The year 1998 had been one of courtship, engagement, and marriage for Sandy Weill and John Reed. But as 1999 opened, the honeymoon clearly was over. The real work of living together on a daily basis began in earnest. These two powerful personalities would be thrust together in the immense task of running the world’s largest financial empire. There were branches to consolidate, operations to downsize, billion-dollar budgets to approve, and thousands of employees to lay off. Their original agreement to merge dictated that the two of them would make all decisions jointly and each would have an equal say. Their senior staff quickly discovered how difficult it would be to abide by such lofty rules.
The problems started with simple things. Scheduling a meeting, for instance. Reed, who thrived on international travel, was out of the country almost as often as he was in. Finding a time when Reed was in that was also convenient for Sandy—not to mention any other executives who might be involved—was nearly impossible. Once the two co-CEOs were corralled in a room, they confounded their subordinates by taking two entirely different approaches to problems. When the advertising department presented a campaign to introduce the world to the new Citigroup, Reed wanted to think conceptually about how to make the financial behemoth a globally recognized brand. Sandy wanted to zero in on the bottom line.
“We’re in the personal-care business, like Gillette, who gets people to make an emotional decision to pay for their triple blades,” Reed mused.
“Finances are very personal to an individual much the same way—”
“As a shave?” Sandy asked playfully. He wanted to cut to the chase: How much would this ad campaign cost? How would it help profits?
Reed didn’t take the hint. “The model I have is of a global consumer company that really helps the middle class with something they haven’t been served well by historically,” he continued, adding that Citigroup should become the Coca-Cola of finance, a brand name known around the world. “That’s my vision. That’s my dream.”
“My goal is increasing shareholder value,” Sandy interjected, glancing frequently at a nearby computer monitor displaying Citigroup’s changing stock price. “I don’t want to spend money without seeing results.”
The advertising executives were bewildered. Which CEO’s concerns should they address first? Moreover, they wondered how two people who seemed so out of touch with each other had ever worked out the complex details that brought their two companies together. When the meeting stretched past three hours, Sandy had enough of visions and conceptualizing, brands and images. The meeting was adjourned, leaving the advertising executives wondering what to do next.
Then a decision had to be made about benefits for Citigroup’s 170,000 employees around the globe. By most measures Travelers benefits were stingy, consistent with Sandy’s long-standing practice of slashing costs by reducing benefits and replacing them with stock options. Citicorp, like other big global banks, provided generous benefits.
Sandy wanted to immediately scale back Citicorp’s lavish benefits. It would be a quick way to achieve cost savings and show the world how much more efficient the merged company could be. But Reed refused to be rushed. Citing a “moral obligation” to employees, Reed took the question under advisement and began one of his excruciatingly thorough analyses of the situation. Four months later, after what he told colleagues were “zillions of hours” of labor, Reed finally agreed to a plan that relied more heavily on stock options and less on direct expenditures from Citigroup’s coffers. But he insisted that it wouldn’t take effect until the year 2000.
That decision prompted a debate about the value of stock options. As usual, Sandy was an enthusiastic proponent of options for everyone. He wanted to encourage all employees to become part-owners of the company so that they would “think like shareholders.” At his behest, 33,000 Citigroup employees were awarded “founders’ stock options,” increasing dramatically the number of Citi workers who owned stock.
But Reed didn’t share Sandy’s zeal for options. He feared they would become an end in themselves, prompting managers to quit caring about the company and its long-term future and to worry instead about their own personal net worth and how to get the stock price higher faster.
When Sandy insisted that top executives follow Travelers’ policy of retaining all their stock options until they left the company, Reed and his Citibankers balked. “All or nothing is hard,” said Reed, who had a number of older executives looking to sell stock for retirement and estate-planning purposes. The two men went back and forth for weeks before settling on a compromise: The top seventy executives must retain 75 percent of their stock holdings while part of Citigroup. Travelers executives were secretly delighted with the decision: At last they could sell some of their valuable holdings to diversify their portfolios.
As Sandy and Reed grappled with decisions, the differences in their individual styles were painfully obvious. Sandy preferred talking over problems with his executives while lounging on his couch or in one of the cushy chairs in the “library.” Reed insisted on receiving detailed memos, to which he responded in like fashion. Sandy didn’t like to read any memo longer than three pages, and usually read only the last paragraph or two of those. At planning meetings at Armonk, Sandy delighted in eating, drinking, and bonding with his management team. Reed, trim and remote, preferred to take a solitary stroll around the wooded property. Citi executives soon realized to their dismay that they were expected to spend the night at Armonk, and their Travelers colleagues took delight in warning them that Sandy or his bodyguard might make a bed check to be sure that no one had slipped away to spend the night at home. Reed was highly uncomfortable with so much intimacy, and he often distanced himself from the group, mentally if not physically. He confided to a colleague, “I get very quiet. I create space by not getting overly engaged.” Sandy was all instinct and intuition; Reed, with his reading glasses frequently perched on the end of his nose, had the aura of a thoughtful college professor rather than a take-charge chief executive.
Selecting key executives for important jobs was a continual task in an organization as large as Citigroup. Reed almost always deferred to Citibank’s large and experienced human-resources department, which had a staff, a budget, and power unheard of among most large companies. Sandy considered human resources a colossal waste of money. He relied on his line managers who ran businesses for advice about whom to promote or demote or fire. Reed took innumerable factors into account in making personnel decisions. “Sandy wants performance and loyalty, and not a hell of a lot else,” Bill Campbell, the Citibank retail executive, explained to Reed.
For Sandy, business was his life. He wanted to talk about business all day and well into the night. Reed had outside interests. The MIT graduate liked to escape the world of finance by reading science books; he occasionally made references to the metaphysical poet John Donne. Sandy couldn’t stand to be far from a stock-market tape. Citibankers swore that Sandy’s head jerked to the up and down ticks of Citi’s stock. Reed had little use for the minute-to-minute or even day-to-day fluctuations in his company’s stock. He checked the stock price about once a month.
These disparate styles and methods of approaching decisions led executives to complain to one another that meetings with Sandy and Reed were much akin to watching a Ping-Pong game. Others suggested a more apt analogy would be two ships passing in the night, their lights only faintly visible to each other.
