How Sandy Weill Might Be Remembered

Scandals have battered the Citigroup chief's reputation, but he still has time to prove that his vision of a vast financial conglomerate is right

By Amey Stone

It has been a bruising spring for Sandy Weill, chief executive of financial giant Citigroup (C ) and one of Wall Street's most enduring figures. To avoid any potential conflict of interest in the future, securities regulators restricted the conditions under which he can speak with analysts at his own company. Book publishers failed to pay millions for his memoirs. And his nomination to the board of the New York Stock Exchange incited ridicule. He quickly withdrew from the process.

These recent public humiliations arose because Weill had been shown to have ignored basic business ethics by using his position and influence to prompt telecom analyst Jack Grubman to up his rating on AT&T (T ) during the tech bubble's heyday. It wasn't such a large infraction, but one clear enough to show that Weill's moral compass had gone (or maybe always had been) somewhat askew.


  "It was totally unacceptable," sums up Samuel Hayes, professor emeritus of investment banking at Harvard Business School. "You couldn't in any way do something like that and not feel that it violated if not a specific law, then a trust that you had responsibility for maintaining."

Aside from the Grubman scandal, it has become clear in the past year of public investigation and blaring headlines that conflicts of interest in corporate lending, brokerage, and initial-public-offering distribution raged at Citigroup, which Weill very personally built deal-by-deal over the last 20 years and aggressively micromanaged. "It was all on his watch," Hayes says.

Given his tarnished image and the prospect of more punishing legal battles ahead, you might think Weill would pack it up and retreat to the peace and obscurity of his Adirondack camp. After all, he's 70 years old now and has amassed more than $1 billion in Citigroup stock -- plenty to hire a small army of lawyers to fend off all the suits aggrieved shareholder are likely to be launching his way.


  However, the truth is that Weill still has a chance to redeem himself -- at least as far as his legacy as a business leader and visionary goes. (His opportunity to be considered paragon of virtue, bolstered by generous charitable giving, has been permanently shattered.) Like many men of power who have long since made more money than they could ever spend in a lifetime, his legacy is what he cares about now, and he seems hell-bent on damage control. There, Weill actually has quite a lot going in his favor.

First of all, Wall Street never really lost faith in him. This is best illustrated by his nomination to the NYSE board. Although it was a remarkable case of myopia on the part of exchange Chairman Richard Grasso, it actually made some sense to those familiar with Weill's long career.

"It was maladroit," says Jeffrey Sonnenfeld, a Yale School of Management associate dean, of Weill's nomination, "But, ironically, Sandy really was a champion of the little guy and has been a principled leader in many ways. He has stood for breaking up the old boys club, for diversity, meritocracy, and building more efficiency into the decision-making processes of these firms."


  In terms of raw financial performance (what investors ultimately care about more than ethics), Weill is still doing a good job running Citi. In the first quarter of 2003, one of the toughest in years in terms of economic and global risks, it boasted earnings growth from continuing operations of 18%, to a record $4.1 billion. Revenues increased 4%, to $18.5 billion. The stock, which dipped to a low of $24 last July, is now at $39 -- still well below its August, 2000, peak of $52, but a 60% gain from the low.

Just as important, Weill's two major customer groups are unlikely to abandon him now as a result of the research scandals, says Melville Blake, CEO of Maywood Advisors, which does consulting for financial-services outfits on corporate-governance issues. Those customers include, for corporate businesses, a small cadre of top CEOs who Weill knows personally, and, for consumer businesses, hundreds of thousands of ordinary folks who hold Citi credit cards, bank accounts, and loans. In the first quarter, more than half of Citi's earnings came from consumer businesses that have nothing to do with brokerage operations and were unlikely to be affected by the Grubman mess.

Weill may also get the benefit of the doubt in part because he has come across publicly as open, apologetic, and ready to change, says Blake. Weill has promised to uphold higher standards and even appeared humble. He stated publicly on Apr. 28, the day Citigroup and several other top firms settled with securities regulators: "I have been reminded myself of how the appearance of what we do may be questioned and of how we must take care to ensure that our conduct does not raise such questions or in any way undermine our customers' or shareholders' confidence in the integrity of our business practices."


  For Weill to reclaim what only a year ago seemed his rightful legacy as a top financial figure (he was named CEO of the year by Chief Executive magazine in June 2002), he'll have to prove -- through strong, consistent financial performance -- that his vision of building a conglomerate has significant benefits.

"If we look back after five more years and Citigroup has evolved into the efficient machine that Weill envisioned, the fact that he's given credit will probably be what gets the biggest play and not the ethical lapses that right now are looking very important," says Hayes.

"It's a continuing story," says Blake, who also thinks Weill's ultimate legacy rests on whether sprawling Citigroup outperforms or eventually gets broken up. He also sees a chance that Weill's legal problems could worsen from here and would eventually cast such a serious negative shadow on the whole company that Weill's investor base -- as well as his board -- would call for his ouster before he has a chance to prove his model works. "Time might run out," says Blake. "It will take 5 to 10 years to find out if he's more than just a great accumulator."


  Indeed, Citigroup's board has been under pressure for the past three years to announce a succession plan for Weill, who has no obvious replacement, although lots of clear contenders are among Citi's executive ranks. And Weill clearly wants to hang onto the job.

Shunned by the Wall Street Establishment early in his career, Weill still has something to prove to the broader world. After a year of scandal and embarrassment, his legacy will never be the same. But he's still on the job and as powerful as ever in some ways. Weill is bruised and battered -- but certainly not out of the fight yet.

Amey Stone is an associate editor of BusinessWeek Online and is co-author of King of Capital: Sandy Weill and the Making of Citigroup (Wiley, 2002)

Edited by Beth Belton