Banking and Finance Law Daily Wrap Up, OVERSIGHT AND INVESTIGATION—Workplace review suggests ‘urgent’ need for ‘culture transformation’ at FDIC, (May 8, 2024)

By Nora Macaluso

Following the review’s release, some lawmakers called on the FDIC chairman to resign.

A third-party review of workplace culture at the Federal Deposit Insurance Corporation found that the agency “failed to provide a workplace safe from sexual harassment, discrimination, and other personal misconduct.” The review, conducted by law firm Cleary Gottlieb Steen & Hamilton LLP, “further found that management’s responses to allegations of misconduct, as well as the culture and conditions that gave rise to them, have been insufficient and ineffective.” The FDIC Board’s Special Committee appointed Cleary Gottlieb in December 2023 to review allegations of sexual harassment and interpersonal misconduct at the FDIC (see Banking and Finance Law Daily, December 12, 2023).

Report. The review’s findings are contained in 234-page report that was released by the FDIC detailing employee complaints of harassment and inappropriate behavior in FDIC field offices and at headquarters. More than 500 individuals called a hotline investigators set up to take complaints, “often painfully and emotionally recounting experiences of sexual harassment, discrimination, and other personal misconduct that they have suffered at the FDIC,” the investigators wrote. Some of the incidents “happened as recently as within the last few weeks, while others took place years ago,” the report said.

“The workplace misconduct reported to us occurred within an institutional structure characterized by strict hierarchies and severe power imbalances,” the investigators wrote. That structure “has led to a stagnancy and stubbornness that has stunted progress in workplace culture,” they wrote.

The report outlined a list of recommendations for the FDIC to incorporate in its “action plan” to address issues of harassment and discrimination. Those include adopting a “culture transformation,” taking steps to protect employees who have experienced harassment, discrimination, bullying, or other misconduct, and holding leadership accountable through measures such as reviews, “pulse checks,” and listening sessions. The report also recommended implementing new policies and improving training on workplace conduct.

Important first step. “Today’s report establishes the urgent imperative of a culture transformation at the FDIC led by those with the leadership capacity to effectuate that change,” said FDIC board member Jonathan McKernan, co-chair of the special committee overseeing the review.

“The report marks an important first step towards healing, repair, and sustainable change at the FDIC,” McKernan said. “Fostering an environment that promotes a safe, respectful, and inclusive workplace is fundamental to achieving the agency’s mission.”

“Cleary Gottlieb was not asked, nor did it assess, whether particular individuals within the FDIC, such as the Chairman, should be removed or otherwise disciplined for alleged misconduct,” the FDIC said. “Any decisions on that subject can only be by those who have the requisite authority and following the appropriate process.”

Gruenberg message. FDIC Chairman Martin J. Gruenberg addressed the report in a message to FDIC employees, and pledged to implement the report’s recommendations. “We will spare no effort to create a workplace where every employee feels safe, valued, and respected,” Gruenberg said.

Brown statement. “The FDIC needs to be fixed,” said Senate Banking Committee Chairman Sherrod Brown (D-Ohio). “Chair Gruenberg must accept responsibility and must immediately work to make fundamental changes to the agency and its culture.”

Scott statement. Sen. Tim Scott (R-SC), ranking member on the Banking Committee, called on Gruenberg to resign. “An organization’s culture is set from the top,” he said. “It’s clear the FDIC, its mission, and most importantly, its employees, have all suffered under Chairman Gruenberg’s leadership – this report underscores that fact.”

Haggerty statement. Sen. Bill Hagerty (R-Tenn) said Gruenberg’s conduct as highlighted in the report “will impair his ability to effectively attract and retain a suitable workforce and prevent him from effectively carrying out the ‘structural transformation’ called for in the report.” Hagerty urged Brown to hold a hearing “to specifically investigate this matter.”

McHenry statement. House Financial Services Committee Chairman Patrick McHenry (R-NC) said Gruenberg should “step aside,” as the report “confirms the toxic workplace culture at the FDIC—which starts at the top—has led to entrenched and widespread misconduct at the agency.” His panel will continue to investigate, and “Republicans will ensure that Chair Gruenberg and other leaders at the FDIC are held accountable,” he said.

Foster statement. Rep. Bill Foster (D-Ill), ranking member on the House Financial Services subcommittee on financial institutions and monetary policy, also called on Gruenberg to resign. “Sweeping changes must be made to mend the toxic environment that has run rampant for far too long, and that starts with a change of leadership,” Foster said.

Ernst statement. Sen. Joni Ernst (R-Iowa) said Gruenberg and “everyone at the FDIC who stood idly by while criminals ran unchecked must answer for their inaction, and we must prosecute all those who committed crimes to the fullest extent of the law.” President Biden, she said, “must order his Department of Justice to investigate the FDIC from top to bottom, or else he is complicit in subjecting the women of the FDIC to more abuse and discrimination.”

Companies: Cleary Gottlieb Steen & Hamilton LLP

MainStory: TopStory BankingOperations CrimesOffenses DirectorsOfficersEmployers OversightInvestigations