The co-CEOs posed a particular challenge to Bob Lipp, who had run Commercial Credit and then Travelers’ insurance operations for Sandy and was now in charge of Citigroup’s retail operations. The gregarious Lipp, a disciple of Sandy’s cost-cutting, bottom-line management school, openly scoffed at Citi’s formal, bloated structure. “We’re getting back into the bureaucracy we all ran away from,” he grumbled to his friend and colleague Bob Willumstad. “This isn’t fun anymore.”
Reed, who more than anyone else was responsible for ushering in the modern era of consumer banking, wanted to be intimately involved in that side of the business, much to Lipp’s chagrin. Reed and Lipp collided often. Reed would devise plans, and Lipp would find ways to avoid implementing them. Eventually Lipp delegated Bob Willumstad to tend to Reed and make sure that his meddling didn’t get out of hand.
“I really wish that my job were to run only the consumer side of the business, because I think it’s a fantastic business,” Reed candidly told a group of consumer bankers. “But I have been destined—you know, God punishes us all—to be constantly surrounded by the other part of the business, which inevitably gets us into trouble.”
When Sandy got wind of those remarks, he was furious. And when a reporter for Fortune magazine called to inquire about Reed’s preference for the consumer half of Citigroup, Sandy took it upon himself to speak for his co-CEO. “John now loves the corporate side of the business, and he’s never going to say anything like that, ever again.”
The tensions and pressures of being part of a new organization took a toll on former Travelers executives. Jeff Lane and Mary McDermott both chose to call it quits rather than endure the travails of the merger. “I’ve been through more mergers than any human being should ever be asked to,” McDermott told Sandy when she retired.
Others stuck it out but desperately sought ways to cope with their dysfunctional bosses. Heidi Miller, Citigroup’s chief financial officer, needed to meet frequently with the co-CEOs. At first she prepared her presentations to suit Sandy, her longtime boss. But as she learned Reed’s priorities and idiosyncrasies, she tried to incorporate them into her reports, along with the myriad items required by bank regulators.
That drew Sandy’s ire. He criticized Miller for spending too much time calibrating risk. He wanted to focus on actual returns. He understood risk in his gut and didn’t need a bunch of figures that supposedly quantified it. “Every bank, per the Fed, must perform a risk-adjusted return analysis,” Miller calmly explained. Reed much preferred the extreme analytical equations; he trusted numbers, not his gut.
After one particularly challenging session with Sandy and Reed early in 1999, Miller’s head was spinning. “Reporting to John and Sandy in the same room at the same time requires doing a split-brain,” she complained to Bill Pike, the investor-relations executive. “Even if both of them agree, I have to convince Sandy with one argument and John with a different argument. It’s impossible to deal with them together.”
Pike confessed that he, too, was completely frustrated. “We’re being put in a horrible position trying to please two CEOs constantly wanting opposite things,” he said. “What we do to please Sandy doesn’t suit John. It’s so nerve-racking because we have no clue how this co-stuff will pan out. John could win…”
Then Miller had an idea. Rather than give what amounted to two different presentations simultaneously, why not suggest that she would brief Sandy and Reed separately? It might be in violation of the merger agreement, but it would be much easier for her to make a logical, organized presentation to each of the two co-CEOs. She could spend her time with each one addressing his concerns and not wasting the other’s time. Nervously, she took her idea to the two bosses. They agreed so hastily and enthusiastically that it dawned on Miller: They really don’t like being in the same room together.
Still, the Citigroup chieftains professed that their partnership was thriving. Perceived conflicts were just part of the adjustment process for two men accustomed to running their own shows. When BusinessWeek asked how they were faring, Sandy replied, “I have no problem being a partner with John.” Reed added, “We do have differences of temperament, but they work out pretty easily.”
But then, just six months after the merger was approved, their simmering irritation boiled over for the first time. The inaugural quarterly earnings report for the new Citigroup was released on April 19, 1999, and it showed an astounding $3.36 billion in net income, the most of any American company, including giant General Electric. With merger efficiencies kicking in and global markets improving, the earnings topped Wall Street’s most optimistic estimates. At the same time, Citigroup stock was soaring and now stood at $73, more than double the share price when the merger was completed in October 1998.
The customary conference call with Wall Street analysts presented a perfect opportunity for Sandy and Reed to show that their new business model was succeeding. The investor-relations executives set up the conference call from a “neutral zone”—a conference room on the executive floor—rather than from either CEO’s office. As they ushered Sandy and Reed into the small, windowless room, they sensed trouble. Both men seemed uncomfortable rather than celebratory. Certainly Sandy wasn’t happy with the setting. He traditionally conducted conference calls from the comfort of his tufted leather couch, where he could relax and banter and take full advantage of his skill in answering questions spontaneously. Reed clearly didn’t want to even do the call.
Nevertheless, Sandy prepared for the call by poring over the numbers and firing questions at managers. He wanted to be fully conversant with the results. “Wall Street should love these earnings,” he enthused, trying to pump up his partner.
“I just don’t care about quarterly earnings,” Reed said. “My concern is what the company is making five years from now—increasing market share, building the franchise.”
Bill Pike winced. Quarterly earnings and minute-by-minute stock quotes were what Sandy lived for. Well, he thought to himself, the actual call will go better than this.
Once the analysts were all connected, Sandy diplomatically urged Reed to speak first. The longtime banker briefly described revenue growth, the effect of expense controls, and the company’s return on equity. But then he added a kicker: “It won’t get any better than that.”
Sandy, acutely attuned to Wall Street’s perceptions, moved quickly to counter Reed’s pessimistic outlook. “We made more money than any company this quarter,” he crowed, “and we’re just getting started!”
As the conference call continued, Sandy and Reed went back and forth, almost as if they were arguing with each other. When Sandy touted the benefits of globalization, Reed interjected, “Yes, but the markets in Asia and Russia…” and went on to point out every negative associated with having a global presence. Sandy’s face grew redder with each question and answer. The co-CEOs were tripping all over each other. Neither said anything inaccurate, but each man’s “spin” on each issue was diametrically opposed to the other’s. To the analysts, they sounded disjointed and inconsistent, unable to articulate a comprehensive strategy or even a shared opinion.
