Sandra Navidi - SuperHubs - How the Financial Elite and Their Networks Rule our World

Meanwhile, the victim was completely clueless. After publishing a positive earnings report, Pandit was in good spirits and unsuspecting when he was called for a meeting. That’s when O’Neill dropped the bomb: He told Pandit that the board had lost confidence in him and gave him a choice of three different press releases announcing his ouster. Pandit could either resign now, at the end of the year, or choose to be fired without cause. The blindsided Pandit chose the most face-saving option under the circumstances—to resign. After his departure from Citi, he dabbled in consultancy and venture capitalism. He eventually teamed up with Freakonomics author Steven Levitt to head a consulting firm, TGG, where he uses his large network of CEO contacts to build a client base.12

In another industry coup d’état, Jamie Dimon, CEO of JPMorgan, who had been fired by Sandy Weill years earlier, paid it forward to Bill Winters. Winters, a senior executive who coheaded the investment bank together with Steve Black, was considered a likely successor to Dimon. He was credited with helping the bank avoid many risky investments in the run-up to the crisis, but his criticism of the role of banks during this time was said to have evoked Dimon’s disapproval. Wall Street speculated that Dimon saw a rival in the popular and successful Winters and ousted him before he became too powerful.

Winters, who had spent a quarter of a century at JPMorgan and had no plans of leaving, was shocked. The announcement was made just prior to the Annual Meetings of the IMF, which that year took place in Istanbul. I did not really know Winters, but I had seen him around. He had always been friendly, and many of his colleagues thought highly of him and were stunned to hear the news of what sounded like a ruthless firing. I was taken aback even more when I encountered Winters in the receiving line at the JPMorgan cocktail reception at the Feriye Lokantasi restaurant on the Çirağan Cad. Shaking hands, I expressed regret at the news of his dismissal. Disarmingly honest, he admitted straightforwardly that he was still shaken and did not really know what to say. I thought that his attendance showed great backbone.

The question of succession is a delicate one because it forces CEOs to confront their own expiration date. More dictatorial CEOs with big egos often fail to breed successors, and boards typically remain loyal to them. Investing time in planning out an orderly succession is logical; otherwise boards are forced to hire outside CEOs, who generally do not perform as well. A departing CEO also causes substantial transition costs, as he will receive a pay package and the new CEO a sign-on bonus. In addition, transitions bring with them disruptive and costly turnover, since new executives tend to surround themselves with loyalists, and those loyal to the old CEOs generally leave the firm and follow him.

Triumph and Defeat: A Turbulent Career

For a decade, Joe Ackermann headed Deutsche Bank, and under his leadership, “Deutsche”—as it is referred to on Wall Street—became one of the world’s leading banks. The CEO of Deutsche Bank has historically had extraordinary standing and gravitas in Germany, since the public views the institution as a reflection of Germany itself and its CEO as its fiduciary. Throughout his tenure, however, Ackermann remained controversial.

Ackermann had always been a power broker who successfully placed himself in the center of relevant networks and crucial events. Wherever the financial elite congregated, he was sure to be in their midst. He spent so much time in the air that he became one of NetJets’ top ten fliers in Europe. Due to his superhub position at the core of financial, economic and political networks, he achieved his greatest power at the pinnacle of the financial crisis. As Chancellor Merkel’s confidante and finance minister Peer Steinbrück’s adviser, his status morphed from that of mere banker to quasi-statesman. By virtue of his chairmanship of the International Institute of Finance, he became the unofficial ambassador of financial institutions globally. As such he played an important and constructive role in the negotiations regarding the Greek crisis. An extraordinary number of influential positions cemented his status as a superhub: In addition to his position at Deutsche Bank, he was a member of the supervisory board of Siemens AG, a nonexecutive member of the board of directors at Royal Dutch Shell, a foundation board member of the WEF, a member of both the Bilderberg Steering Committee and the Trilateral Committee, visiting finance professor at the London School of Economics, and honorary professor at the Goethe University Frankfurt. He thrived in the limelight and was in his element at the top of the financial power structure.

Yet in addition to incredible highs, his career was also marked by unexpected lows. The German public met him with skepticism, because his words and actions were sometimes perceived as tone-deaf. Particularly controversial were his aggressive 25 percent return-on-equity target, which he upheld throughout the crisis, and his enormous pay packages, which at times made him the highest-paid CEO in Germany.

In 2004, Ackermann, in his capacity as a member of the supervisory board of Mannesmann AG, was indicted along with five other executives for alleged breach of trust for approving bonuses in the amount of $74 million to Mannesmann executives after Vodafone Group’s acquisition of the company. The trial lasted three years, during which Ackermann remained Deutsche Bank CEO despite the logistical challenges and a potential ten-year prison term hanging over his head. In the end, he was acquitted.

In addition, he was also charged with allegedly making false statements related to a civil court case brought by the heirs of Leo Kirch. The deceased media tycoon had sued Deutsche Bank, blaming its former CEO, Rolf Breuer, for driving his conglomerate into bankruptcy after Breuer publicly questioned its creditworthiness. The trial was marred by an unseemly spying scandal involving surveillance of two board members and a critical shareholder suspected of leaking information. Other dubious methods included a twenty-three-year-old Brazilian honey trap, a microphone concealed in a flower bouquet, and the infiltration of an alluring female spy into the opposing party’s law firm. Such surreal lapses of judgment seemed grotesque in the dusty German corporate world and were at no time attributed to Ackermann himself, but were largely ascribed to outside detective firm contractors. After twelve years, Deutsche Bank settled the original case with Kirch’s heirs for €775 million plus interest and other costs. Of the accusation of making false statements in the civil court case Ackermann was fully acquitted.13

He also displayed a talent for committing public relation gaffees. A snapshot taken during the Mannesmann trial—which captured him grinning and flashing the victory sign—was interpreted as the epitome of elitist arrogance and caused a media storm so severe that he publicly apologized. An infamous remark in connection with his authorization of outsized bonuses, (“This is the only country where those who succeed in achieving a good price for a company are dragged before court for it,”) led to yet another backlash followed by yet another public apology.14 His announcement of an 87 percent profit increase combined with the concurrent layoff of 6,500 employees wasn’t exactly met with enthusiasm, either.

A couple other incidents involved—of all people—Chancellor Angela Merkel. While he had helped conceptualize Merkel’s bailout program, Ackermann was said to have stated that he would be ashamed to take government help, a remark that earned him a public rebuke from the German government. He further alienated the chancellor when he publicly mentioned that she had hosted his sixtieth birthday party at the chancellery with thirty guests of his choice. That preferential treatment at taxpayer expense placed Merkel in hot water, and a court ordered the chancellery to disclose details. Sometime thereafter, Ackermann characterized his relationship with the Chancellor as cordial and professional, but he conceded that the financial crisis had made the relationship between banks and governments more challenging.