Robert Rubin’s Legacy After GS, Treasury, Citi

Years ago when I was working for UBS, I read this book on Goldman Sachs, because I wanted to see how their culture had evolved up to the IPO stage—the book came out the same year as their IPO. Our company had been a private partnership (Brinson Partners) that sold to UBS a few years before, and I was looking for comparisons to how our partnership culture had changed as we became part of a large public organization.

Besides being rather obsequious about Goldman and its leaders over the years, the book was well researched and detailed. The part that stuck with me all this time was about Robert Rubin, who joined the firm in 1966 and stayed until 1992. The book said that Rubin handled even the greatest crisis with the greatest of equanimity. He was also referred to in the book as “deeply humble and unpretentious” and “searingly smart.”

Of all the executives profiled in the book, Rubin and his characteristics always stuck out for me because that’s how Brinson Partners was that’s how I wanted to be as I built my finance career. I read the book when Rubin was coming to the end of his tenure as Treasury Secretary and was receiving much of the same type of praise—and it continued when he went from Treasury to a senior non-executive adviser at Citigroup in 1999.

Now that we’re in the witch hunt phase of the financial crisis, Rubin has come under fire. He resigned from Citi on Friday after pocketing $115m since joining Citi while shareholders have seen the stock decline 70% in the same period. He’s also taken punches for being among the deregulation crusaders that caused the CFTC to lose its power to oversee derivatives and caused Glass Steagall to be repealed (which allowed commercial and investment banks to merge).

Yet I still find myself loyal to Rubin and what he stands for as an executive and public figure. The Citi compensation part doesn’t bother me as much because, I figure a guy who rose to the top of Goldman Sachs over 26 years and had his signature printed on our money is worthy of his compensation. The regulation part is harder for me to swallow as I have been a contributor to critical pieces on deregulation on this site in the past. But then I read this excerpt from his resignation letter (full letter below):

My great regret is that I and so many of us who have been involved in this industry for so long did not recognize the serious possibility of the extreme circumstances that the financial system faces today. Clearly, there is a great deal of work that needs to go into understanding exactly what led to this situation and what changes, regulatory and otherwise, must now be implemented to reduce systemic risk and protect consumers.

Many will cast this off as a clever but hollow PR effort, but to me, it sounds genuinely like the guy I wanted to behave like years ago. This is why legacies are complicated. I come into it with an idealized notion of what a role model should be like, and this particular role model is on his way out—so he can say on his way out that work needs to be done on solving problems he helped create without helping to solve them. But in my idealized interpretation, regret is his key word. That’s as close to admitting fault as a public figure is ever going to get. That gets back to the humble and unpretentious character I always thought was so admirable for someone so powerful.

Legacies take time, and for Rubin the whole story isn’t written yet, s for now, I have to stick to my favorable view of him. However wrong I may be.

January 9, 2009

Vikram S. Pandit
Chief Executive Officer
Citigroup Inc.
399 Park Avenue, 3rd Floor
New York, NY 10022

Dear Vikram:

As we discussed, after a great deal of thought, I have decided to retire as Senior Counselor at Citigroup effective January 9th and not stand for re-election to the board at the next annual meeting. I will continue to do all that I can to help you during my remaining time on the board and beyond.

Let me begin by stressing that I have great respect for you and the job you have been doing in addressing the most difficult financial markets since the 1930s and, in that context, Citi’s complicated challenges. You quickly put together a strong management team and, more broadly, you have made and continue to make tough decisions on expenses, asset dispositions, equity infusions, the future strategic direction of the company and in many other areas. Citi continues to have a very special franchise, with many strong assets and many terrific people. There is still a great deal to do, but I have great confidence that Citi will meet the long-term challenges ahead.

When I joined Citi in 1999, the company had two CEOs and faced many strategic and structural challenges. From the beginning, my role, by being advisory, allowed me to act as a sounding board and advisor for the CEOs, senior management, and others, on managerial, personnel, strategic, and structural issues, and on major acquisitions like Schroeders and Banamex. My other role, working with clients and other Citi relationships here and abroad, gave me a keen appreciation of the important place Citi has in the global financial system and global economy.

The last 18 months have been very difficult throughout the financial system, and this has had serious consequences for the employees and stockholders of Citi and affected the people of our country and in countries around the globe. My great regret is that I and so many of us who have been involved in this industry for so long did not recognize the serious possibility of the extreme circumstances that the financial system faces today. Clearly, there is a great deal of work that needs to go into understanding exactly what led to this situation and what changes, regulatory and otherwise, must now be implemented to reduce systemic risk and protect consumers.

As to Citi, during this period, the company has taken major actions to change personnel, recruit strong people, raise new capital, chart its future direction and much else. Participating in these decisions has given me a very special vantage point on the people of Citi, and I think they have been and are responding with great skill and commitment in a most trying time.

Leaving Citigroup is not a decision that I have come to lightly. As you know, when we officially changed my title six months ago, my first choice had been also to reduce my advisory and client-oriented role. However, after you and I spoke, I decided to continue in those roles as you and your management team settled in and began to implement proactively your program of substantial and important changes at Citi. But now, as you and your team have made the tough decisions I mentioned earlier and established yourselves, the time has come for me to reshape the structure of my life.

As we discussed, as I enter my 70s, and recognize that time is not indefinite, I have been looking forward to deepening my involvement in outside activities and organizations to which I have been strongly committed.

To that end, I intend to intensify my engagement with public policy; for example, the type of activity we have done at The Hamilton Project, where we have charted a more effective way forward in many economic policy areas; at the Local Initiatives Support Corporation (LISC), the nation’s largest community development organization, which I have long chaired, which distributed over $1 billion to distressed urban and rural communities last year and which now must work through new strategic challenges in the face of greatly-changed neighborhood and economic conditions; and Kofi Annan’s Africa Progress Panel, which has the potential to contribute in special ways to economic development in the poorest continent on the globe. Both of these latter activities reflect my long-standing involvement with the issues around the inner cities and poverty in those cities as well as global poverty more broadly.

Vikram, with all that is now in place at Citi and in our financial system, I think now is the time to move on my earlier plans. I have developed great professional respect and personal regard for you as you have taken on your new and challenging role, and I have great confidence that Citi will emerge from this difficult period successfully and as a great presence in the global economy.

Sincerely

Robert E. Rubin

Cc: Sir Win Bischoff
Richard D. Parsons