When the call ended, Reed and Sandy, trailed by their subordinates, strode swiftly to their individual offices. Reed closed his door to be alone. Sandy angrily plopped onto his office couch while Bill Pike and Heidi Miller braced for the explosion they knew was coming.
“I never want to be on another conference call with John Reed!” Sandy said, fuming. “That kind of mixed message will confuse the Street! Don’t ever let that happen again!”
Miller and Pike were stunned. They knew Sandy was angry at the way the conference call had gone, but they expected him to lay the blame on them for not preparing better. But here he was bad-mouthing his new partner! They had been so in love. What happened?
Miller was the first to gather her wits. “Sandy, you’re going to have to talk to him,” she said. “We can’t go to John and say, ‘You can’t be on a conference call.’”
The next morning, April 20, 1999, a hard, cold rain fell as Citigroup held its first annual meeting at Carnegie Hall. The executives, directors, and shareholders had to walk through demonstrators protesting Sandy’s $167-million compensation package in 1998, which made him the third highest-paid executive in the country. Groups calling themselves United for a Fair Economy and Responsible Wealth handed out fortune cookies with messages that highlighted the growing disparity between the CEO’s compensation and that of an average Citigroup employee. One cookie read: “Sandy Weill makes more in 22 minutes than the typical bank teller makes all year.” Another fortune asked: “Economic boom for whom?”
But if Sandy was disturbed by the protesters or angry with his co-CEO, it didn’t show. “John and I have delivered incredible results for shareholders,” he boomed from the concert hall’s stage, with Reed at his side.
When a shareholder criticized Sandy’s pay, another yelled out, “He earned every penny of it.” Both Reed and Sandy had received $9.5 million in salary and bonuses for 1998, but the Travelers CEO had exercised the right to buy $157 million in stock from options granted in his 1986 takeover of Commercial Credit.
Anyone who hadn’t heard the previous day’s conference call would have been startled to be told that friction was growing between the two co-CEOs. Sandy and Reed were the picture of unity, backed on the stage by their all-star board of directors. The annual report distributed to shareholders featured on its cover a photo of the rear of a car with a sign emblazoned “Just Married.”
Yet the friction continued to grow. Sandy was particularly irked by Reed’s constant refrain about the pair retiring in the not-too-distant future. In meeting after meeting, Reed remarked privately and publicly that the merger “is a nice way to cap our careers.” Each time he heard that, Sandy would mutter to one of his lieutenants, “I’m not ready to crown my career.” Reed’s remarks reminded Chuck Prince, the general counsel, of the last-minute change to the proxy that removed Reed’s language about the two CEOs retiring together. Citicorp’s mandatory retirement age of sixty-five had been scrapped during the merger negotiations, since it would have forced Sandy, sixty-five, to retire immediately after the merger was complete. The two of them still disagree about when to leave, Prince thought to himself.
During the spring, a CNBC reporter snagged an impromptu interview with Reed and asked, on the air, about succession planning at Citigroup. Reed took the bait, something Sandy would never have done, and confirmed that he expected to leave with Sandy when the merger was well in place.
Sandy happened to be watching CNBC at that moment. Angry at this public commitment that seemed designed to force him out before he was ready to go, he summoned Citibank’s longtime public-relations executive Jack Morris.
“Tell John to quit talking about retiring,” Sandy ordered. “He doesn’t need to do that, and he shouldn’t speak for me.”
Despite the cracks beginning to mar the façade of cooperation between Sandy and Reed, the troops remained under strict orders to work together harmoniously. They certainly didn’t need much encouragement. Everyone was well aware that Jamie Dimon was still unemployed months after his dissension led to his ouster. But being cooperative didn’t necessarily win any brownie points with the co-CEOs.
Bill Pike was in charge of preparing Sandy and Reed for their first formal meeting with securities analysts who covered Citigroup. On the Friday before the Monday meeting, Pike routinely prepared a set of discussion points that reviewed the latest financial results and how well the company was executing its strategy. It was intended not so much to set an agenda for the meeting, but to make sure Sandy and Reed covered all the salient points that Pike thought the analysts needed to know about. As part of the “play nice” mandate, Pike shared the document Friday afternoon with Reed’s investor-relations executive. He considered it a courtesy and prepared to put the document in the overnight package that would be delivered to Sandy’s weekend retreat in the Adirondacks of upstate New York. But before he could do that, Reed’s aide returned his copy to Pike with a new cover sheet outlining an agenda for the meeting. It read:
Heidi Miller: Review results
John Reed: Review strategy
Sandy Weill: Review recent trip
Pike frowned. This isn’t how Sandy would usually want to handle things. He would want to talk about both results and strategy, and his recent trip to Japan to close a minor deal wasn’t particularly interesting. But if Reed wanted an agenda, Pike figured he’d best go along. The overnight package went out.
Late Saturday afternoon Pike was lounging in his weekend beach house in Bay Head, New Jersey, when the phone rang.
“Who sent this package?” Sandy bellowed, his voice seething with anger.
“I did,” Pike said.
“What’s this outline thing?” Sandy demanded.
“Well, we put together the normal stuff for the conference, and Reed’s guy suggested this for how we approach the meeting,” Pike answered.
Sandy let loose a vicious tirade. “John Reed reviews strategy?! His fucking strategy?! Who had the idea to create Citigroup?! Who am I?! A goddamned travel agent?! I’m going to review a recent trip! He’s the one always running around the globe while I run this place!”
The tantrum went on virtually uninterrupted for ten minutes. Pike had seen his boss angry before, but nothing like this combination of rage and bitterness. Sandy repeatedly pressed Pike: “Whose idea was this?” as if to see if Reed himself were behind Sandy’s diminished role.
Pike tried halfheartedly to defend his Citi counterpart, but now he knew he should have heeded his instinct and fought the agenda.
After Sandy wound down, he asked a final question, his voice tinged with resentment and sadness: “How could you do this to me?” Then he slammed down the phone.
Pike burst into tears. The thirty-seven-year-old executive sobbed uncontrollably for twenty minutes. He felt as if he had just betrayed his own father. When his sobbing subsided, Pike understood that Sandy’s vituperative reaction had less to do with him and more to do with his anger at John Reed. Sandy’s frustration was coming through loud and clear. It’s worse than I thought, Pike concluded as he washed his tear-stained face.
