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Head Of Citi Risk Panel To Resign

2008 年04月08日17:01
The mortgage rout has already cost several chief executives their jobs. Now some corporate directors serving
on the audit committees of financial firms are in the crosshairs of investors.

At Citigroup Inc., C. Michael Armstrong, former CEO of AT&T Corp., is expected to step down as chairman of
the New York bank's audit and risk committee, according to people familiar with the situation. Mr. Armstrong,
who had held the post since 2004, is relinquishing the post amid a push by the AFL-CIO and other institutional
investors to oust him from Citigroup's board.

Such critics claim that Mr. Armstrong, 69 years old, failed to adequately oversee the bank's risk-management
processes and therefore is partly to blame for mistakes that have battered Citigroup in recent months.

While Mr. Armstrong will remain a member of the audit committee, his exit as its head is a victory for activist
shareholders who feel burned by the credit crisis. Audit committees -- charged with overseeing financial
statements, work by auditors and risk-management procedures -- have gained stature in the post-Enron world.
But until now, they have rarely faced intense outside pressure.

Shareholders are targeting directors, including audit-committee members, at other banks and Wall Street
firms, including Washington Mutual Inc. and Morgan Stanley. Morgan Stanley holds its shareholder meeting
Tuesday. The campaign against Mr. Armstrong could energize similar efforts, while forcing directors and
companies to reassess how effectively audit committees are doing their job.

'It tells them that . . . they're going to be held accountable,' says Joseph Carcello, director of research for the
corporate-governance center at the University of Tennessee.

Patrick McGurn, special counsel at RiskMetrics Group's proxy-advisory service, predicts that corporate boards
are likely to start 'really focusing on [risk management] as a priority for the first time.'

A Citigroup spokeswoman said Mr. Armstrong is a 'distinguished member' of the company's board and
'deserves the support of Citigroup's shareholders.' She added that the audit committee 'has carried out all of
its responsibilities.' Mr. Armstrong couldn't be reached for comment.

Audit committees were given more responsibility following the passage of the Sarbanes-Oxley Act in 2002 and
greater focus on corporate governance in the wake of numerous accounting scandals. Yet these committees
often aren't subject to the kind of oversight that is now in place for executives and outside auditors.

Audit committees' traditional purview is accounting, which isn't generally at the heart of write-downs suffered
by Citigroup and other Wall Street firms. But under New York Stock Exchange rules, audit committees are also
responsible for overseeing risk management -- an area where severe shortcomings have been exposed.

At Citigroup, which has endured more than $20 billion in losses, some directors weren't aware of the
company's exposure until huge write-downs started piling up, according to people familiar with the matter.
Experts say that is a big failure.

'I think that an audit-committee chair who is not intimately aware of any off-balance-sheet relationships that a

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[ 华尔街见闻] 花旗审计委员会主席将下课-华尔街日报 http://chinese.wsj.com/gb/20080408/hrd170821.asp?source=rss

company has is really not doing their job,' says Mark Cheffers, chief executive of Audit Analytics, a research
firm that tracks financial-reporting errors. 'It's one of the things we learned from Enron.'

Mr. Armstrong, who is friends with former Citigroup CEO Charles Prince, joined Citigroup's board in 1989.
While he was chairman and CEO of AT&T, the telecommunications giant took on debt to finance acquisitions
while its revenue was starting to decline. Mr. Armstrong was left with little choice but to break up the iconic
company.

In meetings with the AFL-CIO, Citigroup argued that Mr. Prince and other departed executives -- not directors
-- were responsible for the company's problems. But the union gained endorsements from other investors,
threatening to create an embarrassing situation at Citigroup's annual meeting later this month.

'If anyone should have understood Citi's business model and the risks that were associated with it, it should
have been' Mr. Armstrong, says Richard Ferlauto, director of pension and benefit investment policy at the
American Federation of State, County and Municipal Employees, whose members control about 4% of
Citigroup's shares.

Last week, Citigroup informed AFL-CIO officials that the company planned to make changes to its board that
would address the investors' concerns, say people familiar with the matter. Over the weekend, Citigroup
decided that Mr. Armstrong would relinquish the chairmanship, but won't leave the board.

Daniel Pedrotty, the director of the AFL-CIO's Office of Investment, says the 'company's actions satisfy our
concerns.'

Meanwhile, Citigroup is close to announcing the hiring of a high-profile outsider to join the board, say people
familiar with the matter. At the same time, Citigroup directors Richard Parsons, the Time Warner Inc. chairman
who heads Citigroup's personnel and compensation committee, and Alcoa Inc. CEO Alain Belda, who leads
Citigroup's nomination and governance committee, are expected to eventually relinquish those leadership
posts, these people say. While both men have held the posts for several years, the Citigroup spokeswoman
said the company periodically rotates its committee chairmen and expects to start doing so this summer.

Separately, Merrill Lynch & Co.'s board plans to consider revamping its boardroom structure so that directors
stand for re-election annually, instead of the current practice of three-year terms, according to a person
familiar with the situation. That could help pacify investors unhappy with Merrill's recent performance

David Enrich / David Reilly

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