FDIC votes to outsource executive conduct probes despite pushback

WASHINGTON — A disagreement over how to address allegations of misconduct against senior Federal Deposit Insurance Corp. staff came to a head on Thursday when the FDIC Board approved a resolution directing investigations of any FDIC senior leaders toward another federal agency.

By a narrow 3-2 vote — with all Democratic board appointees voting in favor — the FDIC decided to outsource investigations of senior leaders to another federal agency, with likely candidates being the General Services Administration or the National Credit Union Administration.

FDIC staff says such investigations could begin within a matter of weeks. On a call, FDIC staff also noted that they already have memorandums of understanding with other agencies to conduct other kinds of investigations that could be revised or serve as models for new agreements. The resolution would apply to any board member or employee at the executive manager or corporate expert level.

The FDIC Board’s decision follows the findings from Cleary Gottlieb’s third-party review released in May. While the Cleary Gottlieb report compiled several allegations against FDIC leaders, it did not investigate these claims directly and much of the information was compiled under the agreement the firm would respect the anonymity of respondents. That left the FDIC with the challenge of pursuing investigations without specific details, including the identity of the accuser or the context of the allegations.

To address this, the FDIC Thursday morning sent an email to all employees and former employees who provided information to Cleary Gottlieb, asking them to consent to having their information used in future investigations.

If an employee consents to the use of their information, it will be handed over to the third-party investigator retained under this resolution. The FDIC says this approach is designed to respect confidentiality agreements and ensure that only those who are comfortable with the process will have their information disclosed.

The process outlined in the resolution, the agency says, will remain in place until the newly proposed Office of Professional Conduct can take over. Staff say the agency is in the process of standing up the OPC, which will handle investigations related to harassment, interpersonal misconduct, and retaliation. This office will operate independently of other divisions and report directly to the Board of Directors to maintain its autonomy. 

FDIC staff says it is currently interviewing candidates for the director position, hoping to have someone in place within weeks. Once hired, the new director, in collaboration with the Board, will determine how quickly third parties can be retained to conduct these investigations.

The resolution has not been without criticism. Board member Jonathan McKernan argued that the measure is insufficient in a statement following the closed board meeting. McKernan had proposed a dueling proposal to establish a committee to handle executive misconduct allegations — modeled after  the previously established special committee on workplace culture co-chaired by board members Jonathan McKernan and Michael Hsu — to oversee an independent investigation into the agency’s workplace culture following recent allegations of misconduct. 

“My proposal would have just replicated the same committee structure that successfully and quickly oversaw Cleary Gottlieb’s review,” he said. “[It would have] tasked that committee with retaining and overseeing outside investigators, and directed Cleary Gottlieb to provide all information relevant to potential executive misconduct to those outside investigators, subject of course to Cleary Gottlieb first obtaining the consent of individuals who provided hotline information or interview information to the sharing of that information with the outside investigators.”

McKernan noted that his proposal — like the resolution that was ultimately enacted — would require a waiver to access any information protected by Cleary’s confidentiality agreement. 

However, some of the allegations in the Cleary report against senior staff — supported in part by non-confidential information like emails and Teams messages — would have been directly provided to the independent committee under McKernan’s proposal.

McKernan argued that his proposal would have accelerated the investigation by allowing outside investigators quicker access to more information by making collected FDIC records and the Cleary Gottlieb information available to the outside investigators from the beginning. Under the approach that was ultimately adopted, outside investigators will investigate an allegation of executive misconduct only if an individual gives up their anonymity and submits an allegation to the outside investigator. 

Outside investigators, he says, could potentially fully investigate incidents using those Teams messages and other collected FDIC records while still protecting the anonymity of the victims and others at the meeting.

“Under my proposal, the outside investigators would be required to use all of the information made available to it, including the collected FDIC records, to identify potential executive misconduct that has not been reported to the outside investigators and then to investigate that potential executive misconduct,” he said. “This difference would mean that investigations would be possible even if an individual does not wish to give up their anonymity or re-live the trauma of reporting by re-submitting an allegation to the outside investigators — provided of course that the individual has consented to Cleary Gottlieb sharing their hotline information or interview information with the outside investigators.”

When reached for comment, Director McKernan said he believes the agency’s plan is insufficient and will delay investigations. 

“We should be aiming for prompt, well-informed investigations of all of the executive misconduct identified in Cleary’s report. The half-measure adopted yesterday is unlikely to achieve that,” McKernan noted, expressing concerns about potential delays and the effectiveness of involving other agencies.

Acting Comptroller of the Currency Michael Hsu, who also sits on the FDIC board, expressed support for the resolution and emphasized the importance of implementing the Cleary Gottlieb report’s recommendations, maintaining confidentiality for those involved and making structural changes to address issues like retaliation. Hsu said he was surprised by Director McKernan’s objection, calling his counterproposal a “distraction” from substantive goals of the Board. 

“Throughout this process, I have put the interests of FDIC employees first and repeatedly emphasized the need to focus on substance — namely, the steps necessary to transform the culture and structure of the agency,” he said. “The proposal adopted by the Board today provides a clear path for executives and Board members to be held accountable in a timely and fair manner pending the full operationalization of the OPC and [Office of Equal Employment Opportunity], while also respecting the confidentiality and anonymity of those who engaged in the Cleary Gottlieb review.”