Vikram Pandit stepped down last week as Citigroup Inc.’s chief executive officer. For followers of corporate reputational value, this turn of events was not surprising.

The lot was cast when Pandit asked long-suffering Citigroup investors to support an outsized pay package for mediocre performance. As discussed in the forthcoming book, Reputation, Stock Price and You, Pandit’s nominal salary was generous relative to the respect afforded to him by investors.

As reflected in a regression of Barron’s Most Respected Company scores from the book's Chapter 7, financial sector CEO salaries correlate with reputations. Three companies were outliers. Nominal salaries at Berkshire Hathaway and Visa, both companies with stellar reputations, were below the trend line. At the bottom end of the spectrum, Citigroup ranked just above AIG. While AIG’s CEO’s salary was $3.02 million,  Pandit’s nominal salary was significantly above the trend line at $7.02 million.



Citigroup’s performance, however, has been only mediocre. As shown below in the Steel City Re Reputational Value Metrics, among 250 peer companies, Citigroup ranked in the 56th percentile recently on Steel City Re’s CRR, a measure of relative reputational standing; in the 46th percentile on the RVM, a measure of reputational value volatility; and rewarded equity investors with trailing twelve month returns in the 49th percentile. The figures are vastly improved from just earlier this year.

But as is often the case, better may not be good enough. None of these levels are what would be expected for such a huge balance sheet. Goldman Sach’s recent CRR was in the 88th percentile and its RVM volatility was in the 40th percentile. JP Morgan Chase’s CRR was the 77th percentile and riding on a post-whale upwards wave with a greater RVM volatility ranking in the 65th percentile.

AIG’s CEO’s salary was $3.02 million, and his compensation package was approved by 99.19% of the votes cast at the last annual shareholder meeting. In contrast, Pandit’s compensation package was approved by only 45% of the votes cast. The board had to act. Ann Murray, partner at McKenna Long & Aldridge LLP, a law firm, warns that boards need to act defensively and anticipate shareholder reaction. “Failed” say-on-pay votes triggered derivative litigation against directors in about 20% of the cases in 2011.

The last data entries on the charts below show the market's response to Pandit's resignation. Stock price jumped relative to peers, RVM volatility decreased and forward-looking reputational ranking (CRR) indicators reported expected upswings.

The New York Times reports today  that major lenders are backing off from companies that present the potential for material environmental risks. It's a reputational thing.

According to the report by Tom Zeller, "After years of legal entanglements arising from environmental messes and increased scrutiny of banks that finance the dirtiest industries, several large commercial lenders are taking a stand on industry practices that they regard as risky to their reputations and bottom lines." Major financial institutions now factoring sustainability issues into their lending decisions include Wells Fargo (NYSE:WFC), Credit Suisse (NYSE:CS), Morgan Stanley (NYSE:MS), JPMorgan Chase (NYSE:JPM), Bank of America (NYSE:BAC), Citibank (NYSE:C), HSBC (NYSE:HBC), and Rabobank (AMS:ROBA).

In the parlance of the Society, it appears that sustainability policies and practices are emerging as material credit risk factors. And for those of you who were wondering what all the fuss is about at the Society, this is an example of what we mean by "intangible asset finance."