Category Archives: Transparency

The Week in Ethics: Wells Fargo’s Next Move? 10 Suggestions

Update: See my 12/10/16 Business Ethics column on Where Wells Fargo Goes From Here .

Update: In October 2016 Timothy Sloan replaced Chairman/CEO John Stumpf, becoming CEO and President. The chairman role was split and given to independent lead director Stephen Sanger.

Update: September 27, 2016: Wells Fargo Independent directors issued a statement  they will lead an investigation into “the bank’s retail sales practices and related matters” with the Board’s HR Committee and independent counsel. Chairman/CEO John Stumpf to forfeit $41 million unvested equity awards and “will forgo salary during the investigation.” The U.S. House Financial Services Committee will hold a hearing on bank’s “unauthorized customer accounts” on 12/29/16.

How will Wells Fargo resolve the ethical and culture issues it faces? And, how will it move beyond a poor showing at the Senate Banking Committee hearing and start to rebuild trust? First some background. Then 10 suggestions.

The best thing a CEO with strong convictions about the “rightness” of his/her own position can do when embroiled in a crisis is to spend time with trusted sources (inside or outside their company) who see things very differently. Being open to these viewpoints and questions iphone-pictures2-222and multiple perspectives raised make it harder for  CEOs to stay wedded to their position. However, once a CEO is under fire the temptation to stick with like-minded people can increase. What’s lost then is stimulation to think deeply about different aspects of an issue to gain new insights and awareness that enable developing alternatives legitimately aligned with values. Being stuck in “rightness” can lead to error blindness, a term popularized by Kathryn Schulz  who points out, “Trusting too much in feeling you are on the right side of anything is dangerous.”

It can lead to decisions that put a CEO on the defensive in front of a U.S. Senate hearing, as John Stumpf Chairman and CEO of Wells Fargo experienced September 20, 2016 testifying before the U.S. Senate Committee on Banking, Housing & Urban Affairs.

Stumpf was questioned about the bank’s unauthorized accounts and allegations of a pressure-cooker sales culture which became public in 2013 (Los Angeles Times story) and continued. Wells Fargo has fired 5,300 employees, paid a fine, faces an investigation into its sales practices by New York and California federal prosecutors and can anticipate an upcoming hearing by the U.S. House Financial Services Committee in addition to follow up from the Senate Banking Committee. Earlier this month The U.S. Consumer Financial Protection Bureau filed a consent order outlining findings of the bank’s “improper sales practices”from 2011 to 2016.

A few days before the Senate hearing Stumpf, in an interview, disputed Wells Fargo has a culture problem. He maintained that stance with Senate committee members, while indicating changes the Bank planned to make. However, the bipartisan committee was united in criticism that Stumpf, the Board and senior leadership hadn’t gone far enough, fast enough and weren’t showing accountability. From the Republican Committee chair to Democratic challengers, Senators didn’t buy that the bank’s culture isn’t an issue.

Where does this leave Wells Fargo? Anyone who has been through corporate crises — as I and many others have — knows that criticism from outsiders is hard to take. However, there are huge pitfalls if Mr. Stumpf stays locked in the “rightness”of his position (in spite of his 30 plus years service at Wells Fargo, presiding over several of its acquisitions and knowing his industry and company better than outsiders).

His performance at the Senate hearing this week indicates his time has been spent with legal and public relations teams and like-minded insiders. Getting out of a crisis, turning around a culture and re-earning political and public trust, doesn’t happen by working harder with the same mindset. (The much touted definition of insanity is doing the same thing over and over and expecting different results.)