By early summer 1999, other Citigroup executives were reaching the same conclusion. Gone were the days when Sandy and Reed were joined at the hip. They no longer tried to maintain the appearance of solidarity, even before shareholders and Wall Street. When Citigroup stock opened for trading on the New York Stock Exchange under the new symbol “C”—Chrysler had given up the symbol when it was acquired by Daimler-Benz—only Sandy turned up at the exchange to ring the opening bell. Sandy reveled in such stunts; Reed hated them.
Executives attending high-level meetings noticed that the banter and jokes between Sandy and Reed had stopped. Indeed, they barely spoke to each other. And when they did speak, there was an undertone of hostility. At one meeting Sandy, ever conscious of costs and profits, asked Reed for the financial implications of one of his proposals. When Reed launched into a lengthy discourse, Sandy rolled his eyes. When Sandy resumed talking, Reed picked up a newspaper and began reading.
By June, the relationship between the two financial titans had deteriorated enough that people inside and outside the company were talking about it. News of the soured relationship reached Saudi Prince Alwaleed bin Talal, whose nearly 5 percent stake in Citigroup made him its largest single shareholder. The forty-two-year-old nephew of King Fahd had helped Reed rescue Citicorp in 1991 with a $590-million investment, his first outside Saudi Arabia. That stake was now worth nearly $7 billion. Worried that his investment might be in jeopardy, he flew to New York early in July to check out the power-sharing situation in person. His arrival and the reason for it were chronicled in the New York Post, with the headline: THIS UMBRELLA AIN’T BIG ENOUGH FER BOTH OF ’EM. The article stated that “one of the world’s richest men flew in to meet with the most overpaid man on Wall Street…to discuss how he’s getting along” with Reed.
Sandy was nervous about the visit. Reed was traveling and Sandy would be meeting with the prince, who had a long-standing relationship with Reed, by himself. He called in William McNamee, Citigroup’s head of corporate events. “The sheik is coming to Citigroup,” Sandy said. “I’ve got to give him a gift.”
McNamee, who knew how much his boss loved the corporate logo, returned with a stack of Citigroup ties and scarves adorned with umbrellas.
“We don’t need to give him that much,” Sandy remonstrated. “Let’s give him stuff worth just fifty dollars, not four hundred dollars.”
Prince Alwaleed arrived the next day. After Sandy handed him an umbrella tie, the Saudi prince presented the Citigroup co-CEO with an ornately engraved sterling silver tea set. Clearly, Sandy had miscalculated the protocol of exchanging gifts with princes, but he made a good impression nevertheless.
“You are very cost conscious,” the prince said. “I’m impressed.”
Alwaleed didn’t ask Sandy directly about his relationship with Reed. He simply expressed his concern that just the “perception” of tensions between the two co-CEOs would have a negative effect on the company and its stock price.
Then Sandy turned on the charm. Compared to the stiff and introverted Reed, Sandy exuded warmth and confidence. He reassured the prince that the merger was proceeding well and the combined company was producing strong results. Before leaving, Alwaleed and Sandy agreed that they would meet again at the prince’s compound in Riyadh. Alwaleed acknowledged that “two high-geared, high-powered chairmen” would have differences, and he encouraged Sandy to continue his relentless focus on the business. Separately, the prince met with Reed’s closest confidant, Vice Chairman Paul Collins, to discuss the tensions between Sandy and Reed, and urged the company to correct the perceptions of friction between them.
Citigroup’s senior executives knew, however, that the friction wasn’t just a perception, it was very real. “When is this place going to blow up?” Bill Campbell asked Bob Lipp. Campbell and Lipp, co-CEOs of the consumer-banking side of Citigroup, had been getting along very well, mostly because they stayed out of each other’s way. Campbell, as a former Philip Morris head, didn’t interfere with banking operations, focusing only on marketing and image. Lipp, who didn’t like to spend money on advertising, left Campbell free to pursue his interests. “Maybe they should divide up responsibilities like we do,” Lipp speculated.
Spurred by Prince Alwaleed’s warning, that was exactly what Sandy was thinking. He proposed to Reed that he and his fellow co-CEO follow the example set by Lipp and Campbell: separate but equal responsibilities. Under his plan Sandy would manage all financial and business operations—the profit centers that made money. Reed would oversee the technology, legal, and personnel departments—the areas that cost money. The proposal clearly played to each man’s strengths and interests.
The co-CEOs brought their idea to Citigroup’s board at its mid-July meeting. They told the directors that the behemoth they were charged with running was simply too big and complicated for them to be making every decision jointly. The process was cumbersome and inefficient. Everything would run more smoothly if they divided power.
“The space we will give each other will be good for both of us,” Sandy said.
The directors weren’t surprised that the joint decision making foreseen in the merger agreement wasn’t working. None of them had expected it to be efficient or to last very long. But they were shocked at the way the two co-CEOs were proposing to divide their powers. It was certainly separate, but it was far from equal.
The original Citicorp directors couldn’t believe that Reed was voluntarily ceding so much authority to the ex–Travelers chief. Frank Thomas, a Citi board member who had been the president of the Ford Foundation, asked Reed pointedly: “John, are you sure you want to do this?” His question was echoed by one of Reed’s most devoted backers, Edgar Woolard: “Are you sure you will be happy with this?”
“I’m happy with the arrangement Sandy and I have made,” Reed assured them.
Arthur Zankel, Sandy’s old friend, was incredulous. Reed, reputed to be a coldhearted corporate killer willing to fire anybody at any moment, was rolling over and playing dead himself, Zankel thought. He wanted to be sure Reed understood the implications of what he was agreeing to. “Do you realize how much authority you’re placing in Sandy’s hands?” he asked. Reed nodded.
With Reed’s assurances that the power-sharing arrangement was what he wanted, the directors warily gave their blessing. While Citigroup had just reported another record profit for the second quarter, the directors knew that if the old system of power sharing continued, it would eventually hurt the company.
On July 28, 1999, Sandy and Reed co-signed an internal memorandum to senior managers outlining the division of duties.
“We no longer feel the need to attend every meeting together or read all the same memos,” they wrote. “Instead, we can better divide the job of leading this great company and simplify the decision-making process.”
