Wells Fargo had been a darling of sorts in the financial services world. It was one of the few American banks which reported a profit increase the financial crisis. Until the news of the scandal broke out in the first week of September, Wells Fargo had been the biggest US bank by market capitalisation since 2013. It overtook the Industrial & Commercial Bank of China in 2105 to become the world's most valuable bank. Investors just loved this money-making engine. It is one of the two US companies (other than Apple) that made more than $5 billion net income in 14 quarters. Not surprisingly Berkshire Hathaway, led by Warren Buffet, owns 10% of Wells Fargo shares. While competing American banks have been reducing their number of branches, Wells Fargo's strategy has been to stay with its branch footprints as it believes it is its best client acquisition channel. Top consulting firm McKinsey has written about their customer-centric practices and how they have been successfully acquiring customers. The prestigious magazine The Bankerdeclared Wells Fargo as the world's most valuable banking brand for the fourth year in a row last February.
Wells Fargo has a 37-page booklet describing how employees should behave and treat customers. However, many of these guidelines don't seem to have been translated into action.
Wells Fargo was a shining star in the banking firmament. I have seen bank CEOs exhorting their employees to learn from it and adopt its various banking practices.
So, when it was reported that Wells Fargo employees opened 1.5 million bank accounts and applied for 565,000 credit cards unbeknownst to customers, the world—especially bankers—was shocked.
Clearly, the problems that were reported are a symptom of deep systemic malaise in the enterprise. Who knows, there could be similar problems in other banks. Leaders in the C-suite, not just banks, should understand some of the key things that they should avoid to get into a similar trap.
Values are not for glossy booklets
Values are rules which should govern all our actions. Wells Fargo has an attractive 37-page booklet to outline its vision and values, signed by John Stumpf. It describes beautifully how employees should behave and treat customers. However, many of these guidelines don't seem to have been translated to action. Among the values are "ethics", "leadership" and "what's right for customers". And it's clear to see how the organisation has messed up living these values. The front-liners adopted unethical approaches to meet their cross-sell targets.
The booklet talks about the accountability of leaders, but that's not in evidence either. Though John Stumpf has stepped down I thought this was quite late. Other than him, we have not heard any other senior level leader who has been held accountable for the actions—not even the head of community banking Carrie Tolstedt, under whose nose all this happened. She took early retirement and is entitled to about $95 million in accumulated stock and options.
As for customers, they were clearly duped and the organisation did not have their interest in their mind.
Revisit sales practices
The Wells Fargo incident should make banking C-suite review sales practices. The philosophy of selling to existing customers is well accepted. Not only does it reduce the cost of sales but also deepens relationships. But the question is what should be the depth of this relationship and how should the sales process be managed?
At Wells Fargo, teams had this cross-sale ratio target of eight per household... because eight rhymes with great.
At Wells Fargo, teams had this cross sale (selling existing customers multiple products) ratio target of eight per household. The target of eight was not based on any scientific reason but because eight rhymes with great. Hence it was called "Gr-eight". And there were conference calls at 9AM, 11AM, 2PM and 5PM to ascertain progress. Organisations should decide the cross-sales target based on the profile and potential of customers. It can't be a mindless exercise. Also, the Wells Fargo's sales review process is nothing but micromanagement. The frequency of review can be decided by the company but it should be a session for stock-taking, reflection, coaching and uplifting the morale of the sales force. It definitely can't be a session to force sales to achieve something even if they tell you with data that it's not possible.
HR leaders needs to have the gall to take on the high and mighty
The Wells Fargo saga also highlights the inept culture and faulty incentive system that had pervaded the organisation for some time. I wonder what the head of human resources was doing when all this happened. While managing people is the job of line leaders, it's the human resource function which is the custodian of culture and performance management. I would have expected the head of human resources to have sensed and responded to these practices when they were happening. Clearly they allowed things to fester.
One reason could be because human resource leaders are many times not able to stand up to the CEO and other powerful business leaders. The message for HR leaders is that if you want to sit in the C-suite don't hesitate to call spade a spade—even to the CEO. Get out of your office and spend time with the frontline to know what's happening. It's easy to get wrapped in soft things like compensation, recruitment, learning and development etc. They need to have the gall to do difficult things such as confronting the leaders who matter in the organisation when the need arises.
Not about employees but processes and leadership
At Wells Fargo 5300 employees were fired for their actions. But this is just addressing the symptom. Remember, issues like these are manifestation of deficits in processes and leadership. CEO John Stumpf's famous proclamation—"We call our employees team members, not employees. Employees denote an expense to be managed. Team members are an asset to be invested in"— appears so corny, especially when more than 5000 of those employees had to be sacked.
When all the fake accounts were being opened, the compliance processes should have thrown up the gaps.
Also, management processes around compliance and whistle-blowing seem to have also failed. When all the fake accounts were being opened, the compliance processes should have thrown up the gaps. Also, there are reports wherein employees were not given full protection when they spoke up and were later fired. Clearly, these are process issues which the organisation seems to have overlooked. Whenever there is a problem the first thing that an organisation should do is to check the process and ascertain the leaders' roles around it.
Get a pulse of the front-line/shop-floor
It's very easy for the C-suit to confine themselves to their corner offices. How often do they spend time with the frontline? It's quite common among CEOs of FMCG/manufacturing companies to go on a sales beat to get a pulse of the market and get a feel of what's happening there. How often do you see a bank CEO selling a credit card or a savings account? I am not saying that bank CEOs don't meet customers but very often it's a confined meeting with key corporate customers, or a few high-net-worth individuals. After all, it's physically taxing and unglamorous to spend a day like a sales person in a bank who goes from one customer to another sell a mortgage or a person who stands in the shopping mall to sell a credit-card. I have seen bank CEOs meeting customers but usually with a TV crew and media in tow to depict how customer-centric the CEO is. I would recommend the members of the C-suite to spend at least one day a month doing a frontline /shop-floor employee's job. This will throw up the rough edges and discrepancies that might otherwise get missed.