FDIC head who oversaw alleged 'toxic culture' to stay until his replacement. Experts say that risks more harm

FDIC head who oversaw alleged 'toxic culture' to stay until his replacement. Experts say that risks more harm

A probe found allegations of sexual harassment and discrimination at the agency.

ByMax Zahn

May 23, 2024, 6:04 AM

The head of the Federal Deposit Insurance Corporation said this week that he would leave his role in the aftermath of a probe that documented widespread allegations of sexual harassment and discrimination at the federal agency.

Martin Gruenberg, a Democrat who began a five-year term in 2023, said he will remain in the top post at the FDIC until a replacement can be confirmed by the Senate, which could take months. Biden will announce a nominee for FDIC chair soon, the White House told ABC News in a statement this week.

"In light of recent events, I am prepared to step down from my responsibilities once a successor is confirmed," Gruenberg said. "Until that time, I will continue to fulfill my responsibilities as Chairman of the FDIC, including the transformation of the FDIC's workplace culture."

The plan to maintain Gruenberg's leadership until a replacement can be installed presents a setback for efforts to overhaul the organization's toxic culture and prevent further harm, experts told ABC News. The toxic workplace culture at the FDIC took hold alongside complaints about Gruenberg’s own alleged temper, which may hinder his ability to establish trust with employees as the organization pursues the necessary changes, the report said.

The report acknowledged that Gruenberg's conduct did not make up a "root cause" of the pervasive sexual harassment and discrimination at the agency. But, the report added, "culture starts at the top."

A fix for the pervasive misconduct at the agency, experts said, requires long-term reform and employee protections that extend well beyond the departure of Gruenberg.

"Leaders underestimate the shadows that they cast," Allison Gabriel, a professor of management in the business school at Purdue University, told ABC News. "We look to people at the top of an organization or anybody who holds a leadership role as a beacon for what behavior is accepted and rewarded."

"The reality is that it will take a leadership change," Gabriel added. "It will also take a lot of time."

The FDIC and Gruenberg did not respond to ABC News' requests for comment.

In a statement to ABC News, White House Deputy Press Secretary Sam Michel commended Gruenberg for his service at the FDIC and his commitment to implement workplace changes outlined in the investigation.

"In his long tenure of service at the FDIC, Chairman Gruenberg has helped protect the economy from financial instability and worked to ensure the banking system serves more Americans fairly," Michel said. "While the FDIC is an independent agency, as we have said, the President of course expects the Administration to reflect the values of decency and integrity and to protect the rights and dignity of all employees."

A 234-page report, issued by law firm Cleary Gottlieb Steen & Hamilton earlier this month, detailed a culture of widespread misconduct at the agency that disproportionately harmed women and minority workers.

Wrongdoers often avoided punishment and, in some cases, received promotions after their misbehavior had been reported, according to the report, which relied on testimony from 500 current and former employees. Hundreds of employees shared their complaints by calling a hotline set up by investigators, the report said.

Related Stories

The White House says FDIC chairman to step down following report on agency's toxic workplace culture

May 20, 11:01 AM

FDIC chair grilled on Capitol Hill

May 16, 12:11 PM

The White House says FDIC Chairman Martin Gruenberg to step down following reports of agency’s toxic workplace culture

May 20, 5:40 PM

In one field office, a supervisor routinely commented to women employees about their sexual relationships and bodies, the women told investigators, according to the report. In another instance, a woman examiner received a picture of a senior examiner's genitals out of the blue while working in a field office, the report said, noting that the woman later found out that the senior examiner had a "reputation."

Some allegations detailed in the report focused on Gruenberg, who led the agency for 10 of the last 13 years. Some people interviewed over the course of the investigation recounted "deeply unsettling exchanges during which he was extremely 'harsh,' 'aggressive,' and 'upset,'" the report said.

Gruenberg told investigators that he did not recall ever getting angry with FDIC employees, the report said. In November, he told the Wall Street Journal that harassment and discrimination are “completely unacceptable” and the agency doesn’t tolerate them.

The Federal Deposit Insurance Corp. (FDIC) headquarters in Washington, D.C., May 20, 2024.Al Drago/Bloomberg via Getty Images

Lisa Avalos, a professor at Louisiana State University Law School who focuses on sexual offenses, said the preservation of Gruenberg as the head of the FDIC for the time being will hamstring efforts to prevent further misconduct and repair the agency's culture.

"The person at the top is always setting an example for everybody else," Avalos said. "Part of it is what he has actively done, which caused discomfort for people. The other part is how he's contributed to the culture through his omissions."

He added, "It's very unlikely that anything is going to change during this time waiting for his replacement."

Gabriel, of Purdue University, agreed. "Keeping the status quo can continue to harm people," Gabriel said. "It's putting people in a really difficult position now that they've unearthed these problems."

Still, the extensive misconduct at the agency will demand structural and cultural changes that go much further than a swap in leadership, according to recommendations in the report as well as expert analysis shared with ABC News.

The report advises several fixes, including the appointment of a team of staff devoted to addressing the cultural problems as well as bolstered policies covering sexual harassment and discrimination.

"My primary concern when I hear about cases like this is they're going to fire this person and then they're going to do company-wide harassment training and do some other thing that does not have long-term returns," Jennifer Griffith, a professor of organizational behavior and management at the University of New Hampshire, told ABC News.

"I would really, really urge anyone who is trying to make actual, meaningful progress in this area to consider the structural elements in the organization," Griffith added. "Who's being rewarded and who's being penalized, and what are people's daily jobs like?"