CHAPTER ELEVEN

Politics and Business

STEPPING DOWN AS Treasury Secretary was a process that needed to be managed. Though the global economic crisis was on the wane by the spring of 1999 and the impeachment battle was over, there was still much to be concerned about—both in relation to the world I was leaving behind and the one I was thinking of going back to.

Having Larry Summers as my designated successor took care of the biggest problem. More than any other single person, Larry had driven the substance of the U.S. policy response to the Asia crisis. Many people both inside and outside the administration recognized the intellectual leadership he had provided. But Larry wasn’t just a rigorous and insightful thinker. As a manager, he had come a long way. I was comfortable with his readiness for the job and his capacity to deal with others in the administration, Congress, the business community, and the financial markets.

I remember once being in the chief of staff’s office and being handed a sheet of budget numbers. Larry and I both went to work on them, circling some, scribbling question marks next to others, making rough calculations in the margins. Larry said to me afterward that people react to sheets of figures in two ways. Some people look at them, take them as a given, and go on from there. Others look at numbers and start to question them, looking for inconsistencies, asking what they mean and what stories they tell, wondering about the relationships between them. Larry and I shared that kind of disposition, not just toward numbers but toward all sorts of supposed certainties. As different as we were in many ways, we shared a cast of mind that made us highly compatible as colleagues.

I was confident about the rest of the economic team I’d be leaving behind as well. Gene Sperling was now in my old job at the NEC. Gene had developed over the years a great seriousness of purpose around the issues we faced: fiscal discipline, trade liberalization, engaging with economic crises internationally, and the whole set of issues concerning education and the inner cities. In the second term, Gene put together highly substantive, effective processes around such issues as Social Security reform and the emerging budget surplus.

And that was emblematic of a larger point. First under the strong leadership of Laura Tyson—who was insightful and always told the President what she thought—and then of Gene, the NEC had remained at the center of economic policy making for six and a half years, providing an honest-broker process for almost all economic issues, which augured well for the future. Responses to international financial crises were handled differently, with Treasury in the lead, but even there the NEC and NSC brought the relevant cabinet agencies and White House staff together to consider the large policy choices. A simple vignette illustrates how well this vision of President-elect Bill Clinton had worked out. At one point in the second term, there was some internal disagreement over how to respond to strong pressure for increased barriers to steel imports. Madeleine Albright and I were so strongly opposed to increasing barriers that we wanted to send a joint memo to the President. On the other hand, Gene and I agreed that could undermine the NEC process and would give the President only one point of view. So, instead, Gene ran an expedited NEC process, submitted a memo to the President with the arguments on both sides, and attached memos from the cabinet members who wished to express their views themselves. By taking good process seriously, the President was given the material to make a fully informed decision, in the context of a fair process that best promoted buy-in.

As to my departure, my most immediate concern was how to handle it. I was leaving because I felt ready to go after six and a half years and I didn’t want anyone to think it was because of differences of opinion inside the administration or problems of some other sort. Market participants needed to be comfortable with my successor and the economic team. A particular concern was one Gene had raised with me: some people might interpret my departure as meaning that Clinton was essentially done with economic policy—either because there were no major issues still facing us or because the President couldn’t do anything politically with a Republican Congress during his last year and a half in office. I was also anxious to avoid becoming a lame duck during the period between my announcement and my departure—which I’d seen happen repeatedly in corporate settings, when a CEO announces his resignation in advance of actually stepping down. Part of the challenge was to figure out ways to talk publicly about my departure that met these various needs.

In a high-level business job, stepping down can create many problems that have to be managed, but a cabinet-level departure in Washington is even more complicated, with possible ramifications one wouldn’t face in the private sector. I thought about my departure as yet another process that needed to be managed thoughtfully. To create a seamless transition, I needed a savvy adviser. So I asked Tom Donilon, a former assistant secretary of state and a political pro I’d known since the Mondale campaign, to come over to talk to me in confidence about my announcement and how to manage what was likely to be a five- or six-week period between it and Larry’s Senate confirmation. Talking to Tom, I made pages and pages of notes about what I was going to say internally, what I was going to say externally, whom I was going to speak to, when I was going to speak to them, what the hard questions would be, and so forth. I tried to anticipate every difficulty.

The first thing Tom told me was to quit worrying about the lame-duck issue. “This kind of departure is different,” he told me. “Until you leave, you are Secretary of the Treasury. You won’t be a lame duck, because the outside world will continue to view you as having the authority of that position until the day you step down.” In fact, I was more concerned about my informal role sitting around the NEC table or the chief of staff’s table, where your influence doesn’t depend merely on the authority vested in your office. But here, too, Tom felt I wasn’t going to have a problem, possibly because I had been in the administration since the beginning, had a well-established role in fact as well as in title, and retained the authority of my cabinet position until I left. And Donilon was right. In this and all other respects, my departure and Larry’s assumption of the job went as smoothly as I could have hoped.

