OPINION: Damning report on FDIC’s culture of discrimination must be a turning point

Law firm investigation’s unearthing of widespread sexual harassment, bullying and discrimination demands decisive action.

A review of the Federal Deposit Insurance Corporation (FDIC) conducted by a US law firm found a toxic workplace where hundreds of employees complained of sexual harassment, discrimination and other misconduct which went largely ignored by the agency’s management.

The investigation was commissioned after the WSJ published a scathing investigative piece in November, which documented strip club visits, lewd messages, heavy drinking, bullying and numerous instances of bureaucratic retaliation against employees who reported their supervisors for bad behavior at the government agency. Indeed, the report noted that many female bank examiners were quitting their jobs at the agency as a result of their experiences. 

The report was drafted by law firm Cleary Gottlieb Steen & Hamilton and released Tuesday. Investigators spoke to more than 500 employees at the bank regulator out of fewer than 6,000, most of them current, who “painfully and emotionally” recounted their experiences of misconduct at the agency, the report said. 

The 234-page report includes examples of long-running, unchecked and brazen misconduct.

Executives who were known for pursuing and having relationships with subordinates were promoted or moved to other regions or divisions rather than facing discipline. One senior FDIC examiner sent a woman a picture of his private parts, while another was known for going to brothels with colleagues during work trips. A Hispanic employee was asked by a colleague to recite the Pledge of Allegiance to “prove that they were American.”

Gruenberg apologizes, lawmakers speak out

The FDIC chair, Martin Gruenberg, apologized to staff on Tuesday, calling the findings “sobering.”

“To anyone who experienced sexual harassment or other misconduct at the FDIC, I again want to express how very sorry I am,” Gruenberg wrote. “I also want to apologize for any shortcomings on my part.”

Gruenberg said the investigation presented a “sobering look” inside the FDIC and that he accepted its findings and recommendations. The report is expected to be released publicly Tuesday afternoon.

“Hundreds of our colleagues reported painful experiences of mistreatment and feelings of fear, anger, and sadness,” Gruenberg wrote to staff, pledging to implement the report’s recommendations.

FDIC hotline reports reflected long-standing issues that continue to this day, the report authors noted.

Gruenberg’s note did not say if he would be resigning from the agency, where he has worked for nearly 20 years, despite some lawmakers in both parties on Tuesday calling for him to do so. The chairman of the House Financial Services Committee, Patrick McHenry (R-NC), said the report “makes clear new leadership is needed.” Sen Joni Ernst (R-IA) called for Biden to order the Justice Department to investigate the agency “top to bottom.” 

Senate Banking Committee chairman Sherrod Brown (D-OH) said the FDIC “needs to be fixed” and that Gruenberg “must accept responsibility and must immediately work to make fundamental changes to the agency and its culture,” and banking committee member Bill Hagerty (R-TN), called for the panel to hold a hearing on the findings.

Gruenberg is set to testify next week, along with other regulators in previously scheduled hearings.

Sexual harassment, discrimination, misconduct

Reading this report is a grueling experience; it’s a blueprint for what any organization must never come close to succumbing to in terms of deplorable inaction on the part of leadership.

This is one finding from the report after its investigation into FDIC field offices and headquarters:

“One employee described to us how she feared deeply for her physical safety after a colleague who had been stalking her continued to text her even after she made a complaint against him for, among other things, sending unwelcome sexualized text messages that feature partially naked women engaging in sexual acts.”

And this: “Another reported to us the awful moment when her supervisor, discussing difficulties he and his wife were having conceiving a child, had said to her with a smile and looking directly at her: ‘I know I technically can’t ask you [to be a surrogate] since I’m your boss’.”

In addition to these vulgar displays of sexual harassment and misogyny, disabled people were mocked, certain employees from underrepresented groups were told they were token hires to fulfill a quota and gay men were called “little girls.”

Many of the people making these statements were in supervisory roles. FDIC hotline reports reflected long-standing issues that continue to this day, the report authors noted, with some happening as recently as within the last few weeks, while others took place years ago.

The report authors state the incidents: “… arose within a workplace culture that is ‘misogynistic,’ ‘patriarchal,’ ‘insular,’ and ‘outdated’ – a ‘good ol’ boys’ club where favoritism is common, wagons are circled around managers, and senior executives with well-known reputations for pursuing romantic relations with subordinates enjoy long careers without any apparent consequence.”

