WSJ: Perform-or-Die Culture Leaves Thin Talent Pool For Top Wall Street Jobs
By AARON LUCCHETTI and MONICA LANGLEY November 5, 2007; Page A1
Credit turmoil has claimed two scalps on Wall Street in a week -- and exposed the shortage of talent for the biggest jobs in finance.
Both Citigroup Inc. and Merrill Lynch & Co. saw troubled chief executives hastily depart as write-downs fueled by losses on mortgage-related securities spiraled near $10 billion. Neither had a ready replacement, forcing them to get by with interim arrangements as the search for successors is conducted.
The dearth of CEO material owes much to the Wall Street culture in which executives are pushed to maximize profits and quickly get axed if they fail to deliver. That sullies the résumés of many would-be chiefs. What's more, most Wall Street firms are now global publicly held companies, not the private partnerships of yore, meaning a CEO must be skilled both in presenting the public face of a company and understanding the nitty-gritty of finance.
"It's a weird state of affairs that these phenomenal global companies can't self-reproduce executives," says Glenn Schorr, a financial services analyst at UBS AG. "It is a function of the culture and the leadership or lack of leadership" at each firm, he says.
Boards at Citigroup and Merrill are likely to look outside their firms for successors. The pool of candidates includes Robert Willumstad, the former chief operating officer of Citigroup and now nonexecutive chairman of American International Group Inc.; Laurence Fink, the CEO of BlackRock, an asset manager 49%-owned by Merrill Lynch & Co.; and NYSE Euronext CEO John Thain, who previously served as president of Goldman Sachs Group Inc.
Mr. Fink has been approached by Merrill about becoming CEO there. The Merrill board is moving quickly, says a person familiar with the matter, and the leading choice appears to be Mr. Fink. He has run a highly successful fund-management company specializing in bonds, but doesn't have lengthy experience running a large banking or retail-brokerage operation, the heart of Merrill's business. One scenario is for Mr. Fink to become CEO and Gregory Fleming, Merrill's co-president, to become his No. 2.
A Strong Candidate
Mr. Willumstad is considered a strong candidate to succeed Charles Prince as Citigroup CEO, while Mr. Thain's name comes up for both posts. Sir Win Bischoff, the chairman of Citi Europe, will be Citigroup's interim chief executive, but he isn't considered a candidate for the permanent post.
"One of the biggest failings of the [Citigroup] board, and of Chuck, was there was no succession plan, which is astonishing for a company this size and this important," said a person familiar with the board's deliberations.
The ideal candidate, says a person close to Citi, would be someone who has a track record as a top financial CEO, such as Lehman Brothers Holdings Inc. CEO Richard Fuld, one of Wall Street's longest-serving chiefs, or James Dimon of J.P. Morgan Chase & Co. But those executives would be difficult to pry away unless it was in the context of a merger. With Citi and Merrill struggling, that's an unlikely scenario, say people close to the boards of both firms.
Amassing billions of dollars in losses, Wall Street firms have seen their stock prices hit hard, with the Dow Jones U.S. Financials Index down 14% this year compared with a 9% rise in the Dow Jones Industrial Average.
Mergers and expansion have made the job of leading a Wall Street giant tougher. It may no longer be enough for the leader of Merrill Lynch to be a longtime brokerage executive like David Komansky, who headed the firm from 1997 to 2002, or for the head of Citigroup to be a top investment or commercial banker.
Roy Smith, a professor of finance at New York University and former partner at Goldman Sachs Group Inc., said Wall Street chiefs, obsessed by their stock price, are quick to let go anyone whose unit has a bad quarter. That may show their boards that they are aggressively managing their subordinates, but it means talented executives who make mistakes can be quickly shown the door.
During Mr. Prince's tenure at Citigroup, more than a dozen top bankers have departed, been forced out, or been given different responsibilities. They include Marjorie Magner, who ran global consumer banking, and Michael Dunn, a 30-year Citi veteran who served as finance and operating chief for Citigroup's global consumer unit.
Similarly, Merrill's Stan O'Neal acquired a reputation for purging top executives -- prompting some of those executives to agitate behind the scenes for his departure. Wall Street has become a more "volatile place to grow managers," Mr. Smith says.
Joseph A. Grundfest, a former commissioner at the Securities and Exchange Commission and now professor at Stanford University, says the best internal candidates often aren't "broadly known outside the company," but that doesn't mean they should be discarded. Such a candidate is often "greeted with a yawn and perhaps even disappointment from outside the company, but goes on to great success," he says.
A number of current and former Citigroup managers favor Mr. Willumstad, Citigroup's onetime president, to be its next CEO. He is close to Sanford Weill, Mr. Prince's predecessor, who helped create the financial giant now called Citigroup through a series of acquisitions. Messrs. Weill and Willumstad were recently spotted having lunch at the Four Seasons, one of Manhattan's premier power-lunch spots.
The 62-year-old Mr. Willumstad lost the horse race to succeed Mr. Weill and left Citigroup two years ago, partly because he was frustrated with Mr. Prince's leadership. Mr. Willumstad was Citigroup's most seasoned retail-banking executive, and he still has relationships with the executives who have remained from the Weill era.
Big-Board Background
The NYSE's Mr. Thain is an oft-mentioned candidate for top jobs on Wall Street. The 52-year-old has run the Big Board for more than three years, following a 24-year career at Goldman Sachs. Citi's global reach and the complexity of its business lines may intrigue Mr. Thain, who majored in engineering during college.
At the NYSE, Mr. Thain has been lauded for transforming the 215-year-old market into a publicly traded company focused on profits. His dealmaking pushed NYSE further into electronic trading and made it a bigger player in fast-growing futures and options trading.
Mr. Thain is close to Robert Rubin, the chairman of Citigroup's executive committee, who was named chairman yesterday. Mr. Thain also has a reputation as a cost-cutter; that could do some good at Citigroup, which has had trouble keeping expenses in check. However, he lacks experience in retail banking, an important part of Citigroup's empire.
Mr. Thain declined to comment through an NYSE spokesman. He has said he is happy at the NYSE, but sees the job as a three-to-five-year commitment.
Out of the West
Another possible contender with more banking experience is Richard M. Kovacevich, the outspoken chairman of Wells Fargo & Co. Mr. Kovacevich, 64, stepped down in June after 14 years as chief executive of San Francisco-based Wells Fargo, the country's fourth-largest bank by stock-market value, and its predecessor Norwest Corp. He worked at what was then known as Citicorp from 1975 to 1986. Through a spokeswoman, he declined to comment.
While its large mortgage operations have slowed in the current housing downturn, Wells has fared better than some of its competitors, managing to post a 4% profit gain in the third quarter.
A longshot for Citigroup would be John Reed, who famously lost in a showdown with Mr. Weill after the two men merged Citicorp and Travelers to create Citigroup. "It would be the ultimate irony, not to mention good theater," says one person close to Citigroup. "John would be vindicated and Sandy would be humiliated."
But even veteran executives such as Messrs. Reed and Kovacevich may be short of technical expertise to figure out the mess involving mortgage-backed securities whose value is uncertain. That's what tripped up Messrs. Prince and O'Neal.
"The number of candidates for these positions is somewhat limited," says Dennis Weatherstone, former chairman of J.P. Morgan. While experience is "always valuable," he says, it's perhaps more important for the CEO to "anticipate change."
--Ann Carrns, Carrick Mollenkamp and Robin Sidel contributed to this article.
Write to Aaron Lucchetti at aaron.lucchetti@wsj.com and Monica Langley at monica.langley@wsj.com
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