A New Bite Of The Wells Fargo Apple

hands-966492_1920Regulators recently pinched Wells Fargo, the country’s largest bank, for “scamming” some customers — signing them up for services they didn’t order. Management fired 5,300 people over a five-year period for “improper selling.”

Lots of folks have already predictably jumped all over management, and they’re right to do so. But what else can we learn from this?

Having dealt with several large banks, including Wells Fargo, years ago when I was in leadership roles, I was always struck by the fact that they were so siloed. It was hard to get one part of the bank to help you get service from another part. It seems they fixed that problem but went too far. Way too far!

The activity that caused the dustup was “cross selling” products, e.g., “Would you like fries with that burger?” If I were in management at Wells or any other bank, I’d promote the same thing. Customers have multiple needs, and addressing them profitably and to their benefit is good business. Ever bought a new suit and not have the salesperson ask if you needed a tie to match?

The challenge is the voracity with which Wells went after this objective, with some managers holding several meetings a day to review goals.

When you pay people for an activity, it works. When you push people for activity, it works. When you push people too hard and tie their pay to certain activity, it often produces an unintentional, unwanted variety of creativity.

It’s easy to fault Wells Fargo’s management folks, and they deserve it. However, it’s not easy to draw the line between effective compensation and goal setting and pressure that causes cheating. The pressure, of course, can be internally as well as externally imposed. Remember Lance Armstrong?

Unintended consequences are by definition hard to plan for because they’re unintended! However, if you push too hard for certain behavior or tie compensation (and continued employment) extremely tightly to behavior, you’d better have thought through all the ways that someone can achieve the objective, whether legitimate or not!

In the bank’s case, the question the scammers and management intentionally ignored is, “Is this the right thing for the customer?”

The CEO of Wells Fargo, John Stumpf, said that those who were fired had violated the culture. My definition of culture is “the accumulation of the behaviors that you reward and allow.” It has little to do with posters and platitudes. What you do is more important than what you say. Senior management owns culture because they set the tone. Firing 5,300 people for violating the culture should indicate to senior leadership that the “real” culture is screwed up!

Grey areas are fascinating! Compensation, goal setting and performance management are critically important to think through as a leader. Even the right programs and policies when pushed too far become dangerous!

My Top Three Observations This Week:

  1. Social media is fascinating and has created some very interesting business models. However, my best clients spend little time there.
  2. Many people (including many with advanced degrees) don’t take the time to understand how the economy works. Emotional arguments from the political arena are exacerbating the problem. Guaranteeing a uniform starting line is one thing, but guaranteeing a uniform finish line is a recipe for disaster. There is no “free.”
  3. I think that I did great work for a client this week, but I’ll bet he doesn’t have my name tattooed on his arm. Sometimes doing great work is the reward itself.

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  • Rick McBreen

    4:02 pm September 19, 2016

    Great article Todd. Couple points, the manager of that department walks away with roughly the equivelant of the fine, $125M to $145M if memory serves. The fine wouldn’t seem to be much of a deterance. Also, Wells Fargo used the number of new accounts in every annual report to drive share price (didn’t mention account performance ;-). And they were a daring of CNBC. It doesn’t take much to see willful ignorance, ” why, there is gambling in this establishment?” Also gives justification to senator from Mass to hold hearings and justify the consumer protection agency. The stories of elderly people being hurt severely in this case is heart breaking, lost social security checks etc. Anyway, great read,

    • Todd Ordal

      4:14 pm September 19, 2016

      Thanks, Rick! I think that most folks underestimate the challenge of running a large organization so am usually not so quick to bash management, but this one is pretty blatant. Stumpf also screwed up by not taking his lumps on this and owning it. He had a great reputation (at least in the investment community) before this. Hope you are well!