You've just come back from your 54th trip to Japan. What is your sense of what is happening there? Are positive, or do you feel Japan is not changing?
One of the great disappointments to me is that a country with such an enormous talent base of people, and with considerable material wealth, isn't doing better economically. I wasn't encouraged. I don't think all the problems are being dealt with yet. There is an underlying will by the people to back some restructuring, but it just doesn't seem to be happening. So, no, I am not very positive.
I am positive about our business in Japan. We have a very large business which makes over $1 billion after tax. It's huge. It's probably the most profitable financial company in Japan - partly because the others are not very profitable.
Are you more encouraged by the way the Koreans seem to have adapted to change?
They've had to adapt. People try to compare Japan with some of the things that happened in the UK in the late 1970s when Thatcher arrived, and say couldn't the same thing happen in Japan. Well, it could, but it requires there to be a 'need' to do something, and there isn't yet the crying urgency, I suspect, among the legislators. Korea really did have to do something and they did. And yes, they have made more progress in some areas.
Japan is in a state of quite comfortable, relative decline. Perhaps it hasn't got its back to the wall yet.
You have been associated with Asia for a long time. Do you sense that non-Japan Asia is possibly entering a new boom phase?
I think 'boom' is too strong. Investors and bankers tend to look at things in relative terms. Is Asia in relative terms going to do better? We suspect it will. I don't think it will be boom conditions. For boom conditions, you've got to have a number of economies behaving strongly, particularly the US. China has to be strong, or Japan. We think China is going to be strong. But to what extent that creates boom conditions in Asia is questionable. In fact, it creates competitive problems for Asia. So we feel Asia is going to do well. There will be good conditions, but not boom conditions.
What's your feel for what is happening in China, with WTO etc?
Chinese entrepreneurialism can't be kept down. When I lived here from 1970 to 1983 we always looked at the overseas Chinese and saw they were as smart, in business terms, as it was possible to be. These were just people that had only left China in the previous generation. So I knew that by the law of averages there was a latent ability of hundreds of thousands of those people, who would develop business in China itself, if they were given a chance. The conditions are now such that this is happening in China. Conditions are being created that will lead to really substantial growth in years to come. I am very encouraged.
You used to work in a family firm, running Schroders. What are the differences you find, working in a big global bank like Citi?
Schroders was not global in the same sense. We operated in 34 countries, where Citi is in 102. Schroders was a public company, but the family shareholding was 48%. We ran it very much as a public company and it had a spectacular financial performance. In the last 20 years the share price went up 160 times - there is nothing that compares to that on the London Stock Exchange in the same time period, between 1980 and 2000. It went from being a small company with a market capitalization of $30 million to at one stage being worth $7 billion, without issuing any new shares.
However, it is a lot smaller than Citigroup. Citi is the leading financial services company in the world by any benchmark, and it is an American company and these are different from British companies. American and British companies are both bottom-line oriented, but American companies are very top line-oriented too and ask questions as to whether they are in the right sort of businesses and are those businesses growing fast enough. While US firms are good at cost-cutting, they are also good at being in the right businesses, because the best thing is to grow revenues rather than cut costs - which you can only cut so far.
Finally, an Enron-related question. You obviously have a lot of non-executive directorships. How do you feel about the responsibility that puts on your shoulders. You obviously can't know everything about what happens at a company and yet you will get pilloried if a company does have problems.
It's a real problem. Every non-executive director knows that the depth of his information is hugely influenced by what the management actually tells him. The assumption by non-execs is that management tells them everything they need to know to make a judgement, and look after shareholders interests. The Enron case has impaired that trust to some extent. In future, non-executive directors will be much more careful in questioning management, and auditors.
There will be some people who will decline to be non-executive directors, and will say, this is not worth my reputation. One chairman of a Footsie 100 companies in the UK said he couldn't see that it was ever going to be worthwhile for anyone to serve as a non-exec, because you can't pay for that reputational risk. There will be people that find it interesting to sit on a board, and gain new knowledge. But it will be tougher to find people, and there will be people who will no longer want to serve on the boards of even the very best companies. Those that aren't the very best, are going to find it particularly difficult.
So would you think twice about sitting on new boards?
First of all, I am sitting on enough boards already, so I couldn't join another anyway. But I've always been careful in choosing which boards I sit on such as McGraw-Hill, Eli Lily, Cable & Wireless, Land Securities and one of the public companies in the Fiat Group.
In choosing which boards one sits on, one will be more circumspect, and while most of us that sit on boards look at management and reputation and the business's growth potential, all of those things will be much more carefully examined in future. Will we be more skeptical? Yes, I suspect we will.