The other major issue I faced was what to do next. To help myself think through the issues, I took a yellow pad and began to write down questions for myself: What do I want to be doing with my time after I leave? Do I care about being in the financial world again? About remaining involved in public policy? About being involved in Democratic politics? About making money?

During my six and a half years in Washington, I had remained focused on markets, but from the outside. I was concerned that despite the many years I’d spent on Wall Street, I might have lost some of the feel for markets that comes from working in New York. To answer the question of what to do next, I needed to wander around Wall Street a bit and speak to people more candidly than was possible as Treasury Secretary. The financial environment had clearly changed since 1992 and, before I could make an informed decision about my own future, I needed to have a better sense of what was going on. I also had to decide where to put my personal assets. During my time in Washington, my assets had been in a blind trust. A friend who served in the Nixon administration told me that he had lost half of his net worth under such an arrangement. Not wanting to lose what I had and not being able to play any role in choosing investments or even in protecting myself if I became uneasy about the market, I had directed my trustee to invest very conservatively. But now that I could be personally involved in the markets again, I faced the question of whether I should invest more aggressively. In many ways, my career and personal financial issues were linked. Only by reimmersing myself in the financial world in New York and fleshing out my view of markets could I determine whether I wanted to participate in them at any level.

Back in New York during the summer of 1999, I set up shop at the Council on Foreign Relations, which had offered to take me in during my transition out of government. I spent the next several months in a garretlike office with a view over the backs of East Side town houses. Using that pleasant attic space as my temporary base, I visited with all sorts of people I’d known over the years—from hedge fund managers, private equity fund investors, and investment and commercial bankers to Henry Kissinger and Warren Buffett. I took copious notes about people’s views on the economic outlook, the geopolitical outlook, the state of markets, the changing structure of the financial sector, and my own job options and personal financial issues.

The first decision I made was to become chairman of a national not-for-profit organization called the Local Initiatives Support Corporation, whose work I had developed tremendous respect for when I was at Treasury. I knew I wanted to stay involved with issues relating to the inner cities, and LISC, which provides funding and technical assistance for urban and rural community development, seemed a great opportunity for doing that. I also returned to the boards of Mt. Sinai Hospital Medical Center, which I’d had to resign from in late 1992 when I had first joined the Clinton administration.

Beyond that, I knew I wanted to stay active in public policy issues, but I didn’t quite know how. Now that I’d left Washington, how could I continue to be sufficiently well informed as to remain relevant? Would anybody care what I had to say now that I was an ex–government official with no power? When I put that question to him just before I left Washington, Bob Strauss answered me with characteristic candor:

“You’re a grape now, and you’re going to become a raisin,” he said. “The only question is how long it takes.” It struck me that grapes can also become fine wines, but I had the feeling that Bob would quickly have ridiculed that notion.

   

MY FORMER GOLDMAN SACHS colleague Steve Friedman told me there were two basic career models for someone in my position: I could put together a menu of different involvements I wanted to have. Or I could have one central job, as I had at Goldman Sachs, with various additional involvements on the outside.

As I continued talking to people and making notes, the second model seemed to suit me better. I decided that I wanted to go back into the financial world. At some level, perhaps I was just returning to familiar ground. I liked that world and could apply what I knew best most effectively there. But working in the financial sector would also give me an opportunity to stay current, to have the knowledge and insight that come from being engaged. That would help provide a basis for my involvement with the public policy issues I cared about and make my efforts to contribute to them more valuable. I wasn’t pressed financially, but I am also a reasonably commercial person, and I felt that I wanted something that would be financially rewarding. And finally, for whatever reason, I actually find the management issues of large organizations interesting. (Most of my friends view this as a personality problem that I should try to work out in some other way.)

But some of my other job criteria complicated the picture. I was extremely cognizant of the difference between being the deputy and being the Secretary, of having great responsibility within an organization as opposed to having the ultimate responsibility. I’d had the ultimate responsibility both at Goldman Sachs and at Treasury, and I didn’t want that again. I was at a stage in my life where I wanted to try to live a little differently, with more time and focus for my family, fishing, reading, and whatever I might care about or find interesting. So I wasn’t going to be a CEO.

But I did want to be part of the central management structure wherever I went. A colleague who had left the Clinton administration and taken a very attractive, highly paid position at a financial firm had a big influence on my thinking. He visited me at Treasury and said, “I’ve got a terrific job, but I’m never going to be in the inner management. And if you’re not in the inner management, it lacks something. You don’t feel like you’re a central part of the place.” When he said that, something clicked with me. People with outsized résumés are often viewed from outside as being importantly involved in a company, when in fact they have no real role in management. From that point on, I added that criterion to my job search.

Having a former Treasury Secretary as a kind of elder statesman—though I didn’t think of myself as either elder or a statesman—to provide advice and deal with clients, as Henry Fowler had been hired to do at Goldman Sachs, would probably appeal to almost any financial institution. But creating a role in central management was more of a challenge. Fitting someone like that into the top level of an organization can be awkward. He’s not going to be CEO or COO or CFO or have decision-making authority with respect to any of the company’s activities. So what does he do and where does he fit in?

