John Dugan, a former U.S. comptroller of the currency, will take over as Citigroup's chairman of the board on Jan. 1.

It could have been worse. 

That was the reaction of longtime Wall Street analyst Mike Mayo to this week's announcement by Citigroup Inc. (C - Get Report)  that it would promote board member John Dugan to chairman when Mike O'Neill retires at the end of the year. Mayo's views on the topic warrant shareholder attention, since he's been hounding the bank for lax corporate governance and subpar risk-management for decades; investors who ignored his warnings in the 2000s saw their Citigroup shares nearly wiped out. 

Mayo says he's encouraged that the giant U.S. bank decided to hand the gavel to Dugan, a former top U.S. banking-industry regulator, instead of CEO Michael Corbat. Keeping the chairman's role separate, as Mayo sees it, ensures there's another "set of eyes" watching Corbat -- to make sure the CEO doesn't ignore risks in the name of short-term profits or put his own interests before those of shareholders. 

But, according to Mayo, Dugan's selection raises legitimate questions about the level of scrutiny the new chairman might provide. Over the course of his career, Dugan has shuttled seamlessly between government jobs and private industry, most recently as a highly paid lawyer for big banks, where he helped them unlock the secrets of -- and push back against -- financial regulation. 

And in the 2000s, as head of the Office of the Comptroller of the Currency, one of the main supervisors of the biggest U.S. banks, Dugan failed to stop the mortgage-lending excesses that nearly caused the failure of the global financial system. He then helped orchestrate a $45 billion government bailout for Citigroup, to keep the bank from collapsing.

The key, according to Mayo, is whether Dugan can get past his advocacy for the banking industry -- and the executives who have paid him generously over the years -- and represent shareholders instead. Not the CEO.   

"Is it an optimal choice? Not necessarily," Mayo, currently an analyst at Wells Fargo Securities. "The jury's going to be out on the degree to which he holds management's feet to the fire." 

For Citigroup shareholders, boardroom oversight and risk-management issues have historically represented cause for deep concern -- and vigilance. The bank's shares plunged during the financial crisis a decade ago and have never recovered; the stock is still down 88% since the end of 2006, the last year before massive mortgage-related losses began to crop up.  

After the crisis, Mayo and other critics excoriated Citigroup's board for failing to provide adequately tough oversight of then-CEO Chuck Prince, who also held the chairman's role. Prince resigned under pressure in late 2007 amid growing losses, triggering a succession of three separate chairmen in less than two years, including former U.S. Treasury Secretary Robert Rubin. 

In the wake of the financial crisis, Citigroup's board was deemed so deficient by some regulators, including former Federal Deposit Insurance Corp. Chair Sheila Bair, that then-Citigroup Chairman Richard Parsons starting in early 2009 had to lead a purge of long-serving directors who failed to spot problems at the bank until it was too late. They were replaced by people who had more experience in the financial industry.

O'Neill, a highly respected former Bank of Hawaii CEO, stepped into the chairman's role in 2012.

A Citigroup spokesman declined to make Dugan or O'Neill available for an interview.

O'Neill said in a Nov. 5 press release that Dugan had "developed a deep understanding of Citi" and that he had "constructively engaged" on a range of business and regulatory matters. O'Neill said that Corbat would have a "partnership with John and the board." 

Corbat said in the press release that he had "enjoyed working with John" in recent years and that he was "looking forward to working with" him once he becomes chairman. 

Dugan has defended his record as the head of the Office of the Comptroller of the Currency, arguing that, once the crisis hit, the regulator took many tough actions that were not visible to the public. Nationalizing Citigroup would have made it harder to preserve the company's "franchise value," Dugan said in a 2012 speech.

Bair, the former FDIC chair, has written that Dugan didn't want the potentially career-derailing embarrassment of having a giant bank fail on his regulatory watch.  

Dick Bove, chief strategist for Rafferty Capital Markets, says Dugan is "extraordinarily pro-banking" and "extraordinarily well-connected," which should put him in good standing with Citigroup's main regulators. That could benefit shareholders by helping to find a warm reception among regulators for the bank's ambitions, according to Bove. 

A worry, though, is that Dugan lacks O'Neill's banking-business acumen, leaving Corbat without an experienced industry executive as chairman to help avoid mistakes, Bove said. (Aside from O'Neill, Citigroup's board does include at least one independent director with experience as a senior executive at a large bank: Ellen Costello, former U.S. country head of Canada's BMO Financial Group (BMO - Get Report) .) 

"It throws the running of the company, and the creation of corporate strategy, and the execution of corporate strategy squarely on Mike Corbat's shoulders," Bove said in a phone interview. Without the benefit of O'Neill's tutelage, he said, "We don't know whether he can handle it." 

Nell Minow, vice chair of corporate governance at shareholder-advisory firm ValueEdge, says she hopes Dugan will provide tough oversight of Citigroup's executives, but she's "approaching it with a lot of skepticism" given his track record of coziness with the banking industry.  

The first inkling of Dugan's willingness to get tough could come in the next few years as Corbat's annual pay packages are revealed, she said. Last year, Citi's board gave Corbat a 48% pay raise to $23 million, even as the bank failed to meet the CEO's own profitability goal for a third straight year. 

"That's how we'll find out if all of this is just rhetoric," Minow said in a phone interview.