When “groupthink” handicaps the front office

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Wells Fargo Bank shows that fixing problems may be most difficult for successful companies

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Wells Fargo Chairman and CEO John Stumpf testifying before the U.S. Senate Banking Committee in September

When I first worked for a major insurance company in the mid-1980s, I worked at headquarters with about 1,000 other employees. Many ate lunch in the headquarters cafeteria.

We in the Corporate Communications Department often had contact with members of the Executive Division – the “front office,” including the chairman, CEO, CFO and others atop of the corporate pyramid. One day not long after I joined the company, while eating in the cafeteria, I spotted the top execs eating their lunches and remarked on how great it was that they ate their lunches with the rest of the employees.

“Yes, but notice that they only sit with each other,” a colleague said. “They never mingle with other employees.”

I remembered that comment in light of Wells Fargo Bank’s recent efforts to repair its reputation after it disclosed that more than 5,000 employees had been dismissed for “cross-selling” activities between 2011 and 2015. Those activities included opening of approximately two million deposit and credit card accounts without customers’ knowledge or authorization.

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Sen. Elizabeth Warren (D-Mass.) questions Wells Fargo Chairman and CEO John Stumpf at a hearing of the Senate Banking Committee.

Whistleblowers said the scandal was due to a culture that pressured employees to push different products and accounts onto customers, in a relentless drive to increase top-line growth. In many cases, employees created fictitious customer accounts to pad their numbers.

The episode resulted in a serious black eye to one of the nation’s largest and best known financial institutions, which had survived the financial crisis of the past decade relatively unscathed. After being grilled by committees of the U.S. Senate and House of Representatives , Chairman and Chief Executive Officer John Stumpf resigned. The bank paid $185 million in fines.

Leadership questions persist

But the bank’s problems are far from over. In spite of efforts to rectify the problems with bank customers, including a major advertising campaign, Wells Fargo faces an uphill climb to restore its pre-scandal reputation.

Wells Fargo appointed executive Timothy Sloan, a 29-year veteran of the company, as its next permanent (not interim) CEO to replace Stumpf. Some observers, however, said that reflected even deeper problems at the bank.

As Advertising Age noted in October, Mr. Stumpf’s departure was “bold and expected,” the symbolic sacrifice needed for the bank to move forward and regain consumer confidence.

Yet, as an analyst commented to Reuters, the bank has long had a reputation as a place where a “tight-knit group of senior managers” worked together to produce “industry-leading” results.

Now, what once was an advantage is instead being seen as a liability, as analysts question why the bank doesn’t bring in an outsider to shake things up and get Wells Fargo back on track. Such external hires have turned companies around; for example, IBM hired American Express executive Lou Gerstner to lead IBM in 1973, and Boeing installed of 3M Chairman W. James McNerney Jr. as chief executive in 2005, following a series of ethics scandals.

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(marketplace.org)

Thus far, Wells Fargo hasn’t looked outside for a leader. Several corporate governance experts see that as a mistake and believe the bank needs to make such a change soon.

That’s because, as Inc. magazine noted, Wells Fargo leadership apparently ignored clear evidence of systemic problems for an extended period of time. Management apparently became aware of serious problems years ago. Some employees even wrote to Stumpf, warning him that aggressive sales goals were leading to unethical behavior.

The insiders didn’t correct the situation in time. The crisis at Wells Fargo is being compared to similar setbacks at Samsung, which had to shelve the Galaxy Note 7 smartphone after several of them spontaneously exploded; or Volkswagen, which admitted in 2015 that it had installed  software in many VW cars being sold in America had that could detect when their engines were being tested, thus skirting emissions requirements set by the U.S. Environmental Protection Agency. Both companies are likely to continue to apologize and take corrective actions for a long time as they attempt to restore customer trust.

The clock is ticking

A major advertising campaign appears to be the central action being taken by Wells Fargo to earn back customer confidence (see advertisement included in this post). You can watch a television advertisement that’s part of the campaign here:

What’s your view of the company’s approach? As crisis communications specialist and USC marketing professor Ira Kalb told the Los Angeles Times simply putting Sloan in charge won’t convince customers that the company’s culture has changed.

“The fact he’s been there such a long time, you’d think he must have known what was going on,” Kalb said. “It’s not as good of a deal as if they brought in someone from the outside.”

The situation will likely get worse before it gets better. Fortune magazine reported that a study by consulting firm cg42 estimated that as a result of the scandal the bank could lose $212 billion in deposits – a 17 percent drop – and $8 billion in revenue – a 9 percent decrease – over the next 18 months.

And that was before the company agreed to a $50 million settlement arising out of allegations the bank bilked 250,000 homeowners by padding appraisal fees. USA Today reported that the settlement must be approved by a California court.

To begin to address the problem, Wells Fargo executives need to move away from what I observed in the company lunchroom: top execs talking among themselves and making decisions for the rest of the company to follow.

Instead, they need to get up from their table and mingle with employees – especially those on the frontline — listening to them and seeking their views and ideas on how best to run the business.

It’s not a new approach: in fact, it’s at the heart of such concepts as continuous improvement. It wouldn’t change the culture overnight: fixing the culture and getting rid of fraudulent behavior requires decisive action and executive commitment. It may also require the fresh perspective of an outsider.

As Wells Fargo is demonstrating, however, such corrective action may be the most difficult for organizations that have long enjoyed success.

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