Staley's Whistle-Blower Hunt Places Barclays Tenure at Risk

(Bloomberg) -- Barclays Plc’s Jes Staley is already on his final warning less than 18 months into the job. The offense: repeatedly trying to root out a whistle-blower who made allegations against a senior banker the chief executive officer had worked with before.

The board formally reprimanded the CEO and may claw back his entire 1.3 million-pound ($1.6 million) bonus for last year. While Staley secured the unanimous backing of the board for now, he still faces a U.K. regulatory investigation that could find him unfit to run a bank.

Staley inserted himself into a compliance probe over concerns raised in an anonymous letter about the hiring of a top dealmaker, and the CEO tried to identify the whistle-blower even after he was told it was inappropriate. The incident is a setback for a chief who had been seeking to repair a culture at a bank where misconduct charges wiped out more than 20 billion pounds of profit over six years.

“They did try and circulate this idea there was a cultural rejuvenation and this is definitely a backward step,” said Eric Moore, who helps to oversee about 2.9 billion pounds of assets at Miton Group Plc, including Barclays shares. “He’ll definitely be on the naughty step for a while.”

The board had received an anonymous letter raising concerns about a senior hire, including Staley’s knowledge of and role in dealing with those issues at a previous employer. The CEO twice enlisted the help of the Group Information Security team to identify the author, but they failed to do so. The Barclays team contacted and received assistance from U.S. Postal Inspection Service in the effort, according to a person familiar with the request. A spokeswoman for the authority didn’t immediately respond to a request for comment.

The internal investigation led by law firm Simmons & Simmons LLP concluded that Staley “honestly, but mistakenly” believed that it was permissible to seek the author’s identity. The CEO will have to face shareholders on May 10 at the bank’s annual general meeting in London, where he will stand for his second full-year in charge.

“An interesting question is, what would have happened to someone much farther down the food chain? They’d have lost their job,” Owen Watkins, a lawyer at Lewis Silkin in London and a former regulator at Britain’s Financial Services Authority, the precursor to the FCA, said in an interview.

‘Unfair’ Attack

Staley said he was motivated to act by an anonymous “unfair personal attack” that he thought was designed to “maliciously smear” a colleague with allegations about personal issues from years ago, the CEO said in a memo to staff seen by Bloomberg News. The allegations in the letters relate to Tim Main, whom Staley hired in June as chairman of the bank’s global financial institutions group, according to a person familiar with the matter. Main joined from Evercore Partners Inc. and previously worked under Staley at JPMorgan.

“In my desire to protect our colleague, however, I got too personally involved,” he said. “I realize that I should simply have let the compliance function handle this matter.”

Staley was hired to replace Antony Jenkins, a former retail banker who said he wanted to restore the bank’s ethics to its Quaker roots but was replaced after he failed to restore profit growth fast enough. Staley pledged to continue Jenkins’ push while recommitting to the firm’s investment bank.

“We must complete the cultural transformation of the group; there can be no retreat from becoming a values-driven organization which conducts itself with integrity at all times,” Staley said in an October 2015 memo before he started as CEO. “My ambition is to restore Barclays to its rightful standing -- successful, admired and well regarded by all.”

Mugs, Promotion

Investors at the time expressed concern about appointing another U.S. investment banker. Jenkins’ predecessor Bob Diamond was ousted in 2012, having lost the confidence of British regulators and politicians after Barclays was fined for attempting to manipulate the Libor interbank rate.

Following that episode, the bank commissioned an examination of its ethics and culture. One of the key recommendations, made by senior British lawyer Anthony Salz in April 2013, was greater protection for whistle-blowers after he found some senior managers “did not want to hear bad news.”

The lender has successfully promoted its overhauled program that allowed employees to “raise concerns in confidence without fear of retaliation,” Mike Ashley, chairman of the audit committee and the board’s whistle-blower’s champion, said in the bank’s 2016 annual report released in February. The bank handed out free coffee mugs with a whistle and the hotline phone number on it to encourage more reporting, according to a person involved in the drive at the time.

Staley himself feted the role of a junior trader who informed on a more senior colleague for suspicious telephone conversations in early 2016, according to one executive at the bank. The senior trader was investigated and fired, and Staley directly praised the young employee internally afterward, calling him a role model and promising he would make sure he was taken care of when pay decisions were taken, the person said.

Pay Cut

“You have to be very brave to do whistle-blowing and when you have a CEO trying to find out who it was, it reinforces the notion that whistle-blowers are going to suffer,” Sharon Bowles, a former head of the European Parliament’s Committee on Economic and Monetary Affairs, said in an interview. “We need to protect whistle-blowers. They may have their lives destroyed. It’s sad that you get a failure like this; it just seems to be a failure to grasp what it’s all about.”

The FCA investigation will take several months and could result in anything from a verbal warning to Staley losing his status as an approved person and therefore his ability to run the bank. What’s certain is the probe will result in the board cutting the CEO’s bonus by a “very significant” amount, though the exact reduction will depend on the findings.

Regulators will also look at the bank’s controls and the actions of other individuals, including who gave Staley the whistle-blower’s letter against company policy, said a person briefed on the probe. The events are also under scrutiny by the Department of Financial Services in New York, according to a separate person with knowledge of the matter.

‘Chilling Effect’

The FCA and PRA investigations mirror the more proactive stance U.S. authorities are taking to pursue companies that have sought to bully those who speak up, according to Erika Kelton, a partner with Philips & Cohen LLP in the U.S. who represents whistle-blowers. The Securities and Exchange Commission has extracted fines from companies including BlackRock Inc., Anheuser-Busch InBev SA/NV and SandRidge Energy Inc. since last year for alleged abuse of whistle-blower rules.

“It’s an important message and will potentially have a deterrent impact, possibly making companies think twice before they seek to undermine the anonymity of their internal reporting processes,” she said in an interview. “When a company retaliates and harasses, it can have a chilling effect on others stepping forward.”

The investigation comes as Barclays faces another probe into its 2008 emergency fundraising backed by Qatar and prepares to go to court to fight allegations from U.S. Department of Justice over the sale of toxic mortgage-backed securities before the financial crisis.

“This is highly, highly embarrassing” because “giving a written warning to the CEO is unprecedented,” Christopher Wheeler, an analyst in London with Atlantic Equities LLP, said on Bloomberg Television. “It’s a very surprising situation, but my suspicion is that he’s fine for the time being. The bank wants to say ‘we have taken hard action and now Jes can get on running the bank,’ but it’s going to be a tough few weeks.”

--With assistance from Greg Farrell Suzi Ring Donal Griffin and John Detrixhe

To contact the reporters on this story: Stephen Morris in London at smorris39@bloomberg.net, Richard Partington in London at rpartington@bloomberg.net.

To contact the editors responsible for this story: Michael J. Moore at mmoore55@bloomberg.net, Andrew Blackman