(Bloomberg Opinion) -- The Credit Suisse Group AG spying scandal, where top wealth manager Iqbal Khan was tailed after agreeing to join arch-rival UBS Group AG, has raised deeply uncomfortable questions about the Swiss bank’s governance — and drawn scrutiny from regulators. Chief Executive Officer Tidjane Thiam and the board were unaware of the operation, according to the company, but the emergence of an altercation between Thiam and Khan months earlier, and another spying case, added to the embarrassment.
The incidents (including a potential third allegation of spying) have shone an unflattering light on the inner workings of the Swiss firm. As one of the world’s leading private bankers, trust is paramount for its rich clients. This lack of discretion is hardly good for business.
Investors have taken a dim view. Since news emerged in September that a Credit Suisse contractor had followed Khan, the shares have languished compared to those of other European banks, which have risen twice as much. Credit Suisse’s stock is not far off its 2016 lows, when the bank had just embarked on a three-year restructuring. The timing of the scandal is unfortunate given that the revamp is just starting to bear fruit.
A denouement may be afoot, however. The tension between top directors has worsened over recent days and the finger-pointing has descended into a boardroom battle. Chairman Urs Rohner is reportedly seeking to replace his CEO. Opposing Thiam’s ouster is top investor David Herro of Harris Associates, who wants the board to start hunting for a successor to Rohner for when his term expires next year.
For Herro, Thiam “has greatly, greatly improved the operations and efficiencies” of the bank. In his view, envious rivals or racism in the Swiss establishment explain the orchestrated media attack to bring down Thiam, Ivory Coast-born and the first black man to lead Credit Suisse.
Regardless of the motivations behind the leaks about what’s happening at the top of the bank — many of which have been proven right — a swift end to the bitter boardroom combat is essential. That the CEO felt compelled to use a personal Instagram account to dispute the latest articles and defend his record doesn’t indicate harmony.
Directors are reportedly meeting this week. Whatever the outcome of their deliberations — whether they back Thiam or turn to a successor — responsibility for the debacle of the last few months needs to be shared across the leadership team. If not, how will Credit Suisse convince shareholders and clients that it’s genuinely turning the page on this ugly chapter? Repeated failures to oversee key personnel warrants a full accounting; a pervasive culture of acrimonious rivalry between senior figures isn’t one person’s doing.
Across the upper echelons, senior Credit Suisse staff have been dragged into unseemly episodes. Thiam’s relations with Khan became so strained the two had a bust-up at a cocktail party, and Khan ultimately quit to join cross-town rival UBS. Rohner had to personally broker Khan’s termination agreement.
A company-backed investigation into the subsequent spying on Khan concluded neither Thiam nor the board were aware of the operation. Chief Operating Officer Olivier Bouee was found to be acting alone, but that’s hardly an endorsement of effective governance and oversight.
Worse, just weeks after presenting the incident as a one-off, Credit Suisse was forced to admit that Thiam’s long-time ally Bouee had also shadowed another top executive. Again, it said no other directors or executives other than Bouee were aware of what the bank presented as a rogue operation.
It’s unsurprising that the Swiss banking regulator Finma is reportedly reviewing corporate governance, internal communications among executives, and the board’s oversight. The process could take months to conclude. Until then, Herro sees no reason to replace Thiam.
Still, the sooner Credit Suisse gets ahead of the newsflow the better. In the past week, media reports have alleged that Thiam ordered Khan to get dirt on another executive and that the bank had sought to infiltrate Greenpeace. Thiam and Credit Suisse denied the fresh Khan allegations, and didn’t comment on the Greenpeace case.
Whatever changes are made at the top, the damage will be lasting.
To contact the editor responsible for this story: James Boxell at jboxell@bloomberg.net
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Elisa Martinuzzi is a Bloomberg Opinion columnist covering finance. She is a former managing editor for European finance at Bloomberg News.
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