Better Living through Free Markets

Sanford I. Weill, Citicorp's CEO, Gives Hatfield Lecture

Addressing a standing-room-only audience in April, Sanford I. Weill, chairman and CEO of Citigroup, presented the Hatfield address: a message of optimism in the free-market economy's potential to better the world, the gradual resolution of worldwide conflict, and the future of corporate governance. Weill is a well-known business leader who has worked in financial services for more than four decades.

Although the cause of some growing pains, globalization will benefit the world's communities overall, Weill said. He enumerated recent events that have led to the improvement of societies around the world. The collapse of the Berlin Wall, the passage of NAFTA, the admission of China into the World Trade Organization, and the creation of the Eurozone have all led to the opening of markets to the benefit of many nations.

"Opening up borders can increase cross-border trade, increase financial and trade flows, and help grow GDP," Weill said. "Critics say that the world is going to hell in a handbasket, but the facts suggest otherwise."

One of Citigroup's mechanisms for helping aspiring entrepreneurs worldwide is to provide very small business loans, a specialty known as microfinance. The average loan amount is $260, and the repayment rate is about 95 percent.

"Economic growth is the best answer to global poverty," said Weill, adding that globalization held answers to conflicts such as those in the Middle East. After World War II, he pointed out, Japan and Germany were given assistance in rebuilding. As a result, Japan and Germany made major contributions to the global environment. "Contrast that with what happened after World War I, when Germany was punished and saddled with debt. The country became an economic basket case until Hitler mobilized his massive war machine."

The Middle East offers a great opportunity for the United States to reach out and help, said Weill, giving as an example the medical college that Cornell is helping to build in Dohar, Qatar. "We can change the way people feel about each other by focusing on our humanity."

As far as corporate governance is concerned, said Weill, Citigroup is leading the way in establishing standards. After recent corporate scandals, he said, corporations in general, and financial services in particular, are obligated to restore the public's confidence. "We must use our leadership position to set the highest standards for conduct. It's critical to the success of our business."

Separating analyst research from investment banking, establishing independent boards to whom executives are truly accountable, separating the audit function from the organization, getting back to GAAP and away from pro forma and EBITDA, structuring compensation at all levels to ensure integrity and accountability-those measures and more play a role in governance, said Weill.

Citigroup sets an important example for other organizations. According to Institutional Shareholder Services, Citigroup is outperforming more than 97 percent of the S&P 500 and 100 percent of all financial services in terms of governance practices.

Opening the floor to questions from the audience, Weill fielded queries about Citigroup's attitude toward the environment. In answer to a representative from Rainforest Action, he said: "I appreciate how deeply you feel about the environment. It's a major issue." Citigroup, he said, is interested in supporting environmental groups and working together to make the world better.

On his declination to join the board of the New York Stock Exchange, Weill said: "I wanted to help if I could but not create problems for NYSE. It turned out that the best thing was to decline the nomination."

Asked what can be done to increase the nearly nonexistent flows of capital, Weill answered, "Get returns." He explained that the recent technology bubble in the market and the subsequent economic slump came about in part owing to the abandonment of "true venture capital." "We were seeing some unconventional metrics that didn't deal with the bottom line. Profit became measured in Web site hits, which had no relation to what was really there."

Asked for advice to students interested in financial services, Weill said, "Do things a step at a time. Don't swing for the grand-slam home run. Keep going for the singles."

Establishing a broad base of knowledge by reading extensively and keeping one's eyes and ears open is also important, said Weill. "You can recognize opportunities where others don't. And be willing to take risks and make mistakes."