FDIC, Part III: How Leadership Fell Short

We have yet another thread to pull from the Federal Deposit Insurance Corp., and the corporate culture debacle there that led FDIC chairman Martin Gruenberg to announce his resignation last week. Specifically, what shortcomings in Gruenberg’s leadership style may have contributed to the FDIC’s culture going so far astray? 

Leadership

Gruenberg

As we’ve explored in previous posts, the troubles at the FDIC are not pretty. Earlier this month the agency released a blistering report about the agency’s corporate culture, documenting nearly 20 years of sexual harassment, office bullying, whistleblower retaliation, and other toxic management behaviors. Gruenberg, who has been a senior official at the FDIC almost that entire time, appeared before Congress on May 16 to apologize for the agency’s past mistakes and promise reform, but it wasn’t enough. Gruenberg announced several days later that he will resign as soon as a successor is confirmed.

Our first post about the FDIC considered how the agency’s very structure and mission might have contributed to the warped corporate culture that came to exist there. Our second post tackled the lack of accountability that infected the FDIC, and the specific management practices and policy choices that led to such a sorry state of affairs. 

At the center of all of it, however, we still have Gruenberg. He has been a member of the five-person board for 19 years, including 13 of them as either chairman or vice-chairman. How did his tenure at the FDIC go, and what lessons about leadership and corporate culture can we draw from it? 

Thankfully, the report into the FDIC’s culture (compiled by law firm Cleary Gottlieb) devotes an entire section to Gruenberg’s leadership. Let’s take a look.

A Long List of Adjectives

The Cleary Gottleib report stressed that Gruenberg’s conduct wasn’t a root cause of the FDIC’s problems… and then painted a terrible picture of Gruenberg’s conduct anyway. Investigators interviewed dozens of FDIC employees, including numerous people who worked with Gruenberg for years. The words those people used to describe him included “aggressive,” “harsh,” “emotional,” “upset,” “unhappy,” “agitated,” “vitriolic,” “prosecutorial,” “disrespectful,” “intense,” and “short fuse.”

The problem? Gruenberg’s temper. Investigators documented numerous instances of outbursts from Gruenberg, especially when subordinates were delivering bad news. FDIC staff, including senior executives, felt “disrespected, disparaged, and treated unfairly,” the report said. Then came this telling sentence: 

While not the root cause of the sexual harassment, discrimination, or other workplace misconduct impacting the agency as a whole, a number of people noted that tone and culture flows from the top down, and having a leader with a reputation of this type does create certain challenges in leading a cultural transformation that prioritizes a more positive workplace culture

To be fair, other FDIC staff said they had never been on the receiving end of Gruenberg’s temper, and described his overall manner as “low key” and “professional” — but when an independent report devotes eight pages to the leader’s shortcomings, that’s not simply a hatchet job. There’s something there.

These conflicting depictions of Gruenberg, as a grouch who doesn’t like hearing bad news and as a low-key leader who pushes employees for better analysis and performance, are at the heart of the matter. This is where leaders can be successful, if they execute their duties well; or where they go off the rails. 

‘Level 5 Leadership’

Whenever I write about successful leaders I keep coming back to Good to Great, a book written by management guru Jim Collins in 2001 that explored why certain companies suddenly start to achieve outstanding performance. Collins gave great credit to the CEOs of those companies. He defined a leadership scale from 1 to 5, where the best executives were “Level 5 leaders.” He described them as follows: 

Level 5 leaders display a powerful mixture of personal humility and indomitable will. They’re incredibly ambitious, but their ambition is first and foremost for the cause, for the organization and its purpose, not themselves. While Level 5 leaders can come in many personality packages, they are often self-effacing, quiet, reserved, and even shy.

It seems like Gruenberg was striving to achieve those Level 5 qualities, but too often failed to achieve them. Clearly he did love the FDIC’s mission; he’s been there for 20 years — but leaders need to discern the difference between pushing employees to do better, versus punishing them for failing to meet expectations. 

Most alarming were the instances of Gruenberg berating subordinates for delivering unwanted news or presenting opinions that challenged his own. That’s very much not the behavior of a Level 5 leader, and it can be terribly corrosive to corporate culture. After all, who wants to speak up to the boss if that boss is likely to bite off your head in front of the rest of the staff? 

Indeed, we can boil down all the report’s criticisms of Gruenberg down to a few principles, most of which should be self-evident to anyone who has been a manager for more than, like, two weeks.

  • Leaders need to be disarming and patient with employees. Plenty of employees will be anxious about presenting to the boss, and make any number of mistakes: presenting unimportant details first, talking too fast, nervous gestures, or lord knows what else. A good leader puts those employees at ease and guides them to the right behaviors or conclusions.
  • People don’t remember what you say; they remember how you make them feel. One incident documented in the report told of Gruenberg losing his temper in 2007, where he apparently screamed profanities and berated employees’ performance for nearly an hour. Gruenberg told investigators he doesn’t recall any meeting like that — but other FDIC employees, including senior staffers, remember that incident to this day. It cemented his reputation as a hot-head when confronted with bad news.
  • Leaders must be empathetic. I mean this very much in the dictionary definition of the word empathy: the ability to understand the feelings of others. 

That point about empathy is most important of all, and here’s why: because leaders aren’t just responsible for what they say; they are responsible for what other people hear — and you can’t exercise that responsibility wisely if you can’t understand how other people might interpret your words. You can’t anticipate how you might come across to other people if you can’t understand how they might feel.

Gruenberg seems to have grasped that truth about leadership at some point, although I’m not sure when he did so. When speaking with investigators, he did say he understood that because of his position as chairman, “what I say and how it’s received can be two different things.” 

Then again, when Gruenberg testified before Congress on May 15, he said, “I acknowledge my own failures as chairman, both in failing to recognize how my temperament in meetings impacted others and for not having identified deeper cultural issues at the FDIC sooner.” So he didn’t understand while he was chairman that his words and demeanor were often received poorly — and that, in turn, fed into a culture of fear rather than culture of ethics and compliance.

Which is exactly what a Level 5 leader wants to avoid at all costs. 

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