What I was really trying to create for myself was some type of consigliere position, or to become a minister without portfolio who lends a hand in many areas. At one point, I had been interested in finding an adviser to play this role for me at Treasury—someone who was deeply experienced but had no agenda of his own, who could serve as a sounding board for me and for other people around the department. Now I was looking for that kind of role for myself in a private-sector context. This is a good management idea in theory. Many CEOs would probably benefit greatly from the advice of someone loyal to the institution but without a personal stake in major decisions. But for various reasons, this is almost unheard of in practice. Most executives probably don’t want a figure with independent standing within their own organization. And coming in from the outside, such a figure could easily seem threatening to others within a company. There also aren’t many people who have had the requisite responsibilities and experiences who would be satisfied simply to provide advice—advice that might well be ignored.

I wasn’t sure anyone would be amenable to creating the kind of role I was looking for. But almost every organization I talked seriously with did develop a solution, each in a slightly different way. Their answers were all unconventional, because the situation was unconventional. Most of the possibilities involved variations on being a nonexecutive chairman of the board or part of a chairman’s office. One company proposed that I run a kind of internal think tank. Another suggested that I focus on guiding a generational transition among senior management. Each represented a potentially attractive opportunity, but they all raised some level of doubt about their workability.

I was close to deciding where to go when Judy threw a “Welcome Back to New York” party for me at the Metropolitan Museum of Art (this may have been her clever way of trying to ensure that I didn’t take another job in Washington). Sandy Weill, the co-CEO of Citigroup, was there, and while we were chatting, he invited me to come by his office for a talk.

I said, “I’m happy to talk to you, if you’d like. But I can tell you I am fairly close to accepting something else and I just don’t think working at Citigroup is what I want to do.” I didn’t want to meet with Sandy under false pretenses. But Sandy still wanted to talk, so I went to see him at his office.

Sandy is known for being a good salesman. He made Citigroup sound like a fascinating place. He told me it operated in 102 countries and had a huge diversity of activities: investment banking, insurance, retail and commercial banking, credit cards, asset management, a private bank, and a whole range of emerging-market involvements. We ended up talking for a couple of hours. Citigroup had joint CEOs: Sandy and John Reed, who had been brought together as a result of the Citicorp-Travelers merger. This was an unconventional structure, and press accounts indicated that there were some issues between them. What I didn’t understand until sometime after I got there was that, while Sandy and John’s personal relationship was very good and both were extremely able, their working relationship was not commensurately effective.

After meeting with Sandy, I met with John. Then I met with Sandy again. It seemed as though he called me almost every day for a month. I started to develop a sense that despite his reputation as a large, dominating personality, Sandy was someone I could work with. And after about my fourth visit, I said to Judy, “You know, I’m not going to do it, but this place is really remarkably interesting.”

And she said to me, “You know, this is the first thing you really seem excited about. Shouldn’t you do it?”

And I did. Shortly after the announcement, Al Hunt wrote a column in The Wall Street Journal criticizing my decision to take a high-paying job in the private sector. He was disappointed that I was going back into commerce and said I could do more good elsewhere. I have great respect for Al, but I didn’t see why I shouldn’t do what I wanted to do or why I had to become a monk just because I’d spent time in public service. Also, I did intend to stay involved in public policy and social endeavors—in fact, my contract with Citi specifically recognized that part of my time would be spent that way and that I would be expressing my own, independent views on issues. If Al’s position became the standard, I thought to myself, people in the business world would be discouraged from going into government—to the detriment of both sides. You’d have something more like the European system, where civil servants and politicians rarely have any experience in the private sector and the private sector has relatively few people who understand how government works.

I also think Al missed an important point about my ability to be useful on the very issues he cared about. My contribution could be far greater if informed not only by my understanding of issues based on the experience I’d had in government but also by a current engagement with financial matters and markets around the world. In Bob Strauss’s terms, I’d shrivel into raisinhood much more quickly if I didn’t immerse myself in the business and financial world again.

   

FOR THE REASONS I’ve discussed, working in government was more preoccupying than anything else I’d ever done. It’s always with you. You’re in the public eye. Your role is never entirely clear. You can have the rug pulled out from you at any moment. You can have similar experiences in the private sector, especially when an issue blows up unexpectedly, but, except at extraordinary moments, the degree and constancy of the pressure are not the same. In my new capacity at Citigroup, I was hoping to have much more control over my own time—both to be freer to do whatever I felt like doing and also to have a greater feeling of freedom.

I remember talking about this with Sam Nunn, who had retired from the Senate a few years before I left Treasury. Sam told me to be careful, because I’d find myself overcommitted very quickly. He said that’s what had happened to him since leaving the Senate. I said, “Sam, I understand you may have that problem, and that’s a shame. But I actually understand myself pretty well, and I know I can handle this.” Though I tend to invest myself very deeply in whatever I do and find almost everything interesting, I thought I had the self-knowledge and discipline to develop a reasonably balanced life, to manage a little bit differently this time.