I’ve limited myself to 10 suggestions for Wells Fargo to support the start of a turnaround:

  1. The board should appoint a new chairman — an independent director — separating the role from the CEO for many reasons including signaling stronger board governance.
  2. The board should immediately decide about claw backs related to compensation of former head of community banking Carrie Tolstedt, Stumpf and any others. As part of re-earning trust, all their actions should be transparent and well communicated.
  3. The board should direct Stumpf and his team to meet with Wells Fargo’s ethics and compliance teams and risk officers to discuss/evaluate ethics, compliance and risk operations for strengths, weaknesses and safeguards to better integrate sales and all business strategies with corporate values and prepare a report for the board.
  4. The compliance and ethics leaders (and C-suite leader to whom they ultimately report) should initiate meetings with leaders of the Ethics & Compliance Initiative and the Society of Corporate Compliance and Ethics to address best practices, implementation challenges and examples where ethics and compliance leaders weigh in on business strategy discussions in sales and all areas.
  5. The board and senior management should identify outside experts to discuss how to  realign authentically culture around values. A place to start is the nearby Markkula Center for Applied Ethics.
  6. Stumpf and his management team should become acquainted with Margaret Wheatley’s concept of self seal (the rightness of one’s position), Kathryn Schulz’ TED Talk (error blindness) and Margaret Heffernan’s  Willful Blindness for starters. These are lenses that encourage conscious and unconscious unethical behavior.
  7.  A cross-functional team of senior leaders with ethics and compliance leaders should review the company’s five primary values; for each, identify five or six specific expected behaviors to be incorporated into company policy and discussed in ethics training and performance reviews. Currently, the values are too abstract.
  8. Under the value “Ethics” the company says “We strive to be recognized by our stakeholders as setting the standard among the world’s great companies for integrity and principled performance. “This should become a business objective with Board and CEO focus to keep this commitment at the center of the turnaround’s activities.
  9. At the upcoming House Financial Services Committee hearing, Stumpf and those testifying can start rebuilding trust by being fully prepared to answer questions directly and completely, having with them information relevant to committee questions. Stumpf should also make himself available to Senate Banking Committee leadership to make sure information provided since that hearing addressed open questions.
  10. Trust is a relationship where “integrity” and “principled performance” are realities, not marketing slogans. In relationships with employees, customers, customers affected by unethical actions, employees pressured by aggressive sales tactics, Wells Fargo leaders have to admit what went wrong and make systemic changes. A start is to amend the vision statement that says “We want to satisfy our customers’ financial needs and help them succeed financially” and add “in ways that build lasting relationships of trust and integrity.”

The Week in Ethics

Gael O’Brien, September 22, 2016

Gael O’Brien is The Ethics Coach columnist  for Entrepreneur Magazine. She is also a columnist for Business Ethics Magazine where her September column is “One man’s Leadership Toward a Goal: ‘The Great Mission of Business Ethics.'”

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The Week in Ethics: “Engaged Trusteeship,” Stakeholders and UVA Governance

photo of strength

Strength invokes a sense of power, muscle, vigor, and force.

It can, under the right circumstances, be a source of wisdom that invites collaboration, engagement, innovation and inspires trust.

In university governance, there is increasing tension about how authority is held or shared — how strength plays out. With the increasing involvement of business leaders in higher education, will they use the business style most comfortable to them or consider what would work best in a traditionally collaborative environment?

Turmoil at the University of Virginia (UVA) continues around how the Board of Visitors (trustees) is carrying out its authority. In spite of the board’s requesting that the Faculty Senate rescind its June 2012 vote of no confidence in it (for its process in ousting President Teresa Sullivan) the Senate has yet to comply. Sullivan, in her remarks to the board when she was reinstated June 18, 2012  said, “Corporate-style, top down leadership does not work at a great university. Sustained change with buy-in does work.”

One proponent of the actions of UVA’s board was the American Council of Trustees and Alumni (ACTA). In emails made public, ACTA President Anne Neal commended the board for doing its job, saying faculty and public outrage was “misplaced.” Neal wrote: “This is about the board’s responsibility to bring courageous, even innovative thinking to higher education when it is faced with many challenges….” ACTA is a proponent of what it calls “engaged trusteeship.”

This raises the question of what engaged trusteeship means in application. Does it preclude acknowledging a shared responsibility for governance among trustees, administrators and the faculty even as trustees by law have ultimate responsibility? Or preclude a recognition of the importance of stakeholders and building trust? The UVA experience would certainly seem a poster child for lost trust.

