The Most Powerful Banker You've Never Heard of
Lewis B. Kaden doesn't stand out among the high-powered executives on Citigroup's (C) organizational chart. He's one of three people who carry the title of vice-chairman, and he doesn't run a big revenue-generating business such as investment or retail banking. Kaden's official duties are largely administrative—human resources, government affairs, and philanthropy among them.
Behind the scenes, however, the 67-year-old Kaden has emerged as the most influential adviser to Citi CEO Vikram Pandit and a key conduit to the Obama Administration. "He's the most powerful man in financial services you've never heard of," says a former executive who worked with Kaden under Pandit and Citi's previous CEO, Charles O. Prince III. Kaden's clout "extends significantly throughout the organization. Some say he's the CEO with a lowercase c-e-o."
Kaden's fingerprints have been all over the bank's maneuverings during the financial crisis. When Prince left the bank in 2007, Kaden advised the team that picked Pandit for the top job. He co-chairs the group that oversees how the bank uses $45 billion in federal bailout money and negotiates with regulators on hot-button issues such as compensation. He's also trying to spiff up Citi's image, seeking out a high-powered consulting firm to develop a new public-relations strategy for the bank. Most important, he's a sounding board for Pandit at a time when sage advice has never been more crucial.
But Kaden, a corporate attorney for decades before joining Citi in 2005, hasn't always shown himself to be a brilliant banker. Serving on three of the firm's most important strategic committees—management, business heads, and business practices—Kaden stood by during the credit boom as Citi placed ever-bigger bets on subprime assets. "I thought bringing him in was a good idea," says a former member of Citi's executive management committee. "But he was in the same meetings I was [when] decisions were made to take on more risk and load up the balance sheet. If nothing else, he didn't step up and say: 'This is all insane. Why are we doing this stuff?' " Kaden also brokered the $800 million acquisition of the hedge fund that brought Pandit to Citi but was shuttered soon after for poor performance. And he paved the way for the pricey deal to name the New York Mets' new stadium Citi Field, drawing sharp criticism from many quarters.
That Kaden has been able to survive Citi's tumult—and his own apparent missteps—speaks to the peculiar niche he has come to occupy in the New York business and political Establishment. Part Karl Rove, part Zelig, Kaden has quietly shaped the decisions of a broad array of powerful leaders in business and government—but without bearing ultimate responsibility for those decisions. Says Zöe Baird, president of the Markle Foundation, a health-care and national security think tank where Kaden is chairman: "He's not the kind of person who tries to impose his views, but [rather] helps think through problems."
Over the years, Kaden has advised corporate chieftains, including Ford Motor's Bill Ford and General Electric's (GE) Jack Welch (now a BusinessWeek columnist). He has also counseled politicians such as ex-governors Mario Cuomo of New York and Brendan Byrne of New Jersey. His political travels have brought abiding friendships with key Obama Administration officials, including chief economic adviser Lawrence H. Summers. For all his lofty credentials, Kaden's personal connections may turn out to be his most valuable asset as he helps dislodge Citi from the teeth of the financial crisis.
HUMBLE ORIGINSLewis Kaden is an unlikely Wall Street power broker. The son of a trucker in Perth Amboy, N.J., he excelled at the local public high school, earning a scholarship to Harvard. After graduating magna cum laude in 1963 with degrees in history and mathematics, he attended Harvard Law School, studying constitutional and labor law and winning a coveted position as an editor of the Harvard Law Review. Even in his 20s the soft-spoken Kaden projected power. He had "a presence, a maturity, and a confidence in himself that was modest and not arrogant," says Richard B. Stone, a classmate at Harvard who teaches at Columbia University School of Law.
With law degree in hand, Kaden spent the next few years weaving in and out of politics. He clerked for the Second Circuit Court of Appeals in between stints working for New York Senator Robert F. Kennedy, first as a legislative aide and then on Kennedy's Presidential campaign. After Kennedy's assassination in June 1968, Kaden took a job as an associate at the law firm of Battle, Fowler, Stokes & Kheel. In 1970 Kaden did something uncharacteristic for a behind-the-scenes operator: He threw his own hat into the political ring. Kaden ran in the Democratic primary for a New Jersey congressional seat, but lost. "That was the wrong place for him," says Stone. "He was not a public candidate. He was someone who should be a Cabinet member and an intimate of a powerful elected person—the judgment behind the throne."