The memo continued: “After several months working side by side, we feel we know each other well, know the company well, and instinctively rely on each other’s judgment.”
Widespread skepticism greeted the memo. The senior executives could easily read between the lines: Sandy was now running the world’s largest financial empire while John Reed was thinking about it. Still, if this is what it took to keep the company on course, then that was fine.
But the truce didn’t last long. The next clash between Sandy and Reed came over what role the Internet would play in Citigroup’s strategy. It was a debate about the future not only of Citigroup, but also of their own careers.
John Reed, the undisputed visionary of banking technology, had made ATMs a household word by putting them on every corner despite the huge capital outlays required. Now he wanted to make the same dramatic push into online territory with Internet-based financial services. A few years earlier, Reed had hired Edward Horowitz, a media executive at Viacom, to set up an Internet incubator at Citicorp, called “e-Citi.” Horowitz was to create the systems and products to reach one billion customers around the world via the Net. Reed, a true believer in the power of technology, was willing to devote whatever resources necessary to continue his track record of technological innovation.
But Sandy wasn’t buying into the Internet or the technology-stock boom. He didn’t know how to turn on his computer, much less send an e-mail or execute a stock trade electronically. And value-conscious investor that he was, he was acutely suspicious of the skyrocketing values of technology stocks, particularly the start-ups with no product, no track record, and no profits. “The Internet boom is being built by free working capital,” he warned Horowitz. “People can just go public and get capital without paying for it. Obviously, that can’t last.”
When Sandy looked at e-Citi, he didn’t see the future. All he saw was red—a deep hole that already had consumed $300 million and had little to show for it. He was particularly irritated that Reed had designated e-Citi a “think tank” that effectively isolated it from the business units that would require it to produce fast and profitable results. E-Citi became the focal point of disagreement between Sandy and Reed about how the entire empire should be run.
Sandy complained to old friends on the Citigroup board that Reed wasn’t abiding by the new power-sharing arrangement. “John still shows up at meetings and slows down decisions,” he said. Still, with the majority of top-level jobs held by Sandy’s loyalists, he continued to try to run the company his way.
Reed mounted his own attack on Sandy, but he did so indirectly. After asking Andrall Pearson, one of Citigroup’s directors, for a meeting, ostensibly to discuss “Citigroup’s future,” Reed journeyed to Greenwich, Connecticut, to meet Pearson in his office. Although he had originally been a member of Travelers’ board, Pearson had never been particularly friendly with Sandy. He could be openly skeptical of Sandy’s ideas, and he frequently asked stern questions at board meetings. Also, Pearson remained friendly with Jamie Dimon. If Reed was going to sway a Travelers director against Sandy, Pearson would be the logical choice.
When Pearson greeted him, Reed said, “I want to get to know the directors from the Travelers side.” But as soon as they were seated in Pearson’s corner office, the get-acquainted meeting turned into a get-Sandy session.
“He doesn’t know anything about the Internet,” Reed complained. “He doesn’t know anything about banking. And, really, he doesn’t know anything about running a global business.”
“Well, that’s not good,” Pearson said, startled at the sudden attack on Sandy. “What’s he good at?”
“Sandy’s a detail guy,” Reed answered. “He knows all the numbers but can’t articulate a strategy.”
As a director of Sandy’s burgeoning empire for thirteen years, Pearson agreed with that assessment. “He can’t consciously tell you what the hell he’s doing,” he told Reed. “Still, you follow Sandy because he tells you it’s going to be good and it’s good.”
Pearson was impressed with Reed’s dissection of Sandy’s faults. He wanted to know more about the growing conflict between the two co-CEOs over technology, a hot topic among executives all over the country.
“The banking business could easily be branchless,” Reed said. “We’re behind. Sandy won’t invest in the future because he’s so worried about this quarter’s earnings.”
When Reed left, Pearson pondered what had just happened. John just tried to kill Sandy with me, he realized. The conflict at the top is worse than any of us thought. Within days Pearson began getting phone calls from Reed loyalists on the Citigroup board. “Sandy isn’t up to the job,” one director told Pearson. “He’ll be a disaster if we let him have control of the company,” said another.
By the time of the fall board meeting, every director—as well as Sandy and Reed—knew that the infighting and backbiting had become intense. They had all known from the beginning that the two co-CEOs were polar opposites in so many respects. But Sandy and Reed had worked hard in the early stages of the merger to keep those differences hidden, or at least under control. Now just how strongly each man felt about his approach to running the company was out in the open.
The directors assembled for their customary board dinner the night before the meeting in a private dining room at Le Cirque, one of Sandy’s favorite restaurants. No one said a word about all the lobbying and attacks of the recent weeks. But when Pearson left the room to go to the bathroom, Edgar Woolard, an original Citicorp director and former chairman and CEO of DuPont, hurried after him. The word was obviously out that Pearson could be the swing vote in any showdown between the two co-CEOs. “You have to do something about this,” Woolard said. “It’s getting out of hand.”
“I agree,” said Pearson and continued on his way.
The next morning, the directors gathered in the Citigroup boardroom. Despite the reorganization of their duties, Reed and Sandy acknowledged their partnership wasn’t working. The co-CEOs diplomatically asked the directors for their ideas on what to do. Each board member offered suggestions: Maybe they should change the organization again, or perhaps reduce the number of “two-headed monsters” under Sandy and Reed. Maybe more one-on-one meetings between Sandy and Reed would smooth things out.
When it was Pearson’s turn to speak, he thought for a moment about what hadn’t already been said and decided to plow ahead.
“This is all bullshit,” he told his fellow directors. Their various ideas, he said, “would work under normal circumstances, but this is an extraordinary situation.” He had everyone’s rapt attention.
He looked at the co-CEOs. “Sandy and John, we can reorganize this business until hell freezes over and it won’t fix it. The main problem is that the two of you guys don’t agree on one single thing about how to run this company.
“Holy Christ! One of you likes salary, the other stock. One of you is formal, the other does nothing formal. One is into process, the other guy hates process. Unless the two of you can just sit down with the six or eight fundamental notions of how to run this business and say, ‘I can buy this point of view,’ you’ll never be able to get along.”
