Wells Fargo has certainly had better years than 2016. If you’ve somehow missed the flood of news headlines, check out this summary article by The Week writer, Jeff Spross. The title alone—“The Mind-Blowing Stupidity of Wells Fargo”—should be enough to give any board member a shudder.
No director wants their organization to be the topic of a headline like that. The Wells Fargo PR disaster began with aggressive cross-selling tactics and the creation of hundreds of thousands of fraudulent bank accounts and credit lines.
These practices were implemented when lower level employees were met with impossible sales expectations and quotas.
When scandals like this occur, it’s important that leaders of the affected organization (as well as leaders of other major companies) take note of the failures and analyze ways they can be either confronted or avoided in the future. Here are some examples of learning opportunities for corporate directors who want to glean something from this downward spiraling situation.
The case for splitting the board from management
The CEO is also the board chairman at five of the six largest banks in America. The only exception is Citigroup, which currently separates the two positions. Wells Fargo’s recent troubles and the fact that John Stumpf serves as both CEO and Chairman of the Board have reignited the debate over whether or not financial institutions (and Fortune 500 companies in general) should separate the positions for the good of the organization.
Wall Street Journal writer, Aaron Bank, argues, “Given the fact that the sales problems came to light in 2013, it is remarkable that the board didn’t act sooner, either to hold senior managers accountable or to make changes to sales targets and employee incentive plans.” Although Stumpf insisted that the Wells Fargo board “acts quite independently” during his congressional hearing, Back asserts, “it is hard not to believe that the board would be even more independent, and more focused on supervising management, if it was chaired by someone else.
Don’t ignore whistleblowers
In addition to enormous mounting legal fines and sanctions from the Consumer Financial Protection Bureau, Wells Fargo is also facing lawsuits from past employees who argued that they were terminated for being whistleblowers about unethical practices. According to CNN Money, Bill Bado, a former Wells Fargo employee in Pennsylvania was one of those individuals who was fired.
The article states, “After refusing to open phony bank accounts, Bado called a Wells Fargo ethics line and sent an email to human resources in September 2013 to flag improper sales tactics. Eight days later, he was terminated for ‘tardiness.’” According to reports, Bill Bado’s firing was not an isolated event, which speaks to a much larger internal problem for Wells Fargo and provides a clear teaching moment for board members.
Don’t let whistleblowing cases go uninvestigated—especially if they’re happening in clusters.
Board membership at public companies requires more time and energy
In decades past, board membership offered true “part-time” roles for high-ranking professionals. Since 2003, however, the average amount of time a board member spends working for the organization it serves has risen from 156 hours per year to 248 hours per year in 2015. This increase in time spent on board activities continues to trend upwards as expectations for directors also rise.
Professionals who are interested in board service (or are currently serving) should understand that accountability has become a significant topic in the public eye. Wells Fargo board members have fallen under extreme scrutiny along with John Stumpf for their failure to recognize and address severe institutional problems.