How many regulatory investigations does it take to change a CEO?
Or: Something is seriously wrong in European banking – Take 2
WHAT more can Barclays’ chief executive Jes Staley possibly do to shake the bank’s board from its astonishing torpor and lack of self-awareness and force it to deal seriously with one of its critical functions as the group’s ultimate decision-making body: matters of reputational significance?
In the latest twist of the CEO’s career at Barclays, the board reckons Staley was sufficiently transparent about his relationship with Jeffrey Epstein so has given him its full confidence and will unanimously recommend him for re-election at the May 7 AGM. The Financial Conduct Authority and the Prudential Regulation Authority are patently less convinced and are investigating both the way Staley characterized his relationship with Epstein to Barclays and how that characterization was transmitted to the regulators.
It’s not much more than a year since the New York Department of Financial Services fined the bank US$15 million for violations of New York Banking Law after Staley attempted to uncover the identity of a whistleblower who had written to the board in 2016 with comments about his friend Tim Main (whom Staley had hired as global head of FIG) and about how the bank’s internal whistleblowing policies were being conducted. The FCA and PRA personally fined Staley 642,430 pounds sterling for the same infractions earlier in 2018, finding he had failed to act with due skill, care and diligence (although apparently without breaching the regulator’s requirement to act with integrity).
That saga straddled another inglorious episode when Staley went to bat for his brother-in-law against the interests of Barclays client KKR over a deal involving the sale of Brazilian data centre operator Aceco (which Staley’s wife and her brother part-owned) to the private equity firm. The deal went monumentally wrong, reportedly forcing KKR to write off its US$475 million investment and ended with bitter recriminations. Staley was accused of acting despite a deep conflict of interest.
And now we have Staley’s relationship with Epstein. No need to go into more detail, as the tabloid newspapers are full of accounts of their various encounters, culminating with Staley sailing his yacht to Epstein’s Caribbean island shortly before he joined Barclays as CEO in 2015.
Doesn’t having your CEO splashed all over the tabloids for all of the wrong reasons constitute a matter of reputational significance? All the Barclays board’s failure to do anything has achieved is make a mockery of supposed corporate governance improvements in banking and improvements in standards of behaviour that were supposed to have been implemented since the global financial crisis.
Being blunt, what corporate cultural standards can employees of a firm possibly be expected to aspire to if the person tasked with setting and living those standards consorted with a convicted sex-offender; broke internal policies to conduct a witch-hunt against a whistleblower; and reportedly went to great lengths to back a family member against the interests of a big client – whom the client had accused, to boot, of serious financial fraud (fiercely denied).
I get the point that parties who have their own and their clients’ invested money at-risk feel conflicted in demanding change when they believe their prospective returns stand to increase if they perceive chief executives are doing a good job on the financial side. Standards of governance must sit above financial performance yet there has been zero response to-date from Barclays shareholders in response to yet another regulatory investigation of their CEO.
In the case of Credit Suisse, we had major shareholders coming out and publicly supporting former CEO Tidjane Thiam despite the very serious issues of spying that had come to light, saying he had turned the bank around and was personally unaware of the spying. One shareholder went as far as to refer to the board’s decision to oust Thiam as racist … Whether Thiam knew or not is not the point, and totally misses the point about what corporate governance and corporate culture actually are. Some of the same people condemned the board for acting and installing new leadership.
In the UK, the FCA’s fitness and propriety test to assess whether individuals are fit and proper to perform controlled or senior management functions under UK legislation is presumably there for a reason. It covers honesty (including openness with self-disclosures, integrity and reputation); competence and capability; and financial soundness. Non-compliance, the FCA notes, could result in enforcement actions while giving false or misleading information may be a criminal offence.
The regulator operates under an expectation of full openness. The six-year statute of limitations on regulatory references regarding fit and proper have been waived in the event of serious misconduct. Anyway, let’s see where the regulatory investigation takes us.
I know it’s easy to say, but if a CEO is acting or has acted in a way that detracts from the reputation of the firm they’re leading, I think there’s only one solution. Something is seriously wrong in European banking, I wrote in an October 2019 commentary for The Asset.
As for Staley, I said it in April 2017 at the time of the first whistleblowing episode; I’ll say it again: in all conscience he should go in the interests of good governance.
18 Feb 2020