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: 'No Line Responsibilities' - What Robert Rubin did for his $115 million. |
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| | From:  tc101 (Original Message) | Sent: 12/4/2008 4:39 AM |
WSJ REVIEW & OUTLOOK
DECEMBER 3, 2008
'No Line Responsibilities' - What Robert Rubin did for his $115 million.
On October 18, 1999, Citigroup announced that former Treasury Secretary Robert E. Rubin was joining the firm. But what exactly would Mr. Rubin do at Citigroup? Citi's SEC filing eight days later noted that Mr. Rubin would be joining the bank's board of directors. After that, the message to investors began to get murky. Citi said that Mr. Rubin "will serve as Chairman of the Executive Committee of the Board and will work with Mr. [John] Reed and Mr. [Sanford] Weill, Chairmen and Co-Chief Executive Officers, in a newly constituted three-person office of the Chairman."
Was Mr. Rubin to be primarily a member of the board overseeing management, or a part of the management reporting to the board? Things became even murkier when Messrs. Weill and Reed described Mr. Rubin's job: "Bob will participate in strategic managerial and operational matters of the Company, but will have no line responsibilities."
As a great man of finance, Mr. Rubin would be paid CEO money -- a total of $115 million since 1999, not including stock options -- but without having to run a business or be accountable for the results. For years, journalists tried to figure out exactly what Mr. Rubin's job was at Citigroup, and perhaps even his fellow Citi directors weren't entirely sure. In 2000, a bitter feud between Messrs. Reed and Weill forced the board to choose sides and decide on one CEO to run the business. Before the board began its deliberations, directors reportedly asked Messrs. Reed and Weill -- and also Mr. Rubin -- to leave the room.
This would be customary if the board saw Mr. Rubin as a part of the management team. In fact, at a separate moment in its discussions, the board asked Mr. Rubin if he would like to lead the management team as CEO. He immediately rejected the idea. No surprise there. If you can have the paycheck and the authority without the responsibility, could there be a better gig?
The virtue of this arrangement for Mr. Rubin has become manifest during the current panic. While Mr. Rubin has acknowledged that he promoted the disastrous idea of exposing the bank to greater risk to boost profitability, his "no line responsibilities" job description now allows him to blame the line managers for the consequences of his ideas.
Citigroup shareholders have suffered losses of more than 70% since Mr. Rubin joined the firm. To this day, he appears unable to say what exactly he did for the $115 million that he took out of Citi. "I think I've been a very constructive part of the Citigroup environment," he recently told the Journal, in defense of his tenure. Try selling that line at your next annual performance review, especially when asking for an eight-figure salary.
What is clear is that Mr. Rubin encouraged changes that led Citi to the brink of collapse. Which brings us to his best (only?) argument to shareholders. Mr. Rubin was reportedly critical to securing the latest federal bailout of Citi -- $20 billion in preferred shares plus taxpayers taking on most of the risk in a $306 billion portfolio of dodgy assets. This is on top of the $25 billion in Citi preferred shares that taxpayers bought in October. Giving Mr. Rubin the benefit of the doubt that he is the fixer who delivered the federal cash, this could make his paycheck appear more reasonable to many shareholders.
Or perhaps Mr. Rubin will be a victim of his own Beltway success. The U.S. government, with a 7.8% stake, is now a major Citi shareholder. The activist investors known as American taxpayers might just decide that they have no more dollars to spend on "constructive parts of the environment" with "no line responsibilities."
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