The Securities and Exchange Commission has launched an informal investigation to determine if Citigroup misled shareholders when it claimed former CEO Vikram Pandit "resigned" on October 16. Pandit and Citigroup Chairman Michael O'Neill told investors in conference calls and interviews that the decision to step down was Pandit's alone.
"Vikram chose to submit his resignation and the board accepted it," O'Neill said that day.
But according to Bloomberg and the Wall Street Journal, just after the market closed a day earlier, the board--which had allegedly lost confidence in Pandit -- told him to step down later that day. O'Neill failed to mention this during the company's third-quarter earnings call, which, along with O'Neill's statement that Pandit left of his own volition, is a potential regulatory infraction.
"If the board pushed Pandit out, then Citigroup issued a false statement," former SEC chairman Harvey Pitt told CNBC. "The reason for the CEO's departure is material, and Citigroup had an obligation to disclose any information necessary to render its statements fair, accurate and complete. If the board forced Pandit out, Citigroup didn't do that."
Whether Citigroup did anything illegal remains to be seen. But it does bring up another question: Should CEOs be allowed to say they quit when, in fact, they were forced out? After all, unless they have done something terrible, most employees are allowed to say they quit when they were really asked to leave. Should a CEO be held to different rules?
"What often happens when companies do layoffs or want to push an individual out the door, they will do a 'mutual consent resignation' whereby they agree that the employee will go without a fight, and in turn they will not fight unemployment benefits," said Good Morning America workplace contributor Tory Johnson. "It will also look better on your record that you were not terminated or fired."
With the head of a large corporation like Citigroup, "Most people know the 'I've decided to pursue other things' is code for 'They booted me!' she said. "It's totally a courtesy. Fired, laid off, voluntarily, involuntarily—it's semantics."
Outplacement expert John Hotard believes the issue is more about compensation and legal issues than anything else. "The big guys don't want salary because of PR and taxes. They prefer stock and options. The law of compensation is that if you get fired you don't get your unvested stock options. But if you are allowed to resign, then all that money is yours. You don't want to have a senior person sue a bank or corporation, so you let them resign."
Michael Kaufman, managing partner at Kaufman Dolowich Voluck & Gonzo, which has a specialty in employment law on behalf of companies, agrees that barring some major offense, chief executives should be given the same opportunities as every other employee in America."There are a lot of market forces that aren't necessarily a CEO's fault," he said. "Look at the economic cycle we're currently in. In some cases it may not be possible for them to hit their targets. So, they're given the opportunity to resign. I think it's fine."
However, he added, there is a difference with CEOs of public companies and their boards because they must also weigh their duties to their shareholders.
The main issue with Pandit is timing, he said. "If the company had waited a month after they had done their earnings call, the SEC probably wouldn't be up in arms," he said. "But a couple of hours later they say 'The CEO has resigned.' The SEC is saying, why didn't you disclose this on the call? It may very well be that Pandit, after the call, said 'I can't do this anymore.' But that's what the SEC wants to know."