No one said a word as Pearson’s comments sank in. Then another director suggested a break. As they rose, John Deutch, a longtime Citicorp director and former chief of the Central Intelligence Agency, told Pearson, “It’s what needed to be said. No one would be frank.”
After most of the directors had left the room, Reed came up to Pearson. “That really was a remarkable, perceptive conclusion. That’s exactly the problem we have.”
Yet despite Pearson’s forceful comments, the board meeting concluded without reaching a solution. Neither of the co-CEOs volunteered to bend in the other’s direction. Sandy and Reed were at a complete impasse.
Suddenly, though, it looked as if it wouldn’t matter who was running Citigroup. Since its creation a year earlier, Citigroup had been operating under a temporary exemption from federal banking laws requiring the separation of banks, brokerages, and insurance companies. The two-year waiver would expire in 2000. Thus, it was crucial that Congress soon pass new laws lifting the legal barriers to consolidation within the financial-services industry. Otherwise, Citigroup would have to undo much that it had done.
Citigroup wasn’t alone in seeking repeal of the Depression-era Glass-Steagall Act and other laws designed to prevent a concentration of financial power. Other banks, securities firms, and insurance companies had long been lobbying for such changes in order to become more competitive in the international marketplace. But the merger lent renewed impetus to those efforts, and by the fall of 1999 the two houses of Congress had passed their own versions of bills and were struggling to work out a compromise satisfactory to both and the Clinton White House. In October, though, the legislation became bogged down. The issue was bank lending in low-income neighborhoods. Years earlier, in response to obvious discrimination in the way banks made loans, Congress had passed the Community Reinvestment Act, which required banks to increase the amount of lending in poor neighborhoods and to document those efforts. Senator Phil Gramm, the Texas Republican who headed the Senate Banking Committee, opposed any restrictions on the way banks did business and was determined to use the new legislation to undercut the Community Reinvestment Act. But the Clinton administration and many consumer-advocacy groups were equally determined to prevent banks from practicing discrimination. The impasse threatened to kill the legislation that was vital to Citigroup’s survival as the first American “universal bank” in seventy years.
Sandy took the lead in lobbying for the legislation. He called on Treasury officials and congressional leaders, often accompanied by other financial executives. And he played his most important trump card. Years earlier, with no fanfare, Sandy had founded a charity aimed at training inner-city high-school students for jobs in the financial industry. The gesture, a nod to the difficulties Sandy had experienced breaking into the deeply discriminatory finance business, attracted the attention of Jesse Jackson, the outspoken civil rights leader, who recruited Sandy as the first cochairman of his own fledgling Wall Street Project, an effort to create more diversity within the big banks and brokerages. During the past six years the white Jewish mogul and the African-American Christian activist had become friends and mutual allies in various projects, including the Alvin Ailey American Dance Theater, the acclaimed modern-dance troupe consisting of mostly black performers for which Joan Weill served as chairwoman. Now Jackson came to the defense of his old friend. He met with Gramm privately to tell the committee chairman that he would support a watered-down version of the community-reinvestment provisions, a move that would signal to other consumer groups that they should back off and let the legislation proceed.
The only remaining hurdles were President Clinton and the Democratic members of the committee following his lead. On October 21, 1999, during a marathon negotiating session with the Democrats, Gramm couldn’t persuade them to give sufficient ground. Furious, he stormed out of the committee meeting room and strode angrily over to Roger Levy, Citigroup’s senior lobbyist.
“You get Sandy Weill on the phone right now,” barked the senator, jabbing a finger into Levy’s chest. “Tell him to call the White House and get them moving, or I’ll kill the bill. You have one hour!”
Sandy placed a call to Clinton late that night to tell him that the bill coveted by Wall Street was on the verge of collapse and needed him to compromise. At the same time, Gramm was sending his own message to the president about Hillary Clinton’s bid for political office. “If my wife were running for Senate in New York, I would not veto this bill.”
At almost three o’clock in the morning, the congressmen emerged to announce that a deal had been struck. President Clinton soon signed into law the Financial Services Modernization Act of 1999. Critics predicted a wave of mega-mergers, but the biggest one was now secure. The legislation was soon tagged the “Citigroup Authorization Act.”
In a rare public act of unity, Reed and Sandy issued a joint statement praising Washington for “liberating our financial companies from an antiquated regulatory structure…to unleash the creativity of our industry and ensure global competitiveness.”
Privately, though, the two co-CEOs were working together to achieve another goal. They agreed that a third person, someone of unquestioned ability and integrity, might provide them with a buffer that could allow them each to do their individual jobs without running afoul of each other.
And they knew exactly who they wanted: the newly departed and highly regarded Treasury secretary, Robert Rubin.
Heralded for guiding one of the greatest economic expansions in history, Rubin had left the Clinton administration in July and was taking his time deciding what to do next. In September, Rubin’s wife hosted a welcome-home party for her husband at the Metropolitan Museum of Art and invited many Wall Street players who had known her husband when he was the co-CEO of Goldman Sachs. Sandy took the opportunity to buttonhole Rubin: “If you want to go back into financial services, you have to come and talk to me.”
The next day, Rubin called on Sandy at Citigroup. The ex–Treasury secretary politely told Sandy he was on the verge of deciding to join another company. As long as he hadn’t signed anything, Sandy said, why not talk a little more to us? If Bob Rubin was “in play,” the deal maker in Sandy wasn’t about to let a competitor snag one of the world’s most coveted financiers. Rubin, sixty-one, was known for his deeply analytical thinking, his sober judgment, and, not unimportant to Sandy, a willingness to let his boss take lots of credit.
Sandy soon steered Rubin to a sit-down with Reed, who knew Rubin well, since Citicorp had been Goldman Sachs’s bank when Rubin was a co-CEO at the securities firm. Every day for the next month Sandy called or met with Rubin. He tried to appeal to Rubin’s interest in international affairs and complex finance, pointing out Citigroup’s global reach and the unprecedented range of financial services it offered. For his part, Rubin, who was being courted by some of the world’s best financial institutions, remained noncommittal. Still, he couldn’t deny that he was attracted by Citi’s scope and size.
“It’s a fascinating place,” Rubin would tell his wife after each meeting with Sandy. “I’m not going to do it, but it’s really fascinating.”
