New Citigroup Board of Directors Could Foretell New Era of Government Influence in Corporate America

A report today at Bloomberg.com by Ian Katz and Bradley Keoun discusses the probability that the U.S. government’s influence in the recent board shakeup at Citigroup could be a sign of things to come for Corporate America.

The government pressed Citigroup to revamp its 15-member board with a majority of new independent members to send a message to Wall Street and the public that companies face consequences when the U.S. is compelled to take extraordinary steps to save them, an Obama administration official said last week, speaking on condition of anonymity.

“The government is the new boss,” Michael Holland, who manages about $4 billion as chairman and founder of Holland & Co. in New York, said after the U.S. increased its stake in Citigroup to 36 percent on Feb. 27. “The new executive committee is no longer on Park Avenue.”

The Treasury Department’s investment in New York-based Citigroup will consist of common voting shares, which means it will have the biggest say in approving any board nominees. The Government of Singapore Investment Corp. will have an 11 percent stake, meaning the two biggest shareholders will control 47 percent of the votes to be cast at the bank’s shareholder meeting in April.

According to the article, Citigroup maintains that there will be a “normal nominating committee” and that the government will not dictate who will be named to the new board.  Citigroup also says that it is completely in charge of the day-to-day operations of the company.

However, the article cites Richard Ferlauto, director of corporate governance and pension investment at the American Federation of State, County, and Municipal Employees, as stating what is relatively intuitive and obvious: companies that are still in business today after receiving billions of dollars of government money are also likely to be subject to more federal scrutiny of their boards.

The authors highlight the apparent irony of the U.S. government intervention, considering comments made by Lawrence Summers, the National Economic Council to President Obama.  Summers raised concerns about foreign government influence on sovereign-wealth funds that invest in U.S. companies, saying “the funds prompt questions about corporate governance, multiple motives and potential abuse of political influence.”

If the U.S. government’s influence in the board shakeup at Citigroup truly is a harbinger of things to come for Big Business, the same concerns will be true of U.S. government influence over major companies in America.  Will corporate governance and such companies be truly independent?  Will sound decision-making be insulated from conflicts of interest and undue political influence?

These questions and many more will be worth tracking in the months and years ahead now that Treasury Department has become the biggest investor in many of the United States’ largest and most prestigious companies.

>>>read the full article by Ian Katz and Bradley Keoun “Citigroup Board Revamp Signals Heavy U.S. Hand” at Bloomberg.com.