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Stephen T. Gannon's first two years as general counsel of Citizens Financial Group have been eventful. Citizens separated from the Royal Bank of Scotland in 2014 and began selling its shares publicly on the New York Stock Exchange. Last fall, RBS finally sold off its remaining shares in Rhode Island-based Citizens, severing the last ties between the two. In an interview with Bloomberg BNA's Che Odom, Gannon shares his thoughts on overseeing the two highly complex tasks.Bloomberg BNA:
What were the greatest regulatory obstacles in Citizens' separation from RBS and how did you overcome them?Stephen T. Gannon:
From the legal department perspective, there were two major things that needed to be executed upon.
The first was figuring out and separating all of the interdependencies between Citizens and RBS. We had to determine how to pull it all apart so that Citizens could have substitute services or hire new vendors. The actual separation involved identifying and negotiating 140 different transition services agreements on a diverse number of topics from marketing to back office services. Any vendors had to be analyzed to meet regulatory requirements. While we had regulatory bodies to which we previously reported, becoming a U.S.-based company essentially opened up a new level of review.
The second challenge was revamping our entire governance structure. We had lived under U.K. governance for a long time and now had to revise all of our charters, policies, etc., to meet U.S. rules and requirements. It was a heavy lift in a short time, but completing the separation a full year ahead of schedule was gratifying.BBNA:
Could you discuss briefly the most noteworthy and unexpected events that arose during this transaction?Gannon:
We did a tremendous amount of planning before embarking on the initial public offering and separating from RBS, which helped to ensure that there weren’t any real curve balls. It’s noteworthy that when a company does an IPO and then does a follow-on offering, the follow-on is usually smaller. In Citizens’ case it was the opposite. Our first follow-on offering sold more shares and at a higher price than our IPO, which meant that the market found our stock attractive and believes in the ability of management to complete a successful turnaround, and in the plan to get us there.
The process validated my belief that thorough preparation is important no matter how large or small the task. We had an army of people working on separation agreements and going through every function in the bank from who supplied our software to who cleaned the building. The banking industry, of course, is massively complex and U.K. and U.S. systems and oversight provided another layer of complexity. The work we did in advance saved time later as we navigated this process.
We had an army of people working on separation agreements and going through every function in the bank from who supplied our software to who cleaned the building.
What were the most significant corporate governance questions that needed to be answered, and how did you make those decisions?Gannon:
Because we were separating from RBS we had to review all of, and disassemble part of, the governance framework that had been built for and was appropriate for U.K. regulators and a foreign bank owned in the U.S. We had to build corporate governance processes that were specific to, and met all the demands of, the U.S. regulators and our businesses. While the RBS framework was a start, we rewrote policies and procedures, developed new standards, new board structures, etc. There was no part of governance where we did not have to up our game. We also added new directors who have been great additions to the board. Essentially, this was a heavily engineered process that had to be right from day one.BBNA:
How might you have approached the IPO differently today, given the less hospitable market?Gannon:
From where I sit as chief legal counsel, I can’t say there is much that we would have done differently. The preparation would be similar regardless of the market. No matter the market conditions, diligence, pragmatism, attention to detail and foresight all were critical components of a successful IPO, a successful separation process, and at the end of the day, a successful public company.BBNA:
How was outside counsel involved, and what did you look for in a law firm?Gannon:
We worked with both Davis Polk and Sullivan & Cromwell. Both are excellent firms that provided top notch representation. Davis Polk handled most of the transaction, but since they were RBS’ firm there were times when we needed separate counsel which is when we tapped Sullivan & Cromwell.
What I look for in outside counsel is responsiveness and practicality. When dealing with the IPO—the agreement itself and the mountain of paperwork that is represented by the filing documents, appendices, etc.—you need a firm that is pragmatic and creative. Not every solution can be reduced to an easy equation. Being able to provide “solutions oriented” thinking is an absolute must.
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