But I quickly found myself in precisely the situation Sam Nunn had described. Partly I misjudged myself, but I also underestimated the influx of opportunities outside Citigroup as well as the sheer size and range of Citigroup, the largest financial company in the world, which does everything from conducting the industry’s biggest emerging-market trading operation to running the world’s largest credit card business. From the outside, it’s very difficult to have any sense of what this kind of scale and scope in businesses of this complexity mean. Goldman Sachs had 6,000 people when I left, and that had seemed immense to me. We had made one acquisition in all the years I was there, when we took over the commodity-trading firm J. Aron. Citigroup had 180,000 employees when I joined and typically made several acquisitions every year—one or more of them major.

I tried to get a handle on Citigroup’s activities in my usual way: I took out my yellow pad and went around talking to various people about their businesses. Michael Froman, who had been my chief of staff at Treasury and was also moving to Citi, went around with me. What we found was nothing like what I had expected. For example, I assumed that the credit card business was an office filled with clerks who kept track of payments. In fact, it’s an actuarial business that uses highly sophisticated statistical models developed and constantly experimented with by a large team of people with graduate degrees, including twenty-seven with Ph.D.s in areas related to “decision management.” They use computer simulations to test credit decisions and model how minor adjustments in credit card terms or marketing may affect consumer behavior and thus the business’s rate of return.

I was soon learning about other areas of finance I’d never had much direct involvement in: commercial lending, consumer banking, asset management, private banking, subprime lending, and a range of emerging-market activities. I took the better part of a year just to gain a rudimentary understanding of Citigroup and its various businesses. In the course of that year, I began to feel much more personally invested in the company than I ever thought I would be.

Shortly after I arrived, I was drawn into issues related to Salomon Smith Barney, the investment bank that had come into being when Travelers had merged its subsidiary, Smith Barney, with Salomon in 1997. Before I arrived, a major New York financial figure told me that Salomon, which had always been a major force in fixed-income trading, was no longer a first-tier firm. I quickly realized that this comment wasn’t correct. Despite having weathered a series of setbacks in the late 1980s and early 1990s, Salomon was still a force and seemed very focused on moving forward. Having both the capabilities of the old Salomon Brothers firm, especially its place as the world’s premier fixed-income house, and credit extension abilities gave Citigroup multiple ways to meet a client’s needs. But the firm did face a number of substantial strategic challenges, one of which was establishing itself more effectively in Europe. Toward that end, Citigroup had been negotiating to acquire an established British firm, Schroders PLC, as a platform for European expansion. The merger ran into trouble over the Schroders people’s concerns that Salomon might still resemble the Salomon Brothers of the era of Liar’s Poker, the book by Michael Lewis that famously described the Salomon of an earlier time as rather rough-and-tumble. The Schroders people asked me to fly to London for a Saturday night dinner to discuss the Salomon culture with them and to satisfy themselves that Salomon now functioned in a more civilized, client-focused manner—all of which I was comfortable doing.

Perhaps the most difficult issue at Citi was its management structure. I assumed that Sandy’s desire to hire me was driven in part by the feeling that I might be able to help him and John reach decisions more readily. The complexities and potential of the co-CEO structure interested me, based on the very good experience Steve and I had had as co-COOs and co-CEOs at Goldman Sachs. I thought that I might be able to draw on that experience to help the two of them develop processes that would work more effectively.

Since I was now the third member of the office of chairman, though not a co-CEO, I suggested that we have a meeting once a week, called the “Office of the Chairman Meeting,” with the three of us as well as Chuck Prince, Citigroup’s general counsel, acting as secretary. I would function as a facilitator to try to help John and Sandy work through decisions. John was fine with the process, but it was Sandy who really used these meetings, arriving with a prepared agenda. He would say, “I’ve got these five things I want to talk about today.” And we would go through them one by one.

These meetings helped John and Sandy somewhat, but making decisions and setting direction continued to be very difficult. One of the big issues in that initial period was something called e-Citi, an effort John had begun before the merger to take advantage of the Internet. John took the view that was common among Internet-savvy people at that time—and that may well have been right—that big, traditional companies weren’t prepared to make the cultural changes necessary to employ the Internet effectively. Lest it be smothered, John thought the only way to get an Internet business started at Citi was to go outside traditional channels. Sandy, on the other hand, thought we were spending a great deal of money on the initiative relative to what we were getting. He thought Internet activities should be run within Citi’s established structure and subjected to the familiar forms of budgetary discipline. My own view was that the problem of culture-shaking innovation at big companies was real and that John’s way of getting the project off the ground was better initially. It did lead the company energetically into the Internet age. On the other hand, I felt that by the time of this discussion, awareness of the technology’s significance had developed enough that transferring Internet activities into the various business units made sense.

