Jonathan Cohn

A Possible Summers Successor and Her (Potential) Citigroup Problem (UPDATED)

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The early frontrunner to succeed Larry Summers at the National Economic Council is Anne Mulcahy, according to various reports. Don’t feel bad if you’re wondering who she is or what her appointment would meanwhile the former CEO of Xerox is well-known in the business community, there’s not much to tell about her life in politics. Although she’s a Democrat who served on President Obama’s transition economic advisory board, she hasn’t left much of a paper trail on her political beliefs, aside from a few bland pro-trade and pro-immigration comments

But one part of her business history may attract attentionand not the kind the administration wants. It’s her past service on Citigroup’s board of directors.

Mulcahy was a director at Citigroup from 2004 until earlier this year, when she decided not to seek re-election. She served on the company’s Audit and Risk Management Committee for the last four years of her term. And that’s the potential problem. In 2008, Citigroup collapsed, requiring a $45 billion bailout to stave off bankruptcy. The company also paid $75 million to settle SEC allegations that the company misled shareholders about its holdings of subprime loans in 2007 and 2008.

Even though many corporate boards now rubber stamp the decisions of CEOs they’re meant to oversee, Mulcahy’s committee was nominally responsible for making sure Citigroup invested prudently. That didn’t happen, and shareholders, understandably, were not happy. The American Federation of State, County and Municipal Employees, a 1.6-million strong union, urged shareholders to vote out six board members, including Mulcahy, claiming that the “board members failed to fulfill their risk management responsibilities as members and former members of the committee.” Given the public’s anger with the financial industryand the widespread perception that Obama has been too soft on the banksthis part of Mulcahy’s experience seems unlikely to go over well politically. 

How much blame, if any, does Mulcahy actually deserve for what happened at Citigroup? And to what extent, if any, should it count against her? I really don't know. While the risk management and audit committee obviously failed at managing risk and auditing, many of the investments that led to Citigroup’s woes likely predated her time on the audit committee and possibly even her time on the board. This is a small part of her background and, for all I know, she'd do a bang-up job running the National Economic Council.

But appearances appear to be a major reasonmaybe even the major reasonthat the administration is so high on Mulchay right now. By appointing a former CEO, the thinking goes, Obama could put to rest the idea that he’s hostile to business, improving his political standing with skeptical swing voters. 

Maybe that calculus is right, and maybe it’s not. But if administration officials think appointing Mulcahy would help with public relations, they should consider the possibility that she might just make things worse.

UPDATE: Kevin Kelleher, writing over at Fortune, chronicles "an almost eerie tendency for fraud and mismanagement to follow her wherever she goes," noting problems at Xerox and at Fannie Mae, on whose board Mulcahy also sat. The evidence is circumstantial, but it can't help her case.

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