2 March 2020
Sherborne Investors’ Position on Renomination of James Staley to the Board of Directors of Barclays PLC
We have a number of well publicised differences with the board of Barclays. These issues, ranging from strategy to long-term governance, have not gone away and we will continue to address them directly with the bank’s board.
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As a result of recent share purchases, Sherborne Investors is now the largest shareholder of Barclays and we feel it is, therefore, appropriate to make public our position on the board’s proposed renomination of the Chief Executive Officer, Jes Staley, to be a director absolutely clear: we think this renomination is extremely ill-advised.
We voted in favour of Staley last year because we did not consider that a difference of commercial opinion, on its own, justified voting against him or against any non-executive directors, with the exception of Crawford Gillies, the senior independent director, about whom we had specific reservations.
Starting in July of last year, various news outlets, including the New York Times and Bloomberg, wrote articles on the links between New York-based JPMorgan Chase & Co. (“JPMorgan”), Staley, and Jeffrey Epstein, a felon jailed for soliciting children as young as 14 years of age for prostitution, and who was subsequently indicted for sex trafficking underage children. To be clear, we have no reason to believe that Staley was involved in any crime.
Prostitution and sex trafficking, by their very nature, involve the transfer of money and the articles allege that for much of the time in question Epstein’s primary bankers included JPMorgan. The articles specifically assert that Staley, who was employed there, and another senior member of JPMorgan’s management were principally responsible for the banking relationship with Epstein.
We are not aware of any public denial of the essential facts in the articles concerning JPMorgan and Staley, and some of the details are, in fact, easily verifiable. It was also reported that Staley visited Epstein during his period of imprisonment and, if so, it would have been – or should have been – well known to JPMorgan. According to multiple former employees, including “senior executives with direct knowledge of the events,” cited by the New York Times, the “unacceptable legal and reputational risks” of maintaining accounts for Epstein were well known and had generated heated discussions “in the bank’s executive suites.” Sources were also cited saying that his accounts were not closed because “he was a valuable client” and that some were under the impression that Staley was a primary advocate for continuing to keep Epstein as a client. We repeat that, to our knowledge, these reports with respect to JPMorgan and Staley have not been challenged.
Under various legal and regulatory requirements, financial institutions and individual employees in the United States are required to report transactions or patterns of activity that may be related to criminal conduct. The United Kingdom has similar rules in place.
Given Epstein’s history of involvement in child prostitution, it would be reasonable to expect that JPMorgan would have placed his accounts under close scrutiny. We do not know if any reports were made, but, if they were not, it raises obvious questions and, if they were, why were the accounts not closed?
In the absence of further information, the question has to be asked: were JPMorgan and Staley willing to maintain Epstein as a client because of the profits that he brought in to the bank and the related benefits to Staley’s compensation and prospects for promotion?
We have read that Barclays conducted an investigation into the “chumminess” of Staley’s personal relationship with Epstein, but seemingly not into their professional banking relationship. We believe that this misses the point.
If Staley knowingly continued providing financial services to Epstein, which could have helped to facilitate the latter’s child prostitution activities, in order to reap personal career benefits, it raises the question as to whether he is suitable to be an executive of a financial institution. It seems to us that the real issue, therefore, is Staley’s professional conduct, not the dubious company he may have elected to keep in his private life.
JPMorgan has been a corporate broker to Barclays since June 2015 and would presumably have been happy to see a former colleague parachuted into their client as CEO. We believe the board should review and question, as necessary, the advice it received about the Epstein background before Staley’s appointment was considered and then after the news stories broke in the summer of 2019. Given JPMorgan’s institutional awareness, they would have been in a good position to give informed advice to the Barclays board.
Likewise, we understand Spencer Stuart advised the board on this and many other senior level recruitments for Barclays. Given the important questions raised by the Epstein-Staley relationship, which was publicly known at the time, the board should consider whether Spencer Stuart provided it with adequate due diligence. If Spencer Stuart did so, did the board choose to ignore it?
We recommend strongly that the Barclays board should re-examine the advice given by JPMorgan as a corporate broker and Spencer Stuart as a recruitment adviser. If the advice is found to have been deficient, we believe that the Barclays board should terminate all future commercial relationships with these firms forthwith.
Barclays disclosed in February that United Kingdom regulators have been investigating, since December 2019, certain characterisations of Staley’s relationship with Epstein and they will doubtless report in due course. However, we do not see why it is necessary or appropriate to push this decision off to the regulators when the determination of Staley’s suitability is clearly the board’s responsibility.
We request and strongly recommend that the bank’s chairman, Nigel Higgins, and the board as a whole rescind their unanimous recommendation to re-elect Staley. We believe that it would be in everyone’s interest to draw a line under this destabilising situation, which has Sherborne Investors become a circus, as soon as possible. This would allow the company to move forward and focus on more constructive activities.
Recent media coverage suggests that Staley is on a path to a graceful and protracted exit ending in retirement, which would, conveniently, remove any requirement for the board to take decisive action. If true, we believe that would be a mistake and would set a terrible precedent for Barclays and for United Kingdom public companies in general. Any such delay would also impede the company from addressing the challenges it faces and would defer the actions necessary to be taken by the board to begin to repair the firm’s culture.
The public interest in the United Kingdom’s most established financial institutions leading from the front in setting and following best corporate governance is vital to the country’s global reputation. The public interest not only requires the likes of Barclays to set the highest standards, but it also dictates that there should be unvarnished transparency on major ethical questions and on the suitability of individuals that lead them.
The management of a financial institution that provides services to a client engaged in child prostitution not only potentially violates the rules, but is an enabler of that act, whether unwittingly or not. A board that tolerates such conduct, whether occurring in the present or in the past, is also an enabler of that act. Any shareholder that votes for a director in these circumstances would also be an enabler.
Institutional shareholder votes generally become public subsequent to an AGM. We hope that Higgins and his board will not present a resolution to re-elect Staley. If they do, we will be on record as having voted against it.
Source: Sherborne Investors
