Economics is a broad subject, whose application especially in a business enterprise requires a broad understanding and knowledge of the principles and models that can be utilized in decision making. The purpose of this paper is to document and discuss the findings about how managers make economic decisions in their organizations and how such economic decisions impact on the strategies that the organization has put in place so as to attain organizational goals and objectives.
For the purpose of this paper, Michael Corbat was interviewed and he gave his insight on decision making, and the impact this has had on the progress of one of the worlds largest banks, the Citigroup. This interview was structured to reflect decision making in the various functions of management such as marketing, finance, operations etc. Emphasis was laid on how the decision making leverages to ensure that the company attains an efficiency in procurement, risk management, reporting as well as corporate governance, key issues affecting the success of the organization.
Michael Corbat has been at the Helm of Citigroup for some time now, and has been instrumental in overseeing the companies restructuring, especially after the events of the global financial crisis where many banks in US were deeply affected, and others had to be bailed out by the federal government, from the brink of collapse. It's during this period that he was appointed the Chief executive, and has worked tirelessly to return the company to profitability. So how have economic decisions been made by this company?
Michael Corbat says that one of the key things that the company did is to ensure that there is a strong financial base, what is known as financial strength. This had to be done, considering that the bank holds billions of dollars of depositors' money, therefore, the company had to have enough, at least to ensure that funds deposited by customers is safe.
He insists that decision making in the organization is not singular. The company has a board committee that handles matters to do with economic policies relating to the company. Something that Michael believes is of great help since in times such as the global financial crisis, level decisions have to be made, and expert opinion is necessary, which is evident from the composition of the board committee.
Most prominent of the decisions is the issue of risk management. Organizations in the financial sector generally suffer great risks especially with regard to foreign exchange losses. The bank therefore has to make decisions that ensure that the companies risk exposure with regard to foreign exchange losses is minimized, if not eliminated. This, according to Corbat, calls for the company to employ complex economic models that can predict, with a certain degree of accuracy, the future movements in the foreign exchange positions.
According to Corbatt, the banks overall financial health is the most important aspect of his work, since, according to him, once the bank is doing well financially, then almost all other issues can be handled with ease
The interview also touched on the company's relationship with investors and other stakeholders. Mr Corbat was quick to indicate that the company has strict reporting policies, that ensure a constant communication with stakeholders as well as ensure that investor confidence is maintained. By engaging the services of KPMG, who carry out both interim and final audits that are published for the benefits of stakeholders, Citigroup ensures that everyone is kept abreast with the company develops and performance in a timely manner.
Mr Corbat, was however quick to inform us that the organization has got a number of policy documents that act as reference manuals in decision making. He admits that it would be really difficult to manage such a large organization without solid policies and structures to guide economic decisions. Key among these documents is the finance policy document or manual if you like.
This document, according to Corbat, is comparable to the Christian bible for the finance department. T outlines the organization's policies with regard to the company's finance function. It outlines the companies policies with regard to the finance function organizational chart, procurement policies, internal controls, etc. For instance, the manual states that procurement of fixed assets of a given value must be sanctioned by a committee of the board, the investment committee. This ensures sufficient controls and appraisal with regard to investment in fixed assets in which the company expects to derive future economic value.
This manual, according to Mr Corbat has been very helpful in decision making especially with regard to the gray areas. This document, is also an important tool for training new staff on the way things are done in the department. This ensures that there is a smooth running of the organization even in the absence of a controlling authority for everyone involved is able to know what is expected of them, and their work(Anthony Saunders and Marcia Cornett, 2006 p. 66)
The second policy document is the human resources manual. While as the president, Mr corbat is not involved directly in the recruitment process, he informs us that he is greatly involved in the formulation and review of the content of the manual so as to ensure that the organization's policies with regard to human resources are progressive.
According to him, human capital is a most important part of an organization and therefore the success of the human resources function translates to the success of the organization. In this regard, the manual addresses issues such as the job descriptions of the various categories of staff, reporting channels as well as an organizational chart. The manual also addresses issues such as staff compensation, benefits , rules and regulations.
A code of conduct is also an integral part of this policy document. It must be understood that this document is a guide also, to the human resources function with regard to staff discipline, duties and responsibilities as well as overall service charter and commitment to the organization.
Corbett states that this manual guide the organization's decisions with regard to human resources, and he refers to it in all staff matters that are brought before him. This document is therefore an important element of decision making with regard to human resources.
This interview would not have been complete without addressing the issue of corporate governance. On this issue, Mr Corbat insists that the company is fully compliant with regard to the global requirements of good corporate governance.
According to the OECD principles of good corporate governance, an organization must have a management which is independent of the ownership as well as on a board that has a representation of non executive directors. An organization must also have an independent committee of the board especially the internal audit committee, which addresses the financial and audit queries that may be raised by the internal auditor. All these, according to Mr Corbat are fulfilled in the governance structure of Citigroup.
This according to him has been important in assisting in his decision making concerning the economic policies that guide the Group.By having an investment committee of the board, which Mr Corbat is a member, there is shared decision making, which ensures that the most viable economic decisions are made.
On other areas of decision making in the organization, Mr Corbat maintains that the operations and marketing functions are important functions that he is involved in decision making. Although each of this function has a line manager, Mr Corbett insists that frequent meetings are held between him and the particular departmental manager and key staff to look into the activities and his input is always important in ensuring a smooth running of these functions. Having risen through the ranks of the bank, Mr Corbat informs the interviewers that he is well conversant with these functions and has been a great contributor in making key policies that guide these departments.
On how his decision making affects the overall economic position of the group, Mr Corbat explains that the overall well being of an organization is as a result of a multiplicity of factors, and especially the success of the various components that form the organization.
He explains that if the human resources is happy, the stakeholders are well informed, investors are confident about the company's performance, the finance function is providing timely accounting information, the group is paying the tax dues on time, the marketing team is creating awareness of the companies' products in the market, then there is no reason why the organization should not be among the best in the industry.
According to him, even the strongest economic policies would never be successful without the support of the people that matter in an organization (Pindyck, et al 2009). That is why he ensures that all policies, and especially economic policies are adopted and appreciated by all, and especially by the board of directors of the company. This, according to him, has been an enduring culture of Citigroup, where everyone, respects the decisions of the board, and adopts a working attitude in which the organization is owned by everyone, from the lowest levels of subordinate staff to the highest position.
This is evident from the enduring commitment of the staff and management of Citigroup in maintain one of the top positions in the banking industry not only in the United States but also in the greater Americas and the Carribean. Such success, according to Corbat is mainly as a result of visionary leadership and wise decision making, at all levels of management, and especially at the office of the president, which is the most important decision making organ in the group globally.
Consistent commitment to success and to the achievement of the group's vision, according to him is entrenched in the organization's service charter that envisions that organization's commitment to delivering services to the people of all walks of life. This commitment is also embedded in the group's mission, ‘enabling progress!’
References
Pindyck, Robert S and Rubinfeld, Daniel L., Microeconomics eighth edition, Pearson,2009
Anthony Saunders and Marcia Cornett. Financial Institutions Management: A Risk Management Approach.Mc Graw Hill,2006
Frederic S. Mishkin, Economics of Money, Banking, and Financial Markets, 10th Edition, Pearson, 2006
Gregory Mankiw.Macroeconomics. Cengage learning,2010