This week, the American Association of University Professors (AAUP) issued a report on its investigation of President Sullivan’s dismissal, which it termed a “breakdown” in governance. The report referenced the business background of chair (rector) Dragas and most trustees, saying few had any experience in the governance of large, complex institutions. The report took issue with Dragas’ justification for Sullivan’s removal (that she lacked “boldness” and alacrity in “effecting transformative change”).

The report said in part,: “The rector’s rhetoric reflects a mindset of entrepreneurial control common in small and medium-sized business enterprises. The firms that occupy that economic niche must adjust quickly to changed market conditions, consumer tastes, and rapid shifts in financing or other aspects of the business landscapes. Managers of such enterprises may be taken on or let go, on short or no notice on the basis of a perceived need to change direction…or even a lack of compatibility with those in entrepreneurial control. This mindset ill fits the role of trusteeship in the modern university.”

AAUP and ACTA disagree on whether UVA’s accrediting body, the Southern Association of Colleges and Schools Commission on Colleges (SACSCOC), had the authority to place UVA “on warning”  for governance violations involved in removing Sullivan. ACTA has made an appeal to U.S. Department of Education Secretary Arne Duncan whose department upheld SACSCOC’s authority.

Meanwhile the issue of whether the board is micromanaging Sullivan and setting her up to fail persists. Information this month revealed that the board committee evaluating Sullivan had increased her goals for the academic year to 65, more than 20 of which Sullivan said she hadn’t seen before; the Faculty Senate responded to this and Dragas responded to them asking that they work together to build trust.

The challenge is that trust isn’t a top down invitation; it is a by-product of how authority is used and stakeholders involved and engaged.

While the top-down method isn’t a model for rebuilding trust, increasingly, business culture has changed for many companies as stakeholders have taken on greater importance and caused shifts in organizations’ openness,  transparency and desire to build shared value. Ironically, for UVA, they need look no farther than their Darden School of Business, and Professor Edward Freeman, for a leading authority on stakeholder management.

UVA has been under a microscope for nearly 10 months, a bellwether for issues facing higher education. How engaged trusteeship and engaged stakeholders are defined and connected will determine the university’s strength and its capacity for sustained growth and innovation.

Gael O’Brien March 15, 2013

The Week in Ethics

Gael O’Brien is also a columnist for Business Ethics Magazine; her February 2013  column in Business Ethics Magazine is on trust in leaders and institutions. She is The Ethics Coach columnist for Entrepreneur Magazine.

Note: The  rock pictured above was painted by a student at Robert Adams Middle School.

The Week in Ethics: 2012 Leadership Wins and Losses

One of the most powerful lessons from 2012 is how leaders use their influence.

Consider some examples of career sky dives from three men highly regarded in their field who failed to use their influence in ways to keep trust with  their constituencies: former CIA Director David Petraeus (an affair with his biographer); former Penn State University President Graham Spanier (criminal charges filed); and Lance Armstrong (stripped of all seven Tour de France medals).

Demonstrating effective personal influence tackling social or political issues is a hard road for CEOs, presumably easier for politicians. In the examples of the leaders of the City of New York, Chick-Fil-A, and Patagonia there were mixed results.

At the University of Virgina (UVA), influence was exerted over organizational change in a manner that drew widespread criticism.

While not all politicians are willing to risk using political capital to further social issues, New York City Mayor Michael Bloomberg risked unpopularity in escalating his war on obesity by banning the sale of large sugary drinks. The ban approved in September by New York City’s Health Board takes effect in March 2013. New York is the first U. S. city to take such action.

“It’s not perfect, Bloomberg said, “it’s not the only answer, it’s not the only cause of people being overweight – but we’ve got to do something. We have an obligation to warn you when things are not good for your health.”

Chick-Fil-A CEO Dan Cathy found himself in a firestorm of controversy last summer when the national restaurant chain used company dollars to support anti-gay marriage groups; this pleased some patrons, disenfranchised others and resulted in widespread protests that continued with different players once the company indicated it would no longer support political or social issues.

