The appointments come as the government prepares to take a 34 percent equity stake in the New York-based bank.
Regulators have pressured Chief Executive Vikram Pandit and Chairman Richard Parsons to overhaul management and improve performance after a series of federal bailouts stemming from billions of dollars of credit losses and writedowns.
Citigroup's new directors include Diana Taylor, 54, the former New York banking superintendent who is now a managing director of fund manager Wolfensohn Capital Partners.
The other new board members are Timothy Collins, 52, chief executive of private equity firm Ripplewood Holdings LLC; and Robert Joss, 68, a professor at Stanford University's business school. Citigroup's board now has 17 members, including seven who joined this year.
One of these new directors is Grundhofer, who will become nonexecutive chairman of Citibank NA. He replaces William Rhodes, whose decision to step down as head of the banking unit was announced earlier this month.
Grundhofer is a former chief executive of U.S. Bancorp
The most prominent of the new board appointees is Taylor, the companion of New York City Mayor Michael Bloomberg.
Taylor was once considered a top candidate to run the Federal Deposit Insurance Corp. That job instead went to Sheila Bair, who has become a prominent critic of Citigroup's business practices and governance.
Citigroup also announced a series of governance changes.
The bank said Grundhofer will chair the board's audit and risk management committee, replacing John Deutch.
It also appointed an oversight committee for Citi Holdings, which includes several businesses, including consumer finance and insurance, and toxic assets that the bank wants to shed.
Citigroup was not immediately available for further comment. The bank's shares were unchanged at $2.77 in pre-market trading.
(Reporting by Jonathan Stempel, editing by Gerald E. McCormick)