The confusing case of the Barclays whistle blower: compliance vs. culture
By Stilpon Nestor, Managing Director, Nestor Advisors Ltd

Let me start by saying that the “trenches” this time around is simply “the papers”.
Nestor Advisors is not involved in the story I will be discussing which is still unfolding in the form of an investigation by the UK banking regulators, the PRA and the FCA. Everything I know comes from what I have read in the press over the last couple of months.

The “public” facts are well known, at least to governance buffs: an anonymous letter writer, possibly outside the company (an important fact to establish, but one which I chose to leave out of the discussion) attacked the reputation of a recently-hired Barclays senior manager. Jes Staley, Barclays’ CEO, was livid at the attack which he found unacceptable and completely unsubstantiated, the person under attack being known to him. He pressed his Compliance team to find out and disclose the name of the whistle blower. Compliance resisted and the matter came to the Board. Jes Staley apologised, was given a reprimand and saw his bonus cut. Notwithstanding the damning chorus of various governance crusaders (including some proxy firms), the Board reaffirmed its confidence in Staley and Compliance does not seem to have pursued the matter further.

Jes Staley’s effort to unmask the anonymous whistle blower does look ill-judged from a pure governance perspective. Barclays has a process in place to insulate whistle blowing-related investigations from management. Seeming to ignore it, Staley took significant risks with his own and the Bank’s reputation. However, there is a question in my mind as to whether the Barclays CEO might actually have been right from a deeper, moral perspective. To formulate the question in broader policy terms: is it possible that the current whistle blowing standard may under certain circumstances undermine the firm’s culture?

The key issue here is that the complaint was anonymous. Jes Staley felt that he had to protect the reputation of a colleague who was anonymously (and, according to him, unfairly) attacked. Anyone who has been through an unwarranted attack will confirm that even though the victim might be eventually cleared, the scars remain for a long time. And the ill will between that person and the company might never really dissipate; on the contrary, it might spill over to other employees and hurt a firm’s ability to retain them or attract others of comparable quality. And yet, the supervisor, the UK FCA, seems to encourage anonymity by requiring whistle blowing systems to “handle disclosures of reportable concerns…where the whistle blower has chosen not to reveal their identity”.

What is at stake here is loyalty. And Barclays more than anyone knows that loyalty is an essential element of a strong banking culture. One of the main conclusions of the 2013 Salz report on Barclays’ culture was precisely that one of the roots of cultural failure in the early 21st century was the waning of loyalty towards the institution, its clients and to one’s colleagues, undermined by the hyper-competitive, exclusively-profit oriented investment banking ethos imposed by the then leadership.

Of course, one might claim that loyalty will always come under strain in a whistle blowing context, anonymity or not. But this is not the case. In the absence of anonymity, Compliance (or whoever else is investigating) will always know the identity of the whistle blower and might, if the complaint proves to be malicious, not pursue it or even put the accuser on notice. This possibility can be expected to deter a bad faith whistle blower, who will think twice before attacking a colleague without proper grounds.

This leads me to the second very important point: promoting a culture of accountability and personal responsibility has been at the heart of every regulatory effort since the crisis. In fact, the whole approach to governance supervision in the UK financial sector is structured around the personal accountability regime for senior managers. And yet, we seem to encourage a total lack of accountability when it comes to whistle blowing by considering anonymous complaints as a commonly acceptable basis for investigating people. While speaking up is a supremely responsible act, making anonymous accusations is not. Recognising the latter as being of equal weight to the former in a firm’s compliance framework can only go against a culture of responsibility.

There is no doubt that the confidentiality of a whistle blower’s identity is essential to the effectiveness of the process. But anonymity is not a prerequisite for this. People should be encouraged to assume responsibility for their statements to Compliance or whoever else is receiving the complaint. It is the latter’s responsibility to ensure confidentiality, but also to assume the position of an informed intermediary between the whistle blower and the firm, to filter the complaint in a way that cannot be done effectively in the case of an anonymous accusation.

In view of the above, encouraging anonymity in whistle blowing by the regulators might be a step too far. In fact, complaints of an anonymous nature should not in principle be pursued, unless there are strong reasons to do so, such as independent and yet concurring indications of misconduct. Without corroborating evidence, firms should not be asked to spend valuable resources to investigate anonymous complaints. Most importantly, employees should not be subject to highly stressful and thoroughly demotivating experiences and “witch hunts” unless there is good reason. And there is no better filter for this than encouraging people to speak up confidentially but responsibly.

In closing, I believe that the FCA should take a second look into its 2015 statement on whistle blowing; that, while acknowledging his governance misstep, Jes Staley should be commended for standing up for a colleague; and that the Barclays board should also be commended for soberly ignoring the silly, self-righteous cries for its CEO’s head.

All for now!

 

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