Kaden was already beginning to play that role back at the law firm. He impressed partner Theodore W. Kheel, a distinguished mediator and among New York City's most influential public advocates. When Kheel was asked in 1973 to travel to Paris to help the U.S. secure a peace agreement with the North Vietnamese, Kaden accompanied him. Among other highlights, Kaden was part of the infamous two-week negotiation over the shape of the conference table.
Despite having made partner at Battle Fowler, Kaden couldn't resist the lure of public service. In 1974 he signed on as chief counsel to New Jersey Governor Brendan T. Byrne. For most of the next two decades, Kaden would move freely between the private and public sectors. In 1976 he took a teaching job at Columbia University School of Law. It was there that he met his future wife, Ellen Oren, a fellow instructor who later was depicted in the film The Insider for her work as an attorney at CBS (CBS) News during the flap over 60 Minutes' controversial exposé of the tobacco industry. (She is now general counsel at Campbell Soup.) Kaden augmented his teaching job with government work, including a five-year stint at New Jersey's Commission of Investigation.
By the early 1980s, Kaden's extracurricular activities were beginning to overwhelm his ability to teach full-time. In 1984 he joined the New York law firm of Davis Polk & Wardwell as partner and began to burnish a reputation as an ethicist. In 1986 he moderated a panel for PBS's Ethics in America series, which won a Peabody Award. Soon top business leaders were seeking his advice. GE's Jack Welch called on Kaden for his public policy expertise in negotiations with labor unions such as the AFL-CIO. New York Mets owner Fred Wilpon and seven other owners relied on Kaden for advice during the 1994-95 players strike; Kaden later represented Wilpon in the acrimonious buyout of the team from his former partner, Nelson Doubleday Jr. All the while, Kaden continued to dabble in public service, sitting on Cuomo's economic advisory panel in the late 1980s and editing the governor's 1992 book America's Agenda: Rebuilding Economic Strength.
One important connection Kaden made along the way was with Goldman Sachs executive and future U.S. Treasury Secretary Robert E. Rubin. The two worked for Walter Mondale's Presidential campaign in 1984, reunited in 1987 on Cuomo's economics panel, and for 25 years have shared a passion for Democratic politics and public service.
In 2005, Rubin, then chairman at Citigroup, persuaded Kaden to leave Davis Polk and take a job as chief administrative officer at Citi—playing much the same role for Chuck Prince that Prince had played for the previous CEO, Sanford I. Weill. Citi needed an ethics czar who could help clean up the bank's sullied reputation. Japanese officials had just kicked the company's private bank out of the country for lax money-laundering controls, the British Financial Services Authority had launched a probe into Citi's London trading operation, and the bank was still dealing with the taint of the Wall Street research scandal earlier in the decade.
Almost immediately, Kaden stepped into the role of public-relations master. He joined with Prince on a global campaign to sell Citi's new corporate responsibility plan to investors, shareholders, and regulators. "At Citi we pay attention to corporate governance to limit risk and exposure," Kaden said in a speech delivered at Boston University in November 2006. "We want our employees to identify Citi as both a good employer and a respectable institution."
Kaden got a taste of dealmaking as well. When Michael Carpenter, head of the bank's alternative-investments business, left the firm in March 2006, Prince named Kaden interim chief. In that role, Kaden brokered the $800 million acquisition of Old Lane Partners, the hedge fund that Pandit had started after leaving Morgan Stanley (MS) in 2006. Pandit pocketed $80 million from the sale and became a Citi employee. But the acquisition quickly soured; in June 2008, Citi shuttered the ailing hedge fund, and the bank took a $202 million writedown.
Old Lane isn't the only questionable deal Kaden helped engineer. In 2006 he tapped his connections with Wilpon to win for Citi the naming and sponsorship rights to the club's new stadium—a deal that delivers $400 million to the Mets over 20 years. When Citi Field opened in April, the bank, a major recipient of bailout money, came under fire. "It's just totally unacceptable that Citigroup should be able to spend $400 million in naming rights when they're the recipients of a massive federal bailout," Representative Dennis Kucinich (D-Ohio) said at the time. The congressman, along with Representative Ted Poe (R-Tex.), sent a letter to Treasury Secretary Timothy F. Geithner requesting the government "dissolve the agreement," but Treasury chose not to do so.
