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CEO’s Letter: Falling Back into the Abyss, Abysmally

Wells Fargo culture and workforce fail Ethics 101

Friedrich Nietzche wrote, “When you gaze long enough into the abyss, the abyss also gazes into you.” So the question you need to ask yourself, or Nietzche, is what you think the abyss saw. The abyss doesn’t answer questions, so the answer must come from your own assessment or your own self-doubts and fears.

Wells Fargo is, again, for the second time in a decade, staring into the abyss. I hope what they see is dishonesty and cultural failure. It is easy to say, “well, banks are all dishonest” or, like Senator Elizabeth Warren, to tear into CEO John Stumpf in what I felt was a disrespectful attempt to serve him up as a populist, red-meat entrée. It’s not that I think he is without culpability or that he should continue his tenure; I just think you cannot complain about tone in public discourse and act similarly to the opposing party’s candidate that you  find “deplorable.” So yes, this issue has become a political football, but there is a more disturbing aspect. It has to do with culture and ethics, so for the moment, let’s talk about the elephant in the bank.

Personally, I believe the banking crisis in 2008 was not only demonstrated bad behavior from banks, but also was caused by government policy mandating the availability of “sub-prime” loans to increase home ownership. This was a late-Clinton-presidency initiative with arguably good intent. But the unknown default rate of sub-prime loans contradicted state accounting regulations for reserve calculations, and the insurance policies or “credit default swaps” became a cess pool of unregulated interlocking securities.

The crisis was also a regulatory failure, and banks, driven by the desire for pro t that is their business model, sought to maximize their share of the sewers they were creating. No one was blameless—banks, regulators, legislators, and everyone else suffered. It is ironic that the political class made hay demonizing banks, but that’s what politicians do best: shift the spotlight.

Still, this is different. Wells Fargo is a cultural failure at a visceral level well below the oak paneled executive offices. Managing culture is like dancing on the edge of a razor: It is difficult, but many companies do it well. When you have a single employee that is dishonest, you have a bad egg in your hen house. When you have 5,300—the number of employees terminated from Well Fargo for complicity—you have a systemic problem on a staggering scale. What happened?

Companies publish internal ethics programs and policies on their websites with titles about commitment to the customer and the like. However, when you set a level of suffocating pressure or seductive incentive that is in such opposition to the ethics program, you will see seams open. It seems that Wells Fargo’s issue was not about seduction as much as it was about fear. Employees were forced to “cross-sell” and work weekends and evenings trying to sign up existing customers to new accounts. Employees, and by that I mean teller-level workers, were told by overbearing executives that they would be “working at McDonalds” if they failed to meet quotas. Better to serve at McDonalds than reign at Sing Sing to paraphrase Milton.

The managers and individual-level employees began to create false accounts and even created fake emails in customers’ names to validate the accounts. The hoodwinked customers suffered woefully with credit problems created by fees on credit cards they did not know existed. The employees told the regulators that they felt they had to cheat or be  red. Apparently, the cheating became so widespread that employees exchanged best practices for falsifying records. Where were the HR or CR departments in all of this?

No matter how much you reinforce ethics, if you push people to the walls, they may react badly. If your leadership culture creates an environment for bad behaviors to thrive, ignores the signs, and rewards the cheating (the executive running that unit is leaving with a $125 million retirement bene t apparently mandated by her contract), then what would you expect to happen?

Our company leases space in the Wells Fargo Building in Philadelphia. It is embarrassing to work here above a bank that would systemically defraud customers out of millions, blame the employees, and reward the executives. Wells Fargo is a prime example of a culture that is so ethically rotten to the core that without dramatic changes in leadership, it is hard see how it can be fixed. In truth, we may have a bank that is now simply too big—and  awed—to succeed.

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