That was just one of several unsettled issues outstanding in February 2000 when Citigroup’s management committee, which consisted of the top twenty or so executives in the company, flew to Boulder, Colorado, for a three-day retreat. On the first day, we had a discussion about managing the company in relation to future growth. Deryck Maughan, former CEO of Salomon Brothers and a highly respected senior officer of the company, made a presentation that to me is still thought-provoking. At that point, we had around 180,000 people. Leaving aside Deryck’s actual numbers, if, hypothetically, earnings grow at 10 to 12 percent a year, which with compounding means doubling in six or seven years, we would probably have around 400,000 people—allowing for increased productivity—within a decade. Deryck posed a major conceptual and practical question: What processes would we need to manage a staff that large and still growing? Coming up with an answer meant, among many other issues, finding the right balance between central control of fundamental strategic decisions, budgets, risk limits, and major legal affairs on the one hand and delegation of the more specific strategies and operations of the individual businesses on the other. And there are other challenges: treating customers as if it were a small company, giving employees the feeling that the strength of a great organization can help them best realize their own potential rather than being a bureaucratic anchor, making expeditious decisions where issues cross business, product, or geographic lines, and creating mutual cooperation across those lines to realize efficiencies in terms of revenues and expenses. I believe that these challenges are being met, but, like any successful organization, Citigroup is a work in progress, guided not only by its leaders but in its case also by an entrepreneurial, numbers-focused approach to business.

On the second day of the meeting, the discussion got around to how well we were functioning as an organization. People started talking about the co-CEO structure, and most said it wasn’t working well, principally because of the difficulty in making major decisions and setting strategic direction. The discussion was remarkably candid. One longtime Citibank person made the point in a memorable phrase, saying, “We need one North Star.” I later got the impression that Sandy and John had both come away from the Boulder meeting thinking to themselves that the co-CEO structure couldn’t continue. As a result, the two of them agreed to bring the issue to the corporation’s board of directors at a special Sunday meeting a month later. Since so much has been written and reported about that meeting, I feel comfortable in speaking a little about my views.

When asked, I said that I thought Sandy and John were both extremely capable people, and my first choice was for both to stay and work together effectively. But if that couldn’t happen, with most of the people in the company’s top management coming from the old Travelers and Citigroup revolving mostly around Sandy, I didn’t think the board really had a choice. I left the room, and their discussion went on for several hours. I was waiting in an office, watching a Knicks game on TV, while the board tried to resolve the issue. Sandy and John were sitting with each other in a different office, kidding around and trying to appear relaxed. Then the board came out and announced to the three of us that Sandy would be the sole CEO.

That experience caused me to revise my views about the issue of joint CEOs. Steve Friedman and I had worked together effectively in running Goldman Sachs a decade before because our fundamental views were compatible, because we were both relatively analytical and fell easily into a process for working out differences, and because we didn’t have ego conflicts over decision making. But very rarely will the kind of people who are likely to become CEOs be able to function in this way. The experience of John and Sandy, and other similar situations I’ve seen, left me with the feeling that the odds of co-CEOs working together effectively in a corporate setting are actually very low. In most cases, corporations are best off with a single North Star, though I still feel, contrary to virtually all established opinion, that in the rare circumstances where the co-CEO structure will work, the benefits can be substantial.

   

IN EARLIER CHAPTERS, I discussed how my previous experience in business served me when I went into government—and considered some of the differences between the corporate and government worlds. There’s a widespread view that the public sector has more to learn from the private sector than the other way around. But the traffic seems to me to go in both directions. The private-sector prejudice against the public sector is such that people are often surprised when I say that for-profit enterprises have much to learn from the way government works.

One area where I think business can gain from government is in interagency process—getting people from separate units and with different points of view together around a table to reach common ground on issues that cut across unit boundaries. Two others that can be closely related are managing in the kinds of crises that are becoming more common and often thrust companies into the public eye in unexpected ways, and dealing with the political and “message” dimensions of high-profile issues. Yet another is dealing directly with government itself.

After returning to New York in 1999, the area where I was most keenly aware that the private sector could gain from the experience of government was in managing the decision-making processes around complex issues with multiple internal stakeholders. In government, a chief of staff or a cabinet-level official spends a great deal of time trying to get groups of people from different units to work together in an effective way. This is an inherent need, because most major issues cross organizational lines and require coordination among different agencies, constituencies, and centers of authority to be resolved most effectively (though the history of our government is rife with examples of breakdowns of this needed coordination, often with untoward effects on policy decisions). For example, a major new initiative for inner-city problems probably wouldn’t be properly developed unless officials from, at the very least, HUD, OMB, HHS, Treasury, and the White House got together in a room and hashed out a recommendation for the President.

