, who has lately been giving a few speeches in which he sometimes comments, like the ghost of Citi past, on the running of the place. At a Princeton University lecture in February he said, "I'll tell you that Citigroup is right at the edge of how big things can be and be managed." But, of course, he's not managing it. Weill is.

Reed's leaving sure made it easier for Weill to run the shop. The power-sharing was probably necessary to get the merger done, but the two leaders soon fell into a bog of indecision partly created by their widely differing views. A telling example: Reed, always a visionary, wanted to back Citi's Internet efforts with tons of money. Weill, thinking bottom line, wanted to contain spending. Marjorie Magner, senior executive vice president of the consumer business, says working under Weill and Reed was like having parents who totally disagreed about how to raise the children: "It was pretty tough." Now, she says, Citi's executives are back to focusing on the messages Weill has lived by: Make your numbers; do what you've promised; work together; think shareholder value.

Weill is indisputably running things his way, with a cast of characters--among them newcomer Bob Rubin--markedly changed from early merger days. Of the 15 people initially on the management committee, only five besides Weill remain at Citi. Among the missing are all the Citibankers except the current head of emerging markets, Victor Menezes, who must sometimes feel like the celebrated Lonely End of Army football. But many a Travelers' executive has also departed--most famously Jamie Dimon and later chief financial officer Heidi Miller.

The most recent big loss was Bob Lipp, a longtime Weill lieutenant who headed Citi's consumer business. Early on, Weill was asked at a dinner what would be the easiest thing about the merger and what would be the hardest. "The easiest," Weill said, "will be anything that Bob Lipp's in charge of, and the hardest will be anything he's not in charge of." Lipp went on to smoothly increase the consumer business' profit from $2.8 billion in 1998 to $5.3 billion last year. He was a bulldog about bottom-line performance, often colliding with Reed, who was always less interested in the execution of plans than in devising them.

As 2000 ended, though, Lipp retired from the frontlines, though he's remaining as a Citi director. Citing his age, Lipp says that cutting back "just felt right." Friends expand the story, claiming Lipp came to realize that in the very big-company atmosphere of Citi--sharply different from the buccaneering environment of the old Travelers--he simply wasn't having much fun, not even with Reed gone.

Weill used Lipp's unwanted departure to rearrange the management deck chairs. Replacing Lipp as head of the consumer business is an experienced, well-regarded associate of his, Robert Willumstad, 55. The other three business heads, as they are called, are Michael Carpenter, 52, who runs the corporate operation that includes Salomon Smith Barney and Citi's commercial bank; Thomas Jones, 51, who heads investment management and the private bank; and Menezes, 51, of emerging markets. All report directly to Weill.

The other major change was the appointment of Chuck Prince, 51, and Jay Fishman, 48, CEO of Travelers Insurance and jack-of-other-trades besides, to the newly created posts of co-chief operating officer. Yes, "co"--just after it appeared that Citi had scraped almost all of those types off its organization chart. But Weill maintains that this isn't a return to the old days, because, he says, "there's no overlap here." Prince has responsibility for operations and administration; Fishman for risk and finance. Both report to Weill. And neither, despite the ringing sound of this new title, has any authority over the four business heads.

The fact is, says Weill, "I needed help," and Prince and Fishman are supposed to supply it. If they weren't so highly placed and paid, and so valued in the other jobs they have, the two could almost be thought of as assistants to the chairman. Weill says they're supposed to make him more "effective." Prince describes his job as "extending Sandy's range."

One of Prince's responsibilities, for example, is to promote more cross-selling of products--that is, the marketing by one division of products "manufactured" by another. Weill has always wanted to see Citi cross-sell like crazy. So far, progress has been modest, and that's why he's put Prince on the case. Of course, in the weird way that things sometimes work in Weill's world, there is another high-up executive--Chief Financial Officer Todd Thomson--who also has oversight of cross-selling. Complicating matters even further is that neither Prince nor Thomson has direct authority over the businesses that truly do the cross-selling. You might say the deck chairs aren't too well lined up in this situation.

PAGES 1 | 2 | 3