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

September 22, 2016

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 EthicsGael O’Brien, September 22, 2016Gael 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: Why Purpose Matters to Leaders

January 24, 2014

Leaders who unite their teams around a purpose beyond creating profit redefine what is possible. They show a road map for how collectively each person can have a positive impact on customers, an industry, community, and society. The lens these leaders hold up allows individuals to see how they can make a difference, a key element in employee engagement.

We don’t hear a lot about companies that are focused on a bigger purpose because they are far less likely to derail and become headlines in scandals or crises. They are grounded by company values which creates a common language and sense of “we,” which is a ballast in the constant change of our unpredictable world. Unilever and its Sustainable Living Plan is an illustration of purpose in action that is part of a business strategy. It sets out a plan that expects the company to double in size while also decreasing its environmental footprint and increasing the company’s positive social impact.

Business can no longer afford to be a bystander,” according to Unilever’s CEO Paul Polman, “content to sit on the sidelines doing the minimum necessary to acquire its ‘license to operate.'” Polman is also one of the founding leaders of the B Team, a global initiative calling for a new kind of leadership — more inclusive and driven by a moral compass. The B Team seeks to redefine obligations to stakeholders — replacing maximizing profit with a focus on people, planet and profit.

The “business as usual” short-term profit lens has spewed out all kinds of red flags morphing into the recent financial meltdown among other problems. Last fall, a Washington Post column “How the cult of shareholder value wrecked American business” addressed the “self-reinforcing cycle in which corporate horizons have become shorter and shorter” with reduced CEO tenures and patience for the long-term, as well as the decreased average time stocks are held (now less than six months).

The irony, columnist Steven Pearlstein wrote, is that the focus on maximizing shareholder value hasn’t actually done that much for shareholders.  “My guess,” he said, “is that it will be a new generation of employees that finally frees the American corporation from the ­shareholder-value straightjacket. Young people — particularly those with skills that are in high demand — today are drawn to work that not only pays well but also has meaning and social value.”

The push for purpose has many advocates in addition to Gen Y employees. The impact social entrepreneurs are having on creating positive social change as well as global giants like Unilever demonstrate that innovation, financial gain and societal benefit can fuel each other. Research also supports that purpose is as great a motivator as profit as Daniel Pink pointed out in Drive.

Purpose matters.

Inspired leaders know, says Simon Sinek, that “people don’t buy what you do, they buy why you do it.”

The Week in Ethics

Gael O’Brien, January 23, 2014

Gael O’Brien is The Ethics Coach columnist for Entrepreneur Magazine. She is also a columnist for Business Ethics Magazine; her December 2013 column is “Why Do Good People Do Bad Things? The Role of Spiritual Intelligence.”

The Week in Ethics: The Role of Leaders in Toyota’s Rebuilding Trust

October 31, 2010

Update: December 27, 2012, Toyota agreed to a $1.1 billion settlement in lawsuits related to sudden acceleration.

More than a year has passed since Toyota’s unintended acceleration problem became a crisis after a tragic accident forced the company to begin to address the issue publicly. Toyota has done a number of things to correct the problem and deal with the bigger picture of quality, however, the role of its leaders in helping rebuild trust and reputation is also critically important.

In the last 13 months, Toyota has issued more than 12 million recall notices globally to fix unintended acceleration and other quality issues identified. In February 2010, CEO Akio Toyoda announced he was creating a Global Quality Special Task Force to tighten the system of delivering quality.  A month later Toyota launched a North American Quality Task Force to work with the Global effort as part of improving the flow of information.

Creating these task forces raise expectations. To further restoring trust in the brand, the public needs to hear from Toyota’s leaders what is being done and how that ensures potential defect information will be handled differently.  These periodic progress updates, which employees should also know, can be on their websites, in formal remarks, and given to the media. Toyota has established leadership in its lean manufacturing, so perhaps it can establish and talk about best practices in dealing with quality issues globally to protect customers.

October 26, 2010 Consumer Reports reinstated their “recommended” label for eight Toyota models that were recalled and fixed.   Also that day, Consumer Reports released their reliability report and, based on owner responses to the survey questionnaire, Toyota models were considered among the most reliable of all automotive brands. The sample of owners in the survey who were Toyota owners liked their vehicles. That is validating. However, if Toyota were to become known in the industry for being very proactive in getting and applying feedback received from the Customer Call Center and dealers about potential problems, its reputation would precede it.

Toyota’s quality issues transcended the universe of their customers and exploded onto front pages of newspapers around the world for a prolonged period. Toyota’s definition of stakeholders has forever  expanded; how they communicate with the larger public is part of rebuilding trust.

Ads help but, when you are trying to rebuild trust, precision in language is critical to avoid distraction from skeptics.

The ad said, “At Toyota we care about your safety which is why we’re investing $1 million every hour to improve our technology and your safety.” In response to critics’ challenges, Toyota acknowledged the money was the global Research and Development budget, much of which was spent on quality and safety technologies.