At big corporations with many different business units, the same kind of need exists. These units maximize their collective profits over time by working together effectively—and the private sector has the advantage of being able to use accounting and compensation to encourage people to work together, which the public sector for the most part cannot do. But the separate business units of a big company usually aren’t as used to working through their differences and problems with one another to enhance the well-being of the whole as government is of necessity. They’re more used to operating in separate “silos” and being held accountable for their own individual bottom lines. That issue often comes to the fore when companies seek to cross-sell—that is, to use the sales force of one unit to sell related products from other units—or to make product/geography matrices work. (Who runs a credit card business in South Korea—the person in charge of credit cards or the person in charge of South Korea?) People who have learned how to manage interagency processes in Washington have a crucial set of skills that are not likely to have been as well developed in business and can add much to a company if they are properly supported by the CEO.

Another area where corporations clearly have much to learn from Washington is in understanding political considerations, both in dealing directly with governments, domestic and foreign, and in handling business issues that are political by their nature. In December 2001, Sandy and I traveled to the People’s Republic of China and met with Premier Zhu Rongji to discuss a strategic alliance with a Chinese bank to issue credit cards. In putting together our proposal, we focused only on solving complicated substantive problems and failed to consider an even more intricate set of issues related to the distribution of political power within the Chinese government. What political interests would the Premier have to think about if he wanted to support our plan? Who, within that political structure, would view our proposal as threatening, and who as beneficial? A robust credit card business in China would promote consumption, which was clearly an economic goal of the government. But it might also threaten elements of the banking sector or of the bureaucracy that maintained control over the banking sector. Zhu was supportive of the project, but it foundered, seemingly because of internal political opposition. Perhaps if we had recognized these problems in advance, we might have devised a plan that would have helped to satisfy those other constituencies.

Political experience can also be valuable in the private sector when companies find themselves involved in issues with a significant political dimension. A good illustration of the corporate world’s difficulties in dealing with political-style controversy that I experienced firsthand was the conflict that erupted over Ford Motor Company’s potential liability for accidents involving SUVs that rolled over after tire failures. In 2000, the press reported that a number of people had been killed or injured in car accidents that had occurred when the tread on tires manufactured by Bridgestone/Firestone had separated. Firestone was Ford’s main tire supplier, and many of the accidents involved Explorer sport-utility vehicles, which were outfitted primarily with Firestone tires. Ford blamed the defective tires; Firestone claimed that the design of the Explorer made it more likely to roll over than other cars, and that Ford hadn’t warned buyers about the need to keep their tires properly inflated. Ultimately, the National Highway Traffic Safety Administration found that Firestone, not Ford, was at fault for the failures. The reputation of Ford and the Explorer emerged intact, but in the interim, Ford suffered reputational and political damage that might have been avoided or lessened.

Other than Citigroup’s, Ford’s was the only corporate board I’d agreed to sit on after leaving Treasury. For me, joining Ford’s board was an opportunity to learn something about how big industrial companies are run. Ford also had a significant family influence, which made it more interesting at a personal level and seemed to me likely to result in more of a long-term focus. Also, Ford had been Goldman Sachs’s flagship client in my early years there, and the idea of now being on Ford’s board carried a special meaning for me.

After becoming a board member, I began having conversations from time to time about issues facing the company with Bill Ford, who was then the nonexecutive chairman. (In more recent conversations, Bill and Jacques Nasser, the CEO of Ford when I joined the board, agreed to let me relate the discussions about Ford that appear in this chapter.) Bill has a disarming manner and a modest style that belies his having grown up in Detroit with the Ford surname. He also knows and cares a great deal about environmental issues.

When the Ford/Firestone story broke, Bill and I discussed how to deal with its political dimensions. Substantively, the company seemed to be handling this serious matter wisely, immediately offering to replace the relevant Firestone tires free of charge. That decision cost Ford some $3 billion but reflected Jacques Nasser’s immediate decision that the highest priority was to avoid further injuries or loss of life. But in dealing with the media and political aspects of the problem, the company’s natural instinct was to have its own legal and public relations officials handle the situation. I thought that these corporate people, who as far as I knew didn’t have extensive political experience, would be unlikely to deal with this kind of firestorm effectively. I said, “Bill, you’re not in a corporate situation anymore. You’re at the nexus of corporate issues, politics, the media, congressional investigation, and possibly even criminal prosecution. And you need people who are experienced working at that intersection.”

Bill said: “I think you’re right. Call Jac.” I’d gotten to know Nasser at Ford board meetings a bit and liked him a great deal. Born in Lebanon and raised in Australia, where he had begun working for Ford in 1968, Nasser had deep knowledge of and many interesting ideas about the automobile business. I called him and repeated the points I’d made to Bill Ford. Then I told Nasser that I’d like to make a few suggestions, which basically involved putting company officials in touch with people I knew who were savvy about Washington and the media.

I think that Nasser, never having lived through an event of this type before, understood my points more intellectually than viscerally. Like most senior executives in businesses, he was not experienced in this kind of crisis. As a result, even though Ford did hire some experienced Washington people, the company, for the most part, dealt with the problem with regular corporate programs and personnel. Firestone, meanwhile, shrewdly retained Akin Gump—my friend Bob Strauss’s politically connected and savvy law firm. And Firestone seemed to outmaneuver Ford on the media and message dimensions of the issue for some time. In the longer run, that didn’t matter, but in the shorter run, Ford’s reputational damage might have been more limited had the company adopted a more effective political and communications strategy.

