Parson's Portfolio: Citi Chair Has Little Skin in the Game

By Simon Johnson

According to Bloomberg, Richard Parsons – the chair of Citigroup since February – now owns stock in the company worth, at yesterday’s close, about $350,000 (96,298 shares at $3.69). For such a well-established and highly remunerated corporate executive, we can reasonably refer to such an amount as “chump change.” In May, Forbes estimated Mr. Parsons’ net worth as a little under $100m.

I have no particular complaint about Mr. Parsons; he is an experienced banker, with the very best political connections. But I would point out that while Wall Street likes to talk big about people having “skin in the game,” when it comes to putting their personal net worth on the line, many finance executives prefer a different kind of arrangement. Specifically, they are attracted to compensation structures in which they have a lot of upside but very little downside.

If you had such a deal, how would this affect your relative interest in risk-taking and careful supervision of subordinates?

David Brooks famously argued, a few months ago, that the problem with our banking system circa 2008 was not anything about incentives and political power, but rather stupidity. Probably he was right that this mattered in some degree for the housing bubble.

But what should we think about an industry that is carefully and deliberately constructing the exact same arrangements again? Won’t this lead us inexorably towards a Truly Great Bubble? Stupidity involving smart people in well-heeled organizations must surely be about incentives for those at the top.

Just because these arrangements involve and are being implemented by a member of President Obama’s Transition Economic Advisory Board, does that make them OK – or even remotely sensible?

And where exactly do you see the impact of the adminstration’s vaunted regulatory reforms for the financial sector here?

If your response is “well, that’s the system and there’s nothing you can do about,” you have a point. But if that’s your response and you work in the White House, we all have a very big problem.

Comments

[tommiegun:]

At least he has spent some of his own money. Many execs. wait for stock options, and they then get greedy with those.

Aug 12 10:41 AM

[User 208427:]

duh...he has been there only a few months.

Is he supposed to sell everything he owns at a huge loss to invest???

Stupid article. Reminds me why I don't generally read SA any longer.

Aug 12 11:39 AM

[William Kab...:]

First, he isn't or wasn't a commercial banker. He was CEO of Time Warner. Second, he hasn't been there just a few months but is a carryover from the original board.

Given the fact that he was part of the problem, I'd have gotten rid of him, but he's an Obama supporter and that is evidently enough qualifications.

Aug 12 12:21 PM

[Ricard:]

No, Parsons was a banker before Time Warner, so the article is correct.

He came on C's board in early 2009. He was part of the Obama campaign and was picked to chair C this January, in the middle of this mess, and ostensibly with the backing of the current administration. C's board has been through several changes in the past 2 years, and Parsons came in the middle of those changes. Some background:

www.nytimes.com/2009/0...

I am long C and consider Parsons to be a net positive for the company and the government's goal to get out of direct intervention into finance:

seekingalpha.com/artic...


On Aug 12 12:21 PM William Kabourek wrote:

> First, he isn't or wasn't a commercial banker. He was CEO of Time
> Warner. Second, he hasn't been there just a few months but is a carryover
> from the original board.
>
> Given the fact that he was part of the problem, I'd have gotten rid
> of him, but he's an Obama supporter and that is evidently enough
> qualifications.

Aug 21 06:29 PM