Finally, Judy Rubin said, “Every time you go there you seem so excited. Why don’t you just do it?”
When Sandy called the next day, Rubin was ready to talk. He had two conditions. First, he didn’t want any line responsibility, meaning that no business would report directly to him. Rather, he wanted to advise on “strategic and management operational issues” to help Citigroup realize its lofty ambition of becoming the leading financial firm in every part of the globe. He certainly had unprecedented access to people around the world who could help make that happen. Second, he wanted contractual recognition that he would have his own independent involvement in public policy, free to pursue his own interests in politics. Bluntly put, he didn’t want to work full-time. That was fine with Sandy. Rubin’s mere presence gave Citigroup added credibility and stature, regardless of how many hours a week he worked.
Sandy and Rubin worked out the details. Rubin would become a Citigroup director, chairman of the executive committee, and a member of the newly created “office of the chairman.” Rubin, already a wealthy man as a result of his career at Goldman Sachs, would go from the $150,000 he earned as Treasury secretary to a combined package of salary, bonus, and stock options worth at least $33 million a year. In their negotiations Sandy and Reed quickly found Rubin to be low-key and self-effacing. During his Washington tenure, Rubin had earned a reputation as a conciliator who helped find common ground between warring camps. They hoped he could do the same for Citi.
The last day of negotiations with Rubin kept Sandy away from his beloved planning group meeting at Armonk. But as soon as the three shook hands on the final details, Sandy called the Armonk facility and told the operator to put him on the speakerphone.
“Bob Rubin is joining Citigroup!” he exclaimed.
“Congratulations,” Heidi Miller responded. “It’s another acquisition.”
Jay Fishman, who now ran Travelers and was much more deferential than Miller, punched her on the arm for being sarcastic. “Fabulous, Sandy,” Fishman said. “Brilliant move.”
The next morning, on October 25, 1999, Citigroup called a press conference for a major announcement. Rubin, with his mane of thick, silvery hair and dark eyes set in an angular face, was already in the library that separated the two co-CEOs’ offices. With a bounce in his step, Sandy walked in and proudly presented his new hire with the famous burnt-orange gift box from the Parisian retailer Hermès. Sandy could barely contain his excitement as Rubin untied its signature brown ribbon and opened the ultimate status box to find a handmade silk tie covered with umbrellas.
“Are you going to put it on?” Sandy asked eagerly, as he sported his own Hermès umbrella tie.
“No, I’m not going to put that on,” Rubin said dismissively, handing the box to an aide.
Sandy was crestfallen. It took several minutes for him to recover his high spirits and prepare for the excitement of the press conference, set to begin in ten minutes.
In the twelfth-floor auditorium at Citicorp Center, TV camera operators, reporters, Wall Street analysts, and Citi managers packed in to see what announcement was about to be made. Speculation was rampant that the co-CEOs would announce another blockbuster acquisition, now that financial deregulation had passed. When Sandy and Reed walked onto the stage with Rubin, the room erupted in applause.
“Wow! What a coup!” yelled one bank analyst.
Rubin told the enthusiastic gathering, “I was very attracted to Sandy and John’s vision of the future,” adding quickly, “I didn’t want to be a CEO.”
That prompted the obvious question: If not Rubin, then what about a successor to Reed and Sandy? Sandy quickly snatched the microphone before Reed could offer an answer. “John and I are enjoying what we’re doing. We think at an appropriate time we will have a successor, but it’s not an issue that we are currently worried about, and we have not discussed it with the board.”
When the press conference was over, the three men stood on the stage for the photographers. Sandy inserted himself in the middle and put his arm around Rubin, but not around Reed. After posing in a three-way handshake, Sandy and Rubin continued taking questions. Reed played with his pen for a few minutes, then left the stage.
Sandy immediately set to work to make Rubin his ally, bringing him into the fold, turning on his “we’re a family” charm. And Rubin just as quickly settled in. Padding down the halls in his stocking feet, Rubin would bring a clean yellow pad to Sandy’s office. “What are the issues?” he asked Sandy. “How do you think I can be helpful?” Sandy even began walking around in his socks occasionally.
From the start, the former Treasury secretary found much confusion about who made decisions, even though Sandy and Reed had split duties. He also discovered that senior managers were confused by mixed messages from the top. He suggested that the co-CEOs go beyond the monthly planning meeting and create a weekly business-heads meeting. Sandy agreed to start Monday mornings with a meeting of the top ten executives, as long as they sat in a room with the “soft seating” he preferred. The meetings were an immediate success, helping coordinate strategy and the week’s events for the massive company.
Rubin also recommended that he, Sandy, and Reed have their own weekly meeting as the “office of the chairman.” The chieftains wanly agreed. But after just two tense and unproductive meetings of the trio, the co-CEOs couldn’t find time in their schedules for further powwows.
Even as Rubin tried to ease the tensions between the two men, they showed little willingness to meet each other halfway. Just as Reed had launched his own quiet campaign to get to know the Travelers directors, Sandy soon worked to make inroads with Reed allies.
He planned his own globe-trotting adventure in November. To build a relationship with Citigroup’s largest individual shareholder, Sandy accepted Prince Alwaleed’s invitation to visit him in Saudi Arabia. Knowing that his elaborate $130-million palace wouldn’t make a big impression on a billionaire like Sandy, the prince suggested that Sandy and Joan would get a better feel for his country if they went somewhere special. When Sandy and Joan Weill arrived in Riyadh on November 2, 1999, Saudi guards drove them in one of the prince’s sumptuous recreational vehicles to a vast stretch of desert in central Saudi Arabia where he maintained his weekend camp. Dressed in traditional Arab garb, the forty-four-year-old prince warmly welcomed the Weills and led them into one of the camp’s open-air living rooms, strewn with huge, elaborate rugs and pillows. That afternoon, the prince and Sandy rode and milked camels and went target shooting. When they returned to camp, the men, both of whom were serious business-news junkies, checked the prince’s wall TVs, two of which were tuned to Bloomberg and CNBC via the prince’s $700,000 custom Chevy Suburban communications truck with its satellite downlinks.
