FDIC, Part II: Lack of Accountability

Today let’s return to the Federal Deposit Insurance Corp., and the corporate culture meltdown documented in an investigative report the FDIC released last week. Specifically, let’s look at the lack of accountability even amid years of misconduct, and how that sorry state of affairs came to pass. 

For those who haven’t heard yet, last week the FDIC released a blistering report about the agency’s corporate culture: nearly 20 years of sexual harassment, office bullying, whistleblower retaliation, and other toxic management behaviors. This week, FDIC chairman (and long-time senior executive) Martin Gruenberg appeared before Congress to grovel for his job apologize for the agency’s past mistakes. 

In our previous post about this debacle, we explored how the FDIC’s very structure and mission may have contributed to its deeply malformed culture. OK, but lots of organizations suffer from a malformed culture to some extent — why did the FDIC’s culture stay so warped? What bad practices took root there that propelled the culture on its downward spiral? That’s what compliance officers need to know, so you can intercept such bad practices at your own organization.

To answer that question we should crack open that investigative report, a 234-page litany of mismanagement compiled by law firm Cleary Gottlieb. The phrase “lack of accountability” appears in the report 15 times, and was listed as the first among 10 (!!!) root causes that Cleary Gottlieb identified. Let’s start there.

What ‘Lack of Accountability’ Really Means

We should begin by defining what “lack of accountability” actually is. As luck would have it, Cleary Gottlieb provided a good definition in its report:

Lack of accountability. A failure over time to hold wrongdoers accountable in a way that is transparent to employees, with wrongdoers [at the FDIC] being moved around, even promoted, and not disciplined in any meaningful or perceivable way.

Except, we still don’t know why the FDIC tolerated that lack of accountability for so long. It’s not like management was unaware of the harassment and bullying happening within the agency. On the contrary, previous audits had flagged sexual harassment as a problem at the FDIC years earlier. For example, one report from the FDIC’s inspector general faulted management for weak policies, inconsistent discipline, and other shortcomings. That report came out in 2020. 

If we want to understand why the FDIC tolerated that lack of accountability, we need to look elsewhere — like, for example, the other root causes that Cleary Gottlieb flagged in its report: 

• A culture that is “patriarchal,” “hierarchic,” and “insular” with outdated notions of appropriate workplace behavior and interpersonal workplace interactions.
• A deep-seated and credible fear of retaliation that has prevented employees from raising and reporting issues of workplace misconduct internally. 
• An overall risk averseness that permeates the institution, including in connection with disciplinary decisions.
• A failure by management to implement and communicate effectively about proper reporting channels and processes, which led to the underreporting of allegations, which in turn led to an insufficient response to those allegations.
• Investigative functions that lack credibility among employees and are viewed as being protective of management.
• Insufficient recordkeeping.

Why am I obsessing over all these root causes? To show that lack of accountability isn’t some ghost that arises in your corporate culture ex machina. It is the natural result of other deliberate choices that management makes.

Where the Bad Choices Come From

Some of those bad choices might be matters of bad judgment. For example, the report faults the FDIC for an excessively risk-averse culture, which distorted the agency’s appetite for disciplinary action: “By focusing overly on the risks of taking disciplinary action, the FDIC has underestimated the risks of not taking sufficiently forceful action.”

That’s an excellent issue for the report to identify. To resolve it, an organization might need to have a come-to-Jesus moment where the board or outside counselors tell senior management that it needs to rebalance its risk calculus in favor of forceful action. 

We could also say the same for insular, patriarchal cultures; maybe senior management and the board might need to restructure the whole org chart to break down those walls. I appreciate that the FDIC might not easily be able to do that without authorization from Congress, but corporations simply need backbone and clear-eyed introspection.

In an ideal world, however, the organization should never need those come-to-Jesus moments because management and the board are constantly revisiting their appetite for accountability, to be sure that they stay on the true course. That’s what ethically principled leadership and engaged governance are all about.

Honestly, however, I’m more dismayed by the bad choices that seem to be just straight-up tactical blunders: overlapping and confusing anti-harassment policies, duplicative internal reporting channels, sloppy recordkeeping, flawed investigation protocols, and the like. Those are problems with clear answers; they are problems that can be fixed. Allowing them to linger sends a clear signal to employees that management isn’t interested in improving the culture. 

In fact, if we want to get really pedestrian about the warning signs of a lack of accountability, one simple metric is the number of unaddressed internal audit findings. As those findings pile up, with nobody on the board leaning on management to get those improvements done — that sends a signal that nobody in leadership cares about following through and fixing mistakes. 

Employees see that and respond accordingly. The unprincipled ones will see it as license to retaliate against whistleblowers, play favorites, and harass people they don’t like. The principled ones will see it as a signal to head for the exit, and possibly a regulator or plaintiff lawyer along the way. 

All of it, however, can be rectified — or even better, prevented — if management thinks hard and works hard. Lack of accountability is, ultimately, a choice.