The FDIC’s response to interpersonal misconduct was “pay, promote, or move them.”

How it happened is right in the report

The authors said that the workplace misconduct reported to them occurred “within an institutional structure characterized by strict hierarchies and severe power imbalances.”

Commissioned bank examiners controlled the destinies of junior examiners trying to get commissioned and the heads of field and regional offices were able to run their offices like “fiefdoms” with very little oversight.

The authors were struck by the fact that these employees and former employees were scared, even in reporting anonymously to an independent law firm about their experiences.

And throughout the agency, division and regional leaders – virtually all of them with incredibly long tenures at the agency – filled the manager ranks with other equally long-serving colleagues, creating “a stagnancy and stubbornness that has stunted progress in workplace culture.”

The report points out that, of the over 500 people who reported allegations of misconduct, the bulk of them were women and people from underrepresented groups.

Fear of retaliation

An FDIC Office of Inspector General report in July 2020 stated that, of those who reported having experienced sexual harassment in the survey, 38% said they did not report the incident because of “fear of retaliation,” and nearly 40% of all respondents said they “did not know, or were unsure, how to report.” That report unequivocally stated that the agency “had not established an adequate sexual harassment prevention program.” But nothing was done about it.

As one FDIC employee noted, “[e]veryone knew if you spoke out, you would get a bullseye on [your] back.”

Someone speaking to the law firm authors noted how using a VPN on someone’s else’s phone was the only way s/he would talk to them, albeit still nervously. The authors were struck by the fact that these employees and former employees were that scared, even in reporting anonymously to an independent law firm about their experiences.

What now?

The law firm recommends an action plan for the FDIC to protect victims (such as through counseling and other mechanisms) and the appointment of an independent party (an individual) to monitor and audit any and all recommendations the FDIC adopts from the report. It also recommends having this person liaise with an independent third party firm with expertise in the areas covered by their report.

Notably, it advises the agency to “revise performance reviews for all executives and managers to include assessments of the individual’s compliance with the FDIC’s values and the Code of Workplace Conduct.”

Holding leadership accountable, the report states, means having “a 360-degree review process for the chairperson, all individuals who directly report to the chairperson and themselves have direct reports, executive managers, and anyone who has responsibility for an Action Plan committee or for implementing these recommendations.”

As one FDIC employee noted, “[e]veryone knew if you spoke out, you would get a bullseye on [your] back.”

Addressing the longevity and complacency aspects of its findings, the report authors direct the agency to develop longevity-related data that tracks the years in-position for all senior executives and managers to enable the FDIC to conduct pulse checks in field offices, regions, and divisions that have had senior leaders in position for significant periods.

And it instructs the FDIC to develop and implement a new Code of Workplace Conduct that defines behavioral expectations for all FDIC employees and is focused on the behavior the FDIC expects to see from its employees, plus “aligns with a culture in which all members can thrive and reach their full potential, and addresses the behaviors and themes identified in the report.”

GRIP comment

An apology is far from enough. This agency needs a cultural, procedural, personnel and training reboot in dramatic and discernible ways.

This is a public agency Americans entrust to insure trillions of our dollars in deposits in US banks and savings associations. The FDIC receives no Congressional appropriations; it is funded by the premiums that banks and savings associations pay for deposit insurance coverage.

Lawmakers should absolutely speak up. I want President Biden to speak up.

But I also want those stakeholders – the banking institutions themselves that fund the activities of the FDIC – to take a stand, demand accountability and devise the thoroughly detailed action plan that builds transparency and accountability and measurable goals into it that is recommended by Cleary Gottlieb.

Their specific demands should also include disciplining and terminating people’s contracts as needed in the process, expecting periodic reports to them as well.

And Chairman Gruenberg: The report looked into accounts of him losing his temper easily, and it said a number of FDIC employees, including senior executives, reported instances of him losing his temper and interacting with staff in a demeaning and inappropriate manner.

The report authors undeniably question his ability to specifically handle the fallout from and remediate these findings of a toxic work environment.

His apology is way too little and way too late to me. He must go first.

• The report comes in a week in which the culture of the financial services sector in the UK, still reeling from the Sexism in the City report, came under the spotlight in our regular podcast.