While this matter was unfolding, I found myself being drawn into issues over Ford’s management that were unrelated to the Firestone problem. Bill Ford, unlike most nonexecutive chairmen, was involved in the company on a daily basis and had his office there. Moreover, the Ford family controlled 40 percent of the shareholder vote, which meant that he held considerable influence over the company in some ultimate sense. But Bill wasn’t the boss at Ford. Nasser, who had become CEO in 1999, ran the business. Though Bill liked and respected Nasser, over time he developed ever-deeper concerns about the condition of the company. Every so often, he would call me to discuss them.

That situation was difficult to interpret from the outside. Nasser was clearly at Ford as an agent of change, which Bill and everyone else agreed the company needed. But Jacques had run into significant difficulties in transforming the company. Like a number of executives in those days, he was trying to apply techniques that had been popularized by Jack Welch, who had made dramatic changes in the culture of General Electric. For instance, Nasser was trying to implement more rigorous personnel reviews, and he especially insisted that managers identify the bottom 10 percent of their people and develop tough-minded requirements for improvement. But what some of these CEOs overlooked was that Welch had had two decades to gain people’s confidence. Welch also had the personality of a coach—a natural ability to motivate people and breed enthusiasm.

Bill Ford’s view—as reported in the press at the time—was that Nasser’s efforts were hurting morale at the company. He thought that Nasser’s manner in pushing for change at Ford meant that the desired transformation was less likely to be accomplished. To remake a corporate culture successfully means not only being willing to incur some opposition but also winning the support of the preponderance of a corporation’s people. You can’t just impose change by fiat. Nasser pointed out that Ford was a hundred-year-old company with a large number of lifetime employees and a deeply entrenched culture, and that antagonism and resistance to change were inevitable—which was also true. That’s typically the conundrum around significant change in a corporate—or any other—setting: it won’t happen unless you’re willing to break some eggs and incur sharp opposition. But change also won’t take hold without broad buy-in. It is usually very difficult—if not impossible—for an outsider to judge whether an effort at change is meeting both these tests or is either too aggressive or not aggressive enough.

In the case of Ford Motor, I suspect both perspectives may have reflected an element of the truth. For example, focusing on the bottom 10 percent of executives every year ought to have had the benefit of forcing managers at Ford to face the difficult realities of improving the company’s workforce. But what had worked for Welch at GE might not fit at Ford, where long-term job security had always been the norm. At the same time, other difficulties were surfacing. Bill began to report to me and others on the board that even though corporate profits were strong, people who worked at the company were increasingly dissatisfied. The company’s relations with its dealers were worsening. And new surveys coming out indicated that Ford’s quality and productivity were declining relative to other automakers’.

Nasser, who is very smart, had been very focused on repositioning Ford as a consumer-products, services, and financing company. But too little attention had been paid to manufacturing and design, with the result that there were too few new models in development and meaningful cost disadvantages. Bill said he did not want to be CEO himself. He wanted Nasser to be successful. But he felt Jac was excluding him. Bill said that if he was going to help with the company’s problems, he needed to be in on decisions.

The difficulties at Ford brought home to me how little you can know as an outside board member of a company, even if you are very conscientious about your duties. At Ford board meetings, the issues that ultimately led to Nasser’s departure were often raised. My immediate reaction to hearing them would be: My God, we really do have a problem here and we have to deal with it. Then Nasser would respond. He’d either say that some issue sounded like a problem but really wasn’t for the following reasons. Or he’d say, “Yes, there is a problem, but here’s our plan for dealing with it.” That’s a good answer, I’d think, listening to him. There’s really not a problem. Or: There’s a problem here, but he really does have a plan for dealing with it. An outside board member has an obligation to learn as much as possible about the issues facing the company. But in truth, it’s very hard to know enough to disagree confidently with management about a problem until matters have reached a relatively serious state.

This thought was very much on my mind when issues about corporate governance came to the fore with the scandals at Enron, WorldCom, and elsewhere. Our system of corporate governance is based on oversight by directors. But if a board meets several times a year for a full day of substantive discussion, even a board member who also sits on a couple of committees and prepares diligently for meetings is unlikely to spend more than two or three hours a week immersed in a company’s issues. Some insist that this limitation is an argument for the kind of system that exists in Europe, where directors are much more active and constitute a second layer of management. More active directors may be able to ferret out problems more readily, though Europe has had its share of corporate governance problems over time. In any case, the European system also has real drawbacks, the biggest being that what is in some measure management by committee leaves companies less agile and adaptable, less willing to experiment and take risks, and less decisive.

