Uphill Battle for Wells Fargo is Just Beginning

Latest scam in the financial services industry should have never happened

  • WELLS FARGO EMPLOYEES LOST THEIR JOBS AFTER CREATING FALSIFIED BANK ACCOUNTS, PRESSURE FROM CEO TO MEET UPSELL QUOTAS
  • SENATOR WARREN CALLS FOR WELLS FARGO CEO JOHN STUMPF TO RESIGN, FACE CRIMINAL CHARGES
  • SCAM COMES DOWN THE LACK OF A SPEAK UP CULTURE AND EXECUTIVE LEVEL ACCOUNTABILITY, FEAR OF RETALIATION AND UNETHICAL, AGGRESSIVE GOALS FOR EMPLOYEES  
  • STUMPF IS FORFEITING $41 MILLION IN UNVESTED EQUITY BY ORDER OF THE WELLS BOARD, KNOWN AS A CLAWBACK 

I am fired up…

Wells Fargo CEO John Stumpf testified last week before the Senate Banking Committee amidst allegations that bank employees opened millions of accounts without customers’ knowledge or consent.

Sen. Elizabeth Warren (D-MA) grilled Stumpf in a senate hearing last Tuesday. The transcription from the publically available recording is below.

 

Warren asked Stumpf the following questions during Tuesday’s hearing:

  1. Have you resigned as CEO or chairman of Wells Fargo?
  2. Have you returned one nickel of the millions of dollars you were paid while this scam was going on? This is about responsibility.
  3. Have you fired a single senior executive and by that I don’t mean the regional manager or branch manager, I’m asking about the people that actually lead your community banking division or your compliance division?

Either Stumpf avoided or deflected answering Warren’s questions or was asked multiple times before a response was provided.

A systemic failure like this is a death sentence for the organization. It’s quite apparent that fear of retaliation, lack of procedural justice, and business goals trumping ethics was their demise. They’ve struggled with this for years- their ethics organization has changed over repeatedly, which was another sign that there was some kind of systemic failure and lack of support from the top of the house. Changing a company culture is like turning the Titanic- it’s not easy.” – Katie Smith, EVP and CCO, Convercent

Why Convercent cares about this
At the end of the day, our product could not have stopped Stumpf’s corrupt leadership team. It’s clear they have a greater love for profits than they do for their stated ethics and values, as it is clear that the firm’s deliberate actions of defrauding their customers and firing employees who did speak up and did the right thing shows otherwise. It’s cliché, but very true: actions speak louder than words.

Stumpf will now forever be known as the posterchild CEO of greed over ethics. When he testified before the Senate, he and the firm’s executive leadership team could not tie the actions of “only 1% of their employees” who committed fraud to pressure from the firm’s cross-sell/up-sell program – a core of Wells Community Banking strategy. Mind you, the Community Banking program triggered an extraordinary share increase by $30, which went directly to Stumpf who profited more than $200 million in gains.

Stumpf told the Senate Hearing Committee that he didn’t know the Community Banking program’s goals – setting division, department and location goals – was the contributing factor to serious fraud and deceit. Stumpf no longer has a job, and he may be facing potential prosecution and criminal charges. Pledging ignorance never leads to bliss.

The work we do here each day at Convercent should have been put in place to stop this. The product we create and build could have been the difference maker to 300,000 employees, millions of customers, and billions of dollars of company value.

Had Wells Fargo took the initiative to:

  • Seek expert industry help;
  • Integrate a root cause analysis solution;
  • Report those results to the board of directors starting in 2013;

The firm would have had data when the first 100 people were (some of whom called into HR and the compliance department and was subsequently fired for doing so) and stopped this before it exploded into the scandal it now is.

The Wells Fargo brand and reputation is going to suffer for generations.
This scam has single-handedly destroyed the reputation the firm gained during the 2008 financElizabeth Warren tweetial crisis as the bank you can “trust” and one of “accountability.” This scam has caused the firm a $25 billion loss in market cap, allowing competitor J.P.Morgan Chase to gain more market share.

Some aspects of a business are so fragile and then they are damaged in such a catastrophic way, it will be a constant uphill battle to repair for the firm.

Wells will now be known as that bank that values profits over customers, and the residual consequences will cause a domino-effect for generations – not three or five or 20 years, but cause a 100-year-old bank to constantly regain their reputation rather than focus on growing and expanding their business.

Don’t let the reality of your culture and everyday business operations be about achieving unattainable goals that drive inherently good people to behave badly and in poor taste – which could damage you, your company and its employee’s reputations, and potentially careers, forever. This is not the way to make history.


TRANSCRIPTION OF WARREN’S SPEECH
The Wells Fargo vision and values statement, which you frequently cite, “We believe in values lived not phrases memorized. If you want to find out how strong a company’s ethics are, don’t listen to what it’s people say, watch what they do. So, let’s do that:  

Since this year’s long scandal came to light, you have said repeatedly, “I am accountable.” But what have you actually done to hold yourself accountable?

  •  Have you resigned as CEO or chairman of Wells Fargo?
  • Have you returned one nickel of the millions of dollars you were paid while this scam was going on? This is about responsibility.
  • Have you fired a single senior executive and by that I don’t mean the regional manager or branch manager, I’m asking about the people that actually lead your community banking division or your compliance division?

So you haven’t resigned, you haven’t returned a single nickel of your personal earnings, you haven’t fired a single senior executive. Instead, evidently, your definition of accountable is to push the blame to your low-level employees who don’t have the money for a fancy PR firm to defend themselves.  It’s gutless leadership. While this scam was going on you personally held an average of 6.75 million shares of Wells stock.  The share price during this time period went up by about $30 which comes to out to more than $200MM in gains all for you personally and thanks in part to those cross-sell numbers that you talked about in every single one of those calls.

 If one of your tellers took a handful of $20’s out of the cash drawer, they would probably be looking at criminal charges for theft. They could end up in prison. But you squeezed your employees to the breaking point so they would cheat customers and you could drive up the value of your stock and put hundreds of millions of dollars in your own pocket. And when it all blew up, you kept your job, you kept your multi-million dollar bonuses and you went on television to blame thousands of $12 an hour employees who were just trying to meet cross-sell quotas that made you rich.

This is about accountability. You should resign. You should give back the money you took while this scam was going on and you should be criminally investigated by both the Department of Justice and the Securities Exchange Commission. This just isn’t right. A cashier who steals a handful of twenties is held accountable but Wall Street executives who almost never hold themselves accountable. Not now and not in 2008 when they crushed the world wide economy.

The only way that Wall Street will change is if executives face jail time when they preside over massive fraud. We need tough new laws to hold corporate executives personally accountable and we need tough prosecutors who have the courage to go after people at the top. Until then, it will be business as usual and at giant banks like Wells Fargo that seems to mean cheating as many customers, investors and employees as they possibly can.