Patagonia’s founder and chairman Yvon Chouinard has become a leading corporate voice in environmental responsibility by taking small, consistent steps to address how his company does business. He has served as a volunteer adviser to Wal-Mart in green business practices. Patagonia’s mission statement seeks to bring people together: “Build the best product, cause no unnecessary harm, use business to inspire and implement solutions to the environmental crisis.”  

Chouinard’s 2012 book The Responsible Company: What We’ve Learned From Patagonia’s First 40 Years  includes a checklist of 263 recommendations to help companies benchmark where they are and where they might want to be to improve their environmental track record.

An accrediting body accused UVA’s Board of Visitors of using its influence to compromise the institution’s integrity, and failing to follow appropriate governance procedures in the ouster of President Teresa Sullivan. Sullivan was reinstated after faculty and student protests.

Rector Helen Dragas (Board of Visitors’ chair) had a vision for the university that didn’t include Sullivan leading it; Sullivan had been hired two years before. Citing challenges facing higher education, Dragas led an effort to force her out  that met with strong, but civil, resistance from university constituencies who supported both Sullivan and a university culture that didn’t handle disagreements in the manner used by the Board of Visitors.

Governor Bob McDonnell reappointed Dragas to another term; however she has been meeting with Virginia legislative leaders lobbying to keep her position; the Legislature, which vets gubernatorial appointments, will vote in January on her reappointment.

Authority has limits. Influence fueled by earned trust has an infinite spectrum in which to operate.

Gael O’Brien December 31, 2012

The Week in Ethics

Gael O’Brien is also a columnist for Business Ethics Magazine; her December 2012 column is “Women in the C-Suite: Finding Ways to Break the Seal.” She is The Ethics Coach columnist for Entrepreneur Magazine.

The Week in Ethics: NCAA, Culture, and Leader as Bystander at Penn State

July 23, 2012, Penn State University accepted the far-reaching sanctions in the Consent Decree imposed by the National Collegiate Athletic Association (NCAA).

The NCAA indicated it relied on the investigation and findings of the Freeh Report issued July 12, 2012. The report addressed Penn State’s role in not protecting the young boys sexually abused by former assistant coach Jerry Sandusky.

Penn State’s situation involves several individually complex issues including:

  • Problems inherent in big money sports at NCAA member schools and excessive spending on intercollegiate athletics
  • How a university creates a culture consistent with its principles and eliminates silos by integrating all areas, including intercollegiate athletics, with the broader university community
  • What happens when individuals, especially leaders, become bystanders, see harm or potential for harm, but don’t do all in their power to protect potential victims

Many will debate whether the NCAA sanctions went far enough or too far, and others may revive the issue of NCAA inconsistency in its sanctions and penalties.

However, by accepting the consent decree (and avoiding further distraction), Penn State remains consistent with its many statements over the last several months that it is committed to addressing its culture, the role of athletics, ethical leadership and behavior, transparency, and rebuilding trust.

The scope of Sandusky’s sexual abuse was a first for NCAA-member institutions; however, The Shame of College Sports and NCAA’s problems fostering ethical cultures are evident in frequent football and basketball scandals.

If Penn State is successful in its effort to ensure a sustained integration of intercollegiate athletics with the broader Penn State community, the best practices that result could be a model for other universities.

The importance of giving voice and action to one’s values — which is the opposite of a bystander role — will also need to be addressed in Penn State’s culture focus.

The Freeh report’s investigation identified a host of bystanders where evidence indicated they knew or should have known about Sandusky’s sexual abuse and didn’t stop it.

These include leaders — former coach Joe Paterno, former president Graham Spanier, two administrators facing a perjury trial next month, and trustees who didn’t ask enough questions. It also includes Michael McQueary, athletic department members, janitors, and those involved in the 1998 investigation of Sandusky.

The former coach’s family defends Paterno, who died in January, saying not all the information is known. Spanier also disputes the Freeh report findings in a letter to the Penn State Trustees. It is unclear if Spanier will face legal action.

The issue of the bystander is a powerful lesson, driving why children weren’t protected and Penn State’s crisis.

