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Les McKeown's Predictable Success Blog

  • May 3, 2017
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Wells Fargo and the $75m Carpet-Cleaning Bill: Three Lessons for the Rest of Us 

By Les McKeown, CEO of Predictable Success
3 Lessons from Wells FargoWells Fargo just announced that it’s clawing back a total of $75m from the two execs involved in the recent ‘phony accounts’ scandal (John Stumpf, ex-CEO, and former retail bank leader Carrie Tolstedt).
To recap briefly: In 2016 once-storied banking group Wells Fargo was fined $185m for allegedly opening more than 2 million ‘zombie’ accounts in clients’ names (without their permission), ostensibly to meet aggressive internal sales targets. The company fired 5,300 people, ended the related sales goal compensation program and has since then been mired in congressional hearings, regulatory investigations and class-action lawsuits. Ms. Tolstedt ‘retired’ in September of 2016, and Stumpf finally stepped down in October after weeks of fighting to remain in his post.
How does a company with a story like Wells Fargo’s (in business for 165 years and one of the most iconic brands in all of American history) get itself into a situation like this? Sadly, all too easily. Just mix these three ingredients, light the blue touch paper and stand back:
Step 1. Banish bad news.
Wells Fargo’s own internal report into the scandal said of Ms. Tolstedt (she of the aggressive sales goals that led to the alleged fraud on the customers) that she was “insular and defensive,” and didn’t like “to be challenged or hear negative information.”
This is something I see over and over again: a senior executive builds a culture of ‘bring me no bad news’, and then, because their direct reports do as they’re told, the executive magically assumes that because they aren’t hearing any bad news, that means there isn’t any.
In reality, there is exactly the same amount of bad news as before – it’s just that now, people are doing as they’re told and not telling anyone. So what happens? All that bad news gets brushed under the carpet, over and over and over again, until eventually the carpet is no longer big enough to cover up all the crud and it starts to seep out ’round the edges.
Step 2. Disguise the fact that you’ve banished bad news.
It’s one thing for the person at the top of the company to play fast and loose with reality like this – but the truth is, CEOs of massive, multinational, publicly-held organizations are typically under too much of a spotlight to get away with it for long. In most cases, the disinfectant of public scrutiny does its job and the CEO is left blinking uncomfortably at a bank of klieg lights (take a look at recent reporting on the CEO of Uber, Travis Kalanick for a worked example).
What’s much more insidious – and difficult to spot – is when the CEO is the one providing ground cover for others to invoke the ‘no-bad-news’ magical realism mantra. The Wells Fargo internal report said of Mr. Stumpf (the CEO), “Stumpf…was too late and too slow to call for inspection of or critical challenge to the basic business model.” Indeed, in 2015, when key board members asked Mr. Stumpf to remove Ms. Tolstedt, he refused, calling her “the best banker in America.”
Remember Enron? One of the reasons it took so long for outside organizations to realize what CFO Andrew Fastow was up to was because of the cover provided him by CEO Jeffrey Skilling – who was in turn given leeway and cover by founder and Chairman Ken Lay.
Step 3. Don’t allow effective oversight.
Wells Fargo’s board should have been the first to see what was going on under their watch. As far back as 2002, the board’s own Audit and Examination Committee was receiving quarterly reports of suspicious sales activity and employee misconduct, yet it did nothing. In fact, almost unbelievably, the board said in its own report that it didn’t know that 5,300 employees had been fired over the alleged fraudulent sales practices until federal regulators announced the $185m fine in September 2016.
Sadly, while this might all seem like “big-company problems”, the reality is I see similar self-harming in small- and medium-sized organizations all the time: businesses brought low (often entirely destroyed) by a ‘bring me no bad news’ culture. It’s just that those stories don’t make national headlines. Here are three tips to ensure it never happens to you:
1. Treat data as data.
Information isn’t ‘good’ or ‘bad’ – it just is what it is. Don’t label it – just get it and use it appropriately.
2. Reverse the mantra.
In our business, we have a strict rule: Bring me bad news early, and good news late. In other words, if you see something that might be negative, tell me right away so we can effectively deal with it. Similarly, if you believe you see a bit of good news ahead (like a big sale), be absolutely sure of your facts before sharing.
3. Get some oversight.
As CEO – even if it’s of a small business – you have a lot of judgment calls to make. Sometimes those are easy, sometimes they’re hard, and most often they’re somewhere in between. Do yourself a favor – if you haven’t already done so, get a small group around you (two or three people is fine) of individuals you trust. Meet with them monthly, share your business challenges openly and honestly, and encourage them to be just as honest in return.

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