The Citigroup building in Long Island City in Queens, N.Y.
Do you feel comfortable giving advice to a chief executive? Do you know your way around a bank's profit and loss statement? Are you available on weekends for crisis conference calls? Then the financial-services industry has got a job for you.
Banks have fired tens of thousands of employees in the past year in order to cut costs. And layoffs in the financial-services business are expected to continue — American Express just announced it will lay off 4,000 workers in its latest round of cutbacks. But in one area banks are set to make a spate of hires. The pay is likely to be good, and the hours will be part-time. But unfortunately, most of us won't qualify. Under pressure from government regulators and institutional investors, banks are being forced to remake their corporate boards. The companies are being told they need to add more independent directors with backgrounds in the financial industry. And with government playing a larger role in banking these days, the firms are looking to add people to their boards who know their way around Washington. (See 25 people to blame for the financial crisis.)
"There are going to be changes to the boards of every major financial-services firm," says Clarke Murphy, co-head of the board-services practice at executive-search firm Russell Reynolds. "As many as half of their independent members [i.e., directors who are not officers of the bank] may change."
Already, Citigroup has named four new directors to its board this year, and each has financial experience. Two, Jerry Grundhofer and Michael O'Neill, are former chief executives of other banks, U.S. Bancorp and Bank of Hawaii, respectively. And a number of Citi's shareholders are pushing for the bank to make further changes to its board.
Bank of America said in early May that it, too, was looking for new directors. Regulators are reportedly pushing the bank to add more outside directors with financial-industry experience. Shareholders recently voted to strip BofA CEO Ken Lewis of his position as chairman of the board. The new chairman, Walter Massey, is heading up the committee that will revamp the bank's board.
But Bank of America and Citigroup are not alone in needing to make changes. At Wells Fargo, only four of that bank's 17 independent board members have a background in the financial-services industry. And even among that group, only two have been executives at a bank. Fifth Third Bancorp, which was deemed to need an additional $1.1 billion in capital in the government's recent stress test, has no independent directors on its board with prior experience working at a bank. Two of its board members do have financial-services experience, but with insurance companies. At JPMorgan Chase, none of the 10 independent members of its board have held a position at a financial-services company.
"We are busy doing recruiting for financial-services companies," says George Davis, who heads up the board practice at search firm Egon Zehnder.
Traditionally, banking experience was never a major criterion for becoming a board member at the nation's largest financial-services firms. Banks and other financial-services firms have long filled their boards with nonfinancial executives, be they industrial chiefs, heads of nonprofits or professors. That's been changing in recent years, especially with the passage of Sarbanes-Oxley, which sought to strengthen corporate boards. But apparently the changes have not gone far enough. (See pictures of the stock market crash of 1929.)
As part of the recent stress tests, regulators said they plan to review the boards of the nation's largest banks. The 10 banks that were deemed in the test to not have enough capital were given until June 8 to present Treasury with a plan for how they will raise the required funds. Besides reviewing the plans, government officials have said they plan to weigh in on whether they think the banks' leadership is adequate as well. One of the main factors the government will reportedly be looking at is whether the banks have a sufficiently deep bench of financially savvy board members. And that has a number of banks scrambling to make changes.
David Bliss, head of consulting firm Oliver Wyman's board-advisory unit, says he has been busy and has received more calls from large financial firms in the past few months. Nonetheless, Bliss says the most troubled banks may have a tough time finding willing and able directors. He says it's harder today to find people to serve on corporate boards, in part because Sarbanes-Oxley has increased the work that board members must do. But Bliss says the biggest thing that keeps people from serving on a bank board is the social risk. "No one wants to be seen as part of the group that is handing out bonuses," says Bliss. "Not something you want to have to talk about at a party."
That means prominent former top executives of financial-services companies may be getting a lot of attention from recruiters in the next few months. John Reed, the former CEO of Citibank, is among the group of individuals who recruiters say should be on any bank's short list. Henry Paulson, the former Treasury Secretary, could be a candidate as well, though some question whether a Paulson appointment would win points with the current Administration.
Richard Breeden, a restructuring expert who led the turnaround of WorldCom, is also probably on a number of board-recruitment wish lists. In addition to his Wall Street experience, Breeden knows Washington. From 1989 to 1993, he was chairman of the Securities and Exchange Commission. William Donaldson, another former chairman of the SEC, also has the Washington and Wall Street experience that would make him a good get in today's bank-board race. "The problem these boards have had is that the people who know the most are the insiders," says top financial-services recruiter Gary Goldstein. "It is prudent to have at least a few outsiders on the board who have an unbiased perspective and know the right questions to ask."