Posted tagged ‘Wells Fargo Sales Practices Investigation Report; Aligning Values with Business Decisions; Culture Failure; Leadership Culture Survey; Ethics Officer as Agent of the Board; John Stumpf’

The Week in Ethics: Wells Fargo Culture Lessons 8 Months Later

May 21, 2017

After eight months of headlines, with likely more to come, Wells Fargo’s consumer fraud (affecting at the very least two million customers) echoes so many other corporate crises….what some of us did isn’t who we are. The drama playing out at the bank underscores the importance of companies regularly addressing how their values and actions align.

Wells Fargo certainly isn’t the first company in crisis where leaders have justified their efforts, defended their culture and blamed a few bad employees. Or been dropped from the list of most admired companies. Their approximately 235,000 employees and 70 million customers suggest they knew the check list of Leadership 101 as well as anyone, including: respect your customers, reinforce your code of conduct, make it safe for people to give you bad news, ask the right questions and expect answers.

And yet, it didn’t happen. Yet another company with a values statement that if followed would have avoided crisis. Touting values and ignoring them when making business decisions invites crisis.

In April 2017, Wells Fargo’s independent directors released the findings of an internal Sales Practices investigation report on the consumer fraud; it placed blame on specific leaders’ failings, organizational decentralization, sales integrity issues, and made a case for how the board was misled. The report identifies 10 corrective actions done or underway. While risk measures and having the ethics function report to the board twice a year is included, absent is the role of values in helping reshape culture.

The report pointed to culture chaos using a variety of descriptions: “culture of strong deference to management,” “sales culture,” “cowboy culture” and “insular culture” along with “company culture.”

Culture failures are hugely embarrassing. Changing leaders doesn’t ensure a culture regains health and purpose, especially if values have been passive, more marketing slogans than actually defining a culture. The report indicates that as early as 2002, there was evidence that sales goals couldn’t be met without “gaming” the system to the detriment of customers. The commercial bank unit had at least 14 years operating in conflict with the bank’s stated values which impact the spirit of the entire culture.

For years, Wells Fargo’s values statement has said: “We strive to be recognized by our stakeholders as setting the standard among the world’s great companies for integrity and principled performance. This is more than just doing the right thing. We also have to do it in the right way.”

This standard now needs to move from platitude to practical application. It needs to be looked at with humility and fresh eyes –no matter how long someone has been on the board or worked at the bank.

Questions the board and leaders should ask themselves and each other include:

  • What specifically (in behaviors and actions) do we want striving for integrity and principled performance to look like in 2017 and beyond throughout the bank?
  • What does respect for customers mean at every level and how will we demonstrate accountability in delivering it?
  • How do we expect leaders to show up in ways all leaders did not before?
  • How will we re-earn employee trust and inspire them to live (with us) the bank’s values?

There is distinction between aspiring to the highest operating standards and holding employees accountable to unattainable sales goals. The report indicated: “In many instances, Community Bank leadership recognized that their plans were unattainable….” Those goals were demoralizing and incentivized unethical behavior. While striving for the highest standards of integrity and principled performance can transform an organization.

In the words of Thoreau’s Walden “If you have built castles in the air, your work need not be lost; that is where they should be. Now put the foundations under them.”

The report likely won’t change the minds of opinion leaders angry at the harm caused to customers in their community. Short of extraordinary measures, the bank’s explanation of what it’s doing to right wrongs won’t generate quickly the trust Wells Fargo wants regained. That was evident last month at Wells Fargo’s annual Shareholders’ meeting by the “tepid” re-election of board members. The board chair’s defense “…the board took the appropriate actions with the information it had” falls short. However, a focus on the ethical implications of the report findings offer a direction to identify what integrity and principled performance will mean going forward.

Three additional lessons grow out of the Wells Fargo experience that address culture:

Wells Fargo’s report indicated direct reports and others recognized former CEO/chairman John Stumpf  disliked conflict and receiving bad news. This weakness impacts what is shared, held back and received by the board. CEOs often won’t see themselves as conflict or bad-news adverse, winning at any cost or not aligning business strategy with company values. Even when CEOs have the dual role of board chairman, (now separated at Wells Fargo) independent directors create success when they clarify leadership attributes expected, discuss areas of potential concern and ensure CEOs receive developmental support when falling short.

A board should monitor regularly, with HR facilitation, how company leadership shows up in feedback (surveys, town meetings and ethics hot line etc.) to enable a more complete picture. The Leadership Circle’s Leadership Culture Survey is one of the outside assessment tools available. It looks at the health and effectiveness of organizational leadership and measures the balance between creative and reactive leadership competencies.

Given the huge internal, reputation and financial costs of ethical failures, board members should consider recommendations in “The Ethics Officer as Agent of the Board” to leverage ethical governance capability. In addition to walking the talk themselves, they create focus when they reinforce organization accountability to live up to its stated values.

Gael O’Brien, May 21, 2017, The Week in Ethics

Gael O’Brien, a Business Ethics Magazine columnist, is an executive coach and presenter focused on building leadership, trust and reputation. She publishes The Week in Ethics and is a Kallman Executive Fellow, Hoffman Center for Business Ethics, Bentley University.

Additional Wells Fargo columns: Where Wells Fargo Goes From Here (December 2016) and Wells Fargo’s Next Move? 10 Suggestions (September 2016)

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