Despite Kaden's close association with Prince, he sidestepped the shakeup of Citi's management in 2007. When Prince left in November of that year, Kaden kept his job, much to his own surprise. In fact, the board relied on his advice as it sought a new chief executive. A four-person team, headed by Richard D. Parsons, then a Citi board member and now chairman, took just a month to pick Pandit.
"CONSTANT THREAD"For better or worse, Kaden has transitioned seamlessly into the new regime, maintaining his role as chief counselor to the CEO. "Kaden is very much the constant thread through the downfall of what used to be a pretty good institution," says one senior manager who worked with Kaden at Citi in 2005. A former Citi board member sees it differently: "[Kaden is] an invaluable source of judgment and clear-minded thinking for Pandit."
These days Kaden remains a tireless PR campaigner. After The New York Times published an article slamming Rubin in late 2008, Kaden wrote a letter to the editor, saying the story "painted a misleading and inaccurate picture of Mr. Rubin's role." In recent months, Kaden has interviewed consulting firms as part of an effort to reshape Citi's media and communications strategy. The plan, still in the early stages, is focused on developing more favorable press coverage and improving the firm's reputation with customers and investors. Talent management is another of Kaden's main focuses—and sources of frustration. As head of human resources, he has been instrumental in overhauling Citi's management over the past 18 months. But some of Kaden's recommendations have sparked controversy. In February 2008, Citi hired Edward J. Kelly III, formerly of JPMorgan and Davis Polk, to run Citi's Alternative Investments unit. Later, Kelly also moved into the top spots in the global banking and private banking groups. When Chief Financial Officer Gary L. Crittenden stepped down in March 2009, Kelly jumped into the role. But Kelly appears to have butted heads with Sheila C. Bair, chairman of the Federal Deposit Insurance Corp. Kelly reportedly referred to the FDIC as a "tertiary regulator," while Bair questioned his qualifications. In the aftermath of the scuffle, Kelly left the CFO spot and was named Vice Chairman. An FDIC staffer says the regulator didn't dictate Kelly's job change but adds that the move didn't go far enough in fixing Citi's weak management team. Kaden's most important assignment may be his front-line role in discussions with the government, Citi's biggest shareholder. He is part of a group of top executives who regularly meet with U.S. officials and regulators on everything from compensation to management.
The discussions about pay have been among the most heated. After the Obama Administration imposed a salary cap for banks that received bailout money, Kaden and other executives negotiated with Treasury officials to work out a different arrangement. The group, fearing that valued employees would bolt if their pay were cut, suggested that only the executive suite take the hit, leaving the bank's other top earners unscathed. Citi's response "paralyzed" regulators hoping to make examples of Wall Street fat cats, says one top executive at Citi. The pay discussions are ongoing. In June, the bank raised base salaries by as much as 50% for some top staffers.
Kaden is also a point man in discussions over the controversial pay package of top energy trader Andrew J. Hall, who is owed tens of millions based on a contract signed last year. The bank isn't caving to government pressure to rework the contract. Says a Citi spokeswoman: "We're confident in the value these types of profit-sharing arrangements bring to the company and its shareholders, as they directly align compensation with performance and include appropriate clawback and risk-sharing provisions."
If ever there were a time for Kaden to call on his Washington connections, it would be now. Kaden sits on the board of Human Rights First, a nonprofit advocacy group, alongside the new White House pay czar, Kenneth Feinberg. While working at Davis Polk, Kaden also met Citi's primary regulator, John C. Dugan, the U.S. Comptroller of the Currency, a former partner at Covington & Burling and Treasury official. And he has known Larry Summers for more than 20 years.
With Citi at the mercy of regulators, "knowing your way around Washington has become more important than ever," says Brad Hildebrandt, chairman and founder of the legal consulting firm Hildebrandt International. "Having friends in high places is especially helpful."
Business Exchange: Read, save, and add content on BW's new Web 2.0 topic networkPay DirtA July 31 report from the New York Attorney General showed that nine banks that received government aid doled out bonuses of nearly $33 billion last year despite booking losses of nearly $100 billion. Treasury Dept. pay czar Kenneth Feinberg has demanded that big banks each submit the compensation details for their 100 highest-paid employees, and is pushing to redo outsize packages.To read the report go to http://bx.businessweek.com/banking-industry/reference/