On balance I much prefer our system of corporate governance—a strong CEO and outside directors with a more limited involvement. There are many who feel that under our system, especially as strengthened by the Sarbanes-Oxley Act of 2002, there is a flow of information to the board that is as effective as under the European model. But even if that is not so, and the potential for undetected mismanagement and corporate disasters is somewhat greater, I still think the benefits of our system greatly outweigh the costs, in terms of overall economic performance over the long run.

The decisive factor in Nasser’s eventual departure was the mounting evidence that major problems at Ford did not seem to be improving. A year went by and Nasser still had strong answers, but the cumulative negative evidence seemed weightier. Given more time, Nasser might have turned Ford around and accomplished the much-needed changes, but the risk was that more time would pass without his doing so. Weighing the risks on both sides, the board decided to change direction and make Bill the CEO.

When Bill had said he was prepared to take over the chief executive job himself to get the company back on the right track, I told him I thought the board would be fully supportive. But then I asked him, “Have you thought about how you’re going to frame what you’re doing in the press?” I warned Bill that the media might depict this change in all kinds of negative ways. “And you won’t have two months to get the story right,” I said. “You’ll have one day.”

Bill had to walk a fine line on his message. On the one hand, he was stepping in because he was concerned about the company—this wasn’t some kind of power grab. On the other hand, he didn’t want to focus attention on the company’s problems or make them sound worse than they really were. That was another illustration of the principle that providing the prism through which the issue is seen is critical, whether the issue is deficit spending versus tax increases or strengthening Ford versus Ford in trouble or a boardroom coup.

My advice to Bill was to focus very carefully on crafting his message and on a strategy for getting it across in the media. He had to present a constructive view of the future under new leadership and not focus unduly on problems or on past conflict that might make Ford look like a troubled company. I told Bill about my having asked Tom Donilon to help me plan this kind of communications strategy when I had left Treasury, and I suggested that he do something similar. It wasn’t that Bill lacked sensitivity to these issues, just that people in corporate life don’t tend to develop that kind of political awareness, despite its relevance to their jobs. As it turned out, Bill handled the transition well—both in the media and inside the company—very much helped by Jac’s constructive and gracious attitude. And Bill has clearly taken hold as CEO.

   

AFTER I’D BEEN back in New York for some time, Judy and I spent a week traveling around Sicily by boat with six old friends, including Diana and Leon Brittan, who after our days together at Yale Law School had gone on to serve as home secretary under Margaret Thatcher. One day when we were hiking onshore, Diana observed that some British politicians she knew were unable to let go when their time was over and sought to hang on in one way or another, always hoping to re-create what they once had had.

I said I had the same impression about some American political figures. In a similar vein, Richard Holbrooke, who served with great distinction in a variety of high-level foreign policy posts in the Carter and Clinton administrations, once said to me that some people have a sense of self that is so dependent on what they were in Washington that they forever define themselves by that earlier position. Others, Dick added, look back at their time in government as a very special experience, but remain focused on what they’re going to do in the future.

The point both Diana and Dick made was an extension of something I’d often observed. People who are heavily dependent on a job for their sense of self become hostage to the job and to those who have power over them. Someone whose identity is not job-dependent, on the other hand, has the ability to walk away, which creates a sense of psychological independence.

In my own case, I can remember back to my early days at Goldman Sachs, when I certainly didn’t have the financial freedom I had when I entered government but nonetheless had that same feeling of being able to leave and lead a whole other kind of life. That made it easier both to be independent and candid in my views and to function in a high-pressure environment.

In that same conversation, Diana Brittan also mentioned a friend who held a distinguished British title and had been very successful in business. He had so much, but he had never succeeded in fulfilling his lifelong ambition of becoming a member of the House of Commons. Rather than reflecting proudly on all he had accomplished, he always looked back with great regret on the one distinction he didn’t have. That reminded me of a story about Robert Jackson, a distinguished Supreme Court justice who, despite the enormous respect in which he was held, was always consumed by his desire to be chief justice, an ambition that was never fulfilled. Even extremely successful people always seem to want something beyond what they have. Inner needs drive external accomplishments but can never be satisfied by those external accomplishments. Which is merely to say that, for some people, the inability to be satisfied is a chronic condition.

   

MY OWN TIME back in the private sector has been a mix of positives and negatives. First of all, it’s been nice to be home again. And in many ways, my arrangement with Citigroup has worked out considerably better than I hoped. I’ve immersed myself in a set of fascinating substantive and management issues, and I’ve been at the center of a remarkable institution without having to shoulder operating responsibility. Outside Citi, I’ve had the good fortune to be deeply involved in public policy issues I care about and institutions that matter to me, including the Harvard Corporation, LISC, the Council on Foreign Relations, and Mount Sinai Medical Center. I don’t miss the activities or the perquisites of government, though I do miss the people I worked with and disagree with the direction our country has taken on many fronts.

On the other hand, I’ve not owned my own time as I thought I would. To some extent, I simply misread myself. Some people seem to be good at moderating their level of engagement, but I’ve never functioned that way. My post-government experience has reinforced something I’ve long believed: you take yourself with you wherever you go, so you had better know who you are.