In April 1998, the financial services giants Travelers Group and Citicorp agreed to the largest merger in corporate history. The $166 billion merger created the world’s biggest company, Citigroup, with $700 billion in assets and a market value of nearly $160 billion. The new entity was expected to have 162,600 employees and 3,200 offices, and offer some 100 million customers in 10 countries a range of financial services. Citigroup was likely to have a 24-member board, with an equal number of members from each merging entity. John S. Reed and Sandy Weill, the CEOs of Citicorp and Travelers, respectively, would serve as Co-CEOs and Co- Chairmen of the Board of Directors. Although many synergies would be achieved by the merger, there were some areas of concern. The compensation policy was very different for the two companies. Citicorp had a relatively conventional compensation structure that offered stock options to the people it wished to retain. It did not insist that executives retain their stock. The officers and directors at Citicorp put together owned less than 0.5% of the company’s stock. At Travelers, Weill himself owned 1.3% of Travelers’ stock, worth about $950 million, and the company’s officers and directors together owned 2.45%. The work culture of the two companies was very different. Travelers had an aggressive, fast, deal making culture. On the other hand, Citicorp had a conservative culture built around long term customer relationships. Appointing Reid and Weill as Co-CEOs also caused problems for the merged entity. Both Reed and Weill were contrasting personalities. Reed was a loner who disliked talking to the press while Weill was outgoing and liked to stand in front of crowds and answer their questions. Analysts doubted whether two such strong, but very different people could really share the top job for any length of time. Weill was a cost cutter and was always concerned about short-term profits and the stock price of the company. He also managed the company through personal relationships. Weill expected and received loyalty from his managers. Reed, however, had a long-term vision for the company and was willing to spend the money to realize it. Reed was not a “people person”; he valued on memos and processes to manage the organization. In October 1999, the merged entity took the first step towards integration by drawing up the organization chart. The chart itself was a clear indicator that Travelers had taken a dominant position in the new entity. At the top of the chart were Co-CEOs, Reed and Weill. James Dimon, CEO of Saloman Smith Barney was appointed President. Dimon would head Citigroup’s Global Corporate Businesses and would be assisted by Victor Menezes, CEO of Citibank, and Deryck Maughan, Co-head of Solomon Smith Barney. Analysts wondered whether Weill and Reed could succeed in fashioning two very different cultures and businesses into one cohesive organization. They doubted that Weill and Reed could smoothly rearrange their corporate structures into one. Reed and Weill’s inability to control their followers led to confusion over which corporate culture would predominate—the fast-moving, aggressive dealmaking culture of Travelers or the more conservative culture of a large commercial bank. Citicorp which had relationships with large multinational companies, wanted to maintain those contacts and didn’t want to be absorbed into Travelers, which also served corporations but had little presence overseas. On the other hand, Travelers’ employees did not like the idea of commercial bankers (Citicorp) with little bond- underwriting expertise taking the lead in emerging-market fixed-income deals. By mid 1999, though the merger seemed to be going reasonably well, there were signs of tension between Weill and Reed. Analysts felt that a rift at the top between Weill and Reed could hamper the performance of Citigroup. Reed and Weill were attempting several revolutions at Citigroup. They were trying to offer consumers around the world everything from CDs and credit cards to mutual funds and insurance. Reed and Weill were finding it very difficult to arrive at a consensus on numerous issues. For example, when they had to decide on a common pension plan for nearly 170,000 Citigroup employees, the gap between the two CEOs’ attitudes was considerable. Travelers offered very conservative benefits to its employees, while Citicorp’s benefits were quite generous. Weill believed in cutting costs by clubbing benefits and pension plans and replacing them with stock options. Citicorp traditionally paid fairly low salaries, but rewarded long-time workers with good benefits. Weill wanted to implement a new benefit plan by Jan. 1, 1999. However, Reid and Weill couldn’t reach an agreement until April, and the new benefit plan did not come into effect until Jan. 1, 2000. The new benefit plan cut down Citicorp’s benefits and relied more on stock options, while cutting costs in the short term. In July 1999, relationship between Reed and Weill took a new turn. An internal memo dated July 28, 1999, indicated that Reed and Weill had agreed to split their responsibilities. Weill would be responsible for the company’s operating businesses and financial function; Reed would take care of the Internet, advanced development, technology, human resources and legal functions. In March 2000, a board meeting was called to deliberate on the failure of Citigroup’s Co-CEO structure. In the meeting, Reed announced his plan to retire as Co-CEO of Citigroup, stating that the job of merging Citicorp and Travelers was done. Reed probably was hiding his feelings. In a speech he had given in August 1999 to the Academy of Management he had said: “We are talking about putting two cultures together that are quite different, quite distinct. I am trying to understand how to make this work. I will tell you that it is not simple and it is not easy, and it is not clear to me that it will necessarily be successful….As you put two cultures together, you get all sorts of strange, aberrant behavior, and it is not clear whether each side getting to know the other side helps, or whether having common objectives helps, or whether it is just the passage of time.” After Reed’s exit, Weill was solely responsible for running Citigroup. Weill seemed to have done well: Citigroup recorded revenues of $112 billion in 2000 and $13.5 billion in profits, second only to Exxon Mobil’s $17.7 billion. However, analysts felt that Weill, who turned 68 years in 2000, should retire and choose a successor. In 2003, Weill announced his successor.

1. The Citicorp-Travelers merger was expected to be a perfect fit as the merger would facilitate cross-selling of each other’s products in each other’s territories. However, many hurdles hindered the realization of the synergies identified prior to the merger. According to you, what were the major hurdles that prevented the realization of synergies after the merger? 2. Citigroup’s Co-CEO structure did not work well and one of the CEOs had to step down. Explain why the Co-CEO structure failed to function efficiently. What are the problems associated with such a structure?