That chilly evening, Prince Alwaleed, his entourage, the Weills, and a few Citigroup associates gathered around a huge fire in a pit, as Bedouin nomads lined up to kiss the prince’s shoulder, recite poems of adulation, and ask for money. Sandy, now clad in Arab dress, too, quickly grabbed one of Alwaleed’s aides to translate for him. When the wind and sand whipped up, the party moved to the prince’s huge fiberglass tent, nearly the size of a football field, for a lavish feast of Arabic, Lebanese, and Saudi dishes, which they ate with their hands while seated on the floor.
“Frankly, I never bought the idea of cochairmen and co-CEOs,” the prince confided as the night went on. “But if this process, for better or worse, is the price to make Citigroup, it’s worth it.” Still, Alwaleed expressed no favoritism for either man and told Sandy he wanted “to build a relationship” with him, as he had with Reed. By the time Sandy left the prince’s desert camp very late that night, he took comfort in knowing that he and Citi’s largest shareholder had become friends.
Sandy also toured India, where Victor Menezes, an Indian native and co-CEO of the corporate and investment bank, met him to show off the full range of Citi’s business relations in the world’s second most populous nation. He also wanted Sandy to see some of the extraordinary sights of the country. At the Taj Mahal, Sandy and Joan were inspired to have a traditional Indian wedding ceremony as a renewal of their long-ago marriage vows. Sandy, in full traditional regalia, including a turban, rode a camel to meet his bride with Menezes at his side. The co-CEO had asked the longtime Citibank executive, a devoted Reed loyalist, to be his best man.
Sandy took other steps to shore up his position in any showdown with John Reed. Acutely conscious that his lack of social standing had hurt him badly at American Express, he resolved that he wouldn’t be so naïve as to think that Citigroup’s remarkable profits would be enough to ensure victory. He and Joan pledged $100 million of their fortune to his alma mater, Cornell University, for its medical school and hospital, a contribution that Cornell acknowledged by naming its medical center—situated near the prestigious Memorial Sloan-Kettering Cancer Center and Rockefeller University—the New York Weill Cornell Medical Center.
He and Joan also became much more visible among New York society, attending a black-tie gala or business dinner nearly every night. The society pages of the newspapers, which years earlier had mostly ignored Sandy and Joan, now scrambled to get shots of the powerful couple. Sandy was delighted at the number of times he and his elegantly clad wife appeared in The New York Times’s Sunday “Evening Hours” column. Such attention was gratifying enough to Sandy’s insatiable ego, but it represented a form of power, too. And power would be what determined the outcome of the showdown.
A year had passed since that shocking day in Armonk when Sandy and Reed had fired him, and still Jamie Dimon was pondering what to do next. With a net worth of $125 million, he clearly didn’t need to return to work. He had fended off feelers from Amazon.com, Starwood Hotels & Resorts, and the British Barclays bank. He had spent a lot of time, too, coming to terms with his behavior toward Sandy, the blunt criticisms and challenges that had gotten him ousted. Invited as a guest lecturer at a Columbia Business School seminar on what Shakespeare might offer MBA candidates, Dimon pointed out how the Earl of Kent, who publicly disputed King Lear’s judgment and was exiled, could have been more diplomatic, yet still honest and candid in criticizing the king.
More than ever, Dimon was convinced that his future lay in finance. But in what role? Sandy and Reed were the aging lions of that industry and they had fired him. In early December, Dimon visited with Andrall Pearson, who as chairman of Tricon Global Restaurants, the parent company of several restaurant chains, had named him a director. Pearson decided Dimon needed a heart-to-heart talk.
“Jamie, if you ever have any aspiration to be the head of a financial company, you don’t need Sandy as a practicing enemy,” the Citigroup director said. “You have to run up the flag. Sandy will never forgive and forget or accept responsibility.”
Dimon, brainy and confident, took momentary offense at the notion he might need to “make up” with Sandy to get a job. “If I do it, it will be for personal, not professional, reasons,” he responded. If nothing else, Dimon didn’t want any more chilly scenes at the Four Seasons. The two men had been dining simultaneously several times and had never spoken.
“It’s time, Jamie,” Pearson continued. “You’re both going to be characters in this industry. Move on.”
A few days later, Dimon called Sandy’s office and left a message. Within minutes, Sandy was on the line.
“In the spirit of Christmas, let’s sit down and break bread and try to reestablish a relationship,” Dimon offered.
“Great, I would love to,” Sandy answered.
“Wherever you want,” Dimon said.
“The Four Seasons,” Sandy replied.
At lunch on December 16, 1999, Sandy and Dimon sat at the Citigroup chief’s usual power spot, a booth in the corner. Unaccustomed to discussing delicate personal situations, Sandy was nervous and fidgeting.
Dimon quickly broke the ice. “Sandy, we’re going to have a fine lunch. I want to talk about the past for a few minutes…” Seeing Sandy flinch, Dimon added, “And it won’t bother you.
“Sandy, I never would have done what you did,” Dimon began. “But I want you to know I share a lot of the blame. It doesn’t make sense to apportion the share sixty-forty or forty-sixty. I’m not sure it matters.”
Sandy shifted in his seat. He hadn’t really come for a heart-to-heart, but Dimon had to get this off his chest.
“I understand that you didn’t want me in the room anymore, because I disagreed with you too much and we were fighting too much,” Dimon continued, sensing that he better wrap up this part of the lunch. “I made a series of mistakes, and I’m sorry.”
“Thank you very much for saying that,” Sandy said stiffly.
Dimon didn’t hear and didn’t expect an apology from Sandy, mostly because he didn’t believe Sandy was sorry to have him gone. But then Sandy added what would be as close as he would ever come to an apology: “It takes two to mess up a relationship like we did.”
It was done. With the sensitive conversation out of the way, the men talked about business and a little about their families. Of course, family was still a delicate topic. Judy Dimon and Joan Weill had not seen each other again, and Dimon’s parents, Ted and Themis Dimon, still refused to socialize with the Weills.
The next day, the Financial Times carried news of great moment on its front page: the record U.S. trade deficit, civil war in Russia, and SEASON OF GOOD WEILL AS FEUD WITH DIMON ENDS. The article reported: “It must be Christmas. One of Wall Street’s best-known feuds…is over. The two have made up at Wall Street’s favorite power restaurant, the Four Seasons, a place where bankers go as much to be seen as for the food.”