Last week, new allegations surfaced in a federal lawsuit against Toyota filed in U.S. District Court in Santa Ana, California alleging  that Toyota bought back vehicles from owners complaining of sudden acceleration and required them to sign confidentiality agreements that prevented their discussing it. The over 1,000-page complaint amends a multi-party suit against the automaker filed several months ago. Toyota responded denying confidentiality agreements were requested. The statement said Toyota looked forward to defending itself in court and affirmed the speed and thoroughness with which it investigates complaints.

Included in the new complaint is information about a company memo that discussed efforts to minimize the outcome of the crisis and instructs employees to mark emails about sudden acceleration as “secret,” remove attachments, and tells them not to include executive names. The memo could be a rogue effort by someone who still doesn’t understand the rules for rebuilding trust, or it could be a sanctioned way of constricting information. Either way it plays to Toyota’s greatest liability in building back trust — the sense that as a Japanese company, sharing information has limits and transparency isn’t a priority.

Leaders in Japan, in the United States, and in markets around the world, set the tone for the culture, and how the public understands what a company stands for. Toyota’s leaders have seemed low profile since the media and Congressional investigation frenzy in February 2010. As a world leader Toyota has a statesman role. Mistakes were made, mistakes were corrected, a process is ongoing and a public larger than customers has a stake in understanding who Toyota’s leaders are, what they are doing, and why it matters. That, plus process changes, goes a long way to rebuilding trust.

For previous articles on Toyota in this column see Five Ways to Rebuild Trust, Reputation and Image, Focus on Process not People, and Ethics of Greed

Gael O’Brien,              October 31, 2010

The Week in Ethics


Broadcom’s Backdaters: The Trials of Many Tears

November 2, 2009

Options backdating is about failure of ethical leadership. And, according to a study released in August 2009, the act of uncovering and disclosing stock option backdating can lead to improvements in management and financial performance. Aren’t leaders who lie about options backdating more likely to cut other corners?  Even if their goals undermine their organizations’ financial strength? What boundaries could they be expected to have?

The reality is that ethical leadership contributes to effective and sustained business performance.

The backdating scandal consumed headlines in 2006 when the U.S. Securities and Exchange Commission (SEC) began investigating more than 140 companies, and filed civil charges against 24 companies and 66 individuals.

One of those companies was Broadcom which has since restated its financial results reporting more than $2 billion in additional compensation expenses. Broadcom settled with the SEC, agreeing to a $12 million penalty.

The first of the trials of former Broadcom executives has begun with former CFO Bill Ruehle pleading not guilty to charges he conspired to conceal and understate compensation expenses from 1999 to 2005. He is charged with 21 counts including fraud, internal control violations, false certifications, falsifying records, and lying to investigators. The SEC brought similar charges against Broadcom co-founder and former CEO Henry Nicholas, who will stand trial early next year. Nicholas, an eccentric billionaire, is also facing drug charges.

Broadcom’s other co-founder and former chairman Henry Samueli has pleaded guilty to one count of fraud and awaits sentencing. Also awaiting sentencing is the former VP of human resources who pleaded guilty to obstruction of justice. Broadcom’s former general counsel has settled with the SEC.

In opening statements the prosecutor said about Ruehle, “The defendant wanted to have employees, the best and the brightest, highly skilled engineers without showing any expense on Broadcom’s report card.” He added, “This is not a case about accounting. It is not a case about business. It is a case about lying.” However, Ruehle’s attorney argued that the case is about “unintentional misapplication of the rules.” He added that “Witness after witness will say he always tried to do the right thing.”

Emails are the currency of an individual’s words. When shown emails linking him to the options backdating,  Samueli changed his plea to guilty. In opening statements at Ruehle’s trial, the prosecutor read the jury emails from Ruehle using them to show Ruehle’s complicity in the backdating activity.

With so many former Broadcom leaders involved in the options backdating scandal, this culture of complicity  and leadership style will inevitably be on trial as well. Several former executives, including Ruehle, benefited financially from how the backdating was calculated. Ruehle’s attorney has already pointed the finger at Nicholas and his management  style.

Broadcom in 2006 at the conclusion of its internal investigation that exonerated Samueli and others still there, but didn’t address Ruehle or Nicholas who had left, said it lacked adequate controls between 1999 and 2003. The company said their record keeping and documentation were insufficient. The internal investigation also indicated that certain individuals could have done more to address inadequacies in the option granting process.

In the dance of finger pointing, Ruehle’s defense has a steep hill to climb to justify why as CFO adequate controls weren’t his responsibility, why he isn’t accountable for attesting to the accuracy of financial filings that weren’t accurate, and how the actions he took were “the right thing to do” for the company and its investors.

Ethical leadership, don’t leave home without it.

Gael O’Brien   November 2, 2009

The Week in Ethics