Saudi Prince Alwaleed: Tough on Trust

Many people think of trust as “soft,” and inconsistent with “hard” approaches to making money. But have a look at Saudi Prince Alwaleed.

Alwaleed has long been a big investor in major US companies—Apple, for example, and Citigroup. He is Citigroup’s biggest individual shareholder, at 3.6% of the company (or he was until two days ago, on the 26th, when a group in Abu Dhabi took a position in Citigroup even larger than his). He did not get where he is by being “soft.”

In a fascinating interview, Fortune magazine spoke with Alwaleed about the demise of Chuck Prince, former CEO of Citigroup, after he announced a second write-off (of $11B) just three weeks after the first write-off of $6B .

Turns out Alwaleed believes in trust—strongly. See these excerpts:

Fortune has learned that Prince Alwaleed and other major shareholders agreed last week that, if Chuck Prince didn’t offer his resignation after the news of the additional $8 billion to $11 billion writedowns, they would publicly call for his ouster.

Q: Did you like Chuck Prince?

A: Yes, Chuck Prince was a good man. Honest man. Decent man.

Okay—a good, honest, decent man. Does Alwaleed trust him?

A…when Citigroup pre-announced the $6.4 billion writeoff, Chuck Prince called me within five minutes of the announcement and informed me of that loss and I told him bluntly and openly, "Is this the end of the story? Did you think of everything?"

His answer was "yes" and he expected normalization in the fourth quarter…So obviously, this gave me comfort that this was a onetime event and only an aberration and I backed off.

..But what happened two or three weeks later, another $8 to $11 billion additional write-off, the situation changed completely.

You cannot come to the public and say that this normalization is expected in the fourth quarter and then three weeks later, not three months later, you come and say there is an $11 billion writeoff. This is unacceptable. That’s when the events changed completely. My backing was withdrawn dramatically.

You should never commit to something that you can’t deliver. Never.

Q: Are you disappointed in Chuck Prince?

A: I am extremely disappointed with Chuck Prince and I believe that Chuck Prince let down the shareholders completely. Citibank did not conduct itself in the right way. The risk-management situation was very wrong at Citibank.

So—is Alwaleed sour on trust?

Q: Do you have anybody in mind [going forward?]

A: Frankly speaking, I don’t have anybody in mind. I trust Mr. [Robert] Rubin. I trust Mr. Bischoff (interim CEO). I trust Mr. Parsons (CEO TimeWarner and head of the search committee for a new CEO).

Alwaleed gets it exactly right. He views attributes like honesty and decency as important for trust. But he put one element of trust ahead of all others in the case of Mr. Prince.

Alwaleed would not trust someone who did not know himself.

Prince’s sin was not the admission of a write-off—even a gigantic one. And Alwaleed concedes Prince is an honest man.

It’s not competence or poor moral character that Alwaleed is faulting Prince for, but Prince’s flawed belief that he knew what he was doing. He gave assurances—his word—that he was in control.  He wasn’t—and he didn’t know it.

It was not Prince’s incompetence that cost Alwaleed’s support, but his unconsciousness of his incompetence.  He didn’t know that he didn’t know.

And if you can’t trust that someone knows what he says he knows—well, it calls everything else into question. This is what Alwaleed saw, and he didn’t hesitate to pull the trigger having seen it.

Has Alwaleed’s view of trust been shaken? Not at all. He speaks openly of trusting others, even after having been burned.

He has gotten where he is by trusting the right people, and he’s not about to stop playing the trust game because his trust was misplaced in one case.

Alwaleed believes in trust—hard, serious trust.

If you think the dictum “know thyself” is only about touchy-feely introspection, then don’t work for Prince Alwaleed.