So many emotions  and rationalizations contribute to the silence and inaction of bystanders. Facing History and Ourselves, an organization that supports teachers in helping students link history to moral choices, offers a series of illustrations of the bystander behavior in the civil rights movement, the Holocaust, genocide and in bullying.

For Penn State, and any organization re-examining its culture, the role of the bystander offers insights that need to be addressed.

Concern with reputation, fear of reprisal, not knowing what to do when problems occur, and not having had a reason before to think through what it means to stand for something are among the issues needing ample discussion and training at all levels….giving new meaning to “We are Penn State.”

Gael O’Brien       July 23, 2012

The Week in Ethics

Gael O’Brien is also a columnist for Business Ethics Magazine. Her July 12, 2012 column is Penn State Scandal Highlights Failures in Leadership and Culture

The Week in Ethics: How to Start a Culture Shift at Penn State

July 12, 2012 Penn State University trustees, administrators, faculty, students, staff, and alumni began to digest the 267 page report by former FBI director Louis Freeh. Freeh was  hired by trustees as special investigative counsel  to look at Penn State’s role in a former assistant coach’s child sex abuse scandal. The report offers more than 100 recommendations for action by Penn State.

I talk about culture’s role in deterring or inviting crisis and the impact at Penn State in my July 12 Business Ethics Magazine column. Earlier today, I was interviewed on Minnesota Public Radio about ways Penn State can move forward. One of the things I suggested was a teach-in. I’d like to elaborate on that here.

In the culture section of the Freeh report, the  first recommendation raises the question of how to ensure there is community engagement. The recommendation says:

“Organize a Penn State-led effort to vigorously examine and understand the Penn State culture in order to: 1)  reinforce the commitment of all university members to protect children; 2) create a stronger sense of accountability among university leadership; 3) establish values and ethics-based decision making and adherence to the Penn State Principles as the standard for all university faculty, staff and students; 4) promote an increased environment of transparency into the management of the university; and 5) ensure a sustained integration of the Intercollegiate Athletics program into the broader Penn State community.”

First of all, part 3 of that recommendation needs to be amended to add trustees, the president’s office and all members of the administration to join the rest of the campus in establishing values and ethics-based decision making and adherence to the Penn State Principles.

The recommendation goes on to list several diverse groups on campus who should participate as well as alumni and representatives from peer institutions who have experience in reviewing and improving institutional culture.

To create a greater sense of engagement, as a first step, Penn State might consider  taking the eight recommendations related to culture (two-pages of the report) and emailing them to every student, administrator, and member of the faculty and staff attached with an invitation and request to participate in a one-day teach-in to be held the first week when classes resume next month for fall semester.

Normal class schedule and work would be suspended that day while the university holds a variety of online and face-to-face small and large forums for the campus community to come together to discuss Penn State’s Principles, the values the university wants to stand for, the ways in which the university can support  using values and ethics-based decision making and how a community can support each other in giving voice to values.

How Penn State would organize this, create facilitated discussions, moderated panels, recording  of questions and suggestions and handle follow up to ensure continued engagement in the process would enable the culture piece of the report to become a working document,  a basis for ongoing discussion and understanding.

The key discussion points from the teach-in could be given to the groups the Freeh report specifies for action, including: the Special Faculty Committee on University Governance, Penn State’s Coalition on Intercollegiate Athletics, the Rock Ethic’s Institute, as well as students, faculty, alumni and staff.

With a basis of shared discussion and collaboration to develop ideas, then representatives from these constituencies could meet together with “representatives from peer institutions” as the report suggests who have “experience in reviewing and improving institutional culture in academic settings.”

The goal of this  recommendation is to change the culture. What better way to start than by ensuring a process of ample discussion, understanding, idea generation,and buy-in around what is possible for Penn State to become emerging from this crisis.

Gael O’Brien       July 12, 2012

The Week in Ethics

Gael O’Brien is also a columnist for Business Ethics Magazine. Her July 12, 2012 column is Penn State Scandal Highlights Failures in Leadership and Culture