From Bloomberg - Reed Says I’m Sorry for Role in Creating CitiGroup: Lawmakers were wrong to repeal the Depression-era Glass- Steagall Act in 1999, Reed said. At the time, he supported overturn of the law, which required the separation of institutions that engaged in traditional customer banking services from those involved in capital markets.
“We learn from our mistakes,” said Reed, who wrote an Oct. 21 letter to the editor of the New York Times endorsing a division of banking activities. “When you’re running a company, you do what you think is right for the stockholders. Right now I’m looking at this as a citizen.”
John Reed, the lead draftsman for the creation of CitiGroup, which combined CitiCorp (a commercial bank) with Sanford Weill’s Travelers Group back in 1998 was considered a blockbuster merger at the time . Now just 10 years later, CitiGroup has lost $27.7 billion in 2008, took $118 billion in writedowns and is now 34% owned by the US Treasury Department. When the deal was announced, it was the blockbuster news of the decade. It was going to change everything. Instead, it became a story about how the winner ultimately became the loser. It’s about how the law of unintended consequences can and often does reign supreme. It’s a story about how complexity trumped anticipated synergies.
The formation of CitiGroup was well intentioned and a story we should learn from. And the first lesson is for leaders to ask a simple question before they head into merger mania once again. That question is: How will the deal impact the complexity of running the business?
If you can honestly state that the merger will not complicate the business - great. If you have a few reservations when answering this question, then take a second, third and fourth look. Complexity is killing many businesses and making them impossible to lead. This is one of the reasons why complexity is No. 2 on my Silent Problem warning list. It states:
2. When there is a willingness to embrace complexity, while simultaneously sacrificing transparency. Symptom: The business becomes too convoluted and complex to understand. Nothing makes sense anymore.
Complexity is killing industries and businesses. It makes leading them complicated and transparency was sacrificed. I’m certain that John Reed would agree that combining Citicorp with Travelers made sense on paper, but the complexity it brought to the business was a killer.
