Lobue News: Feb 09, 2017

Insight or Oversight: Wells Chooses Insight

Since the Wells Fargo incentive pay scandal broke, there has been significant fallout.  The resignation of its CEO, John Stumpf, followed by financial settlements, probes, investigations, and a significant drop in revenue, earnings and market cap.  Wells Fargo and its senior executives, past and present, have been cannon fodder for politicians, reporters, former employees and others.  Many are calling for more accountability and oversight.   Leading up to its fifth quarterly drop in profits, Current  CEO Timothy Sloan stated that the bank expects to spend tens of millions of dollars on investigations and other regulatory matters in the wake of its phony accounts scandal.  Most recently, the Board has discussed eliminating bonuses for the same top executives tasked with righting the ship, albeit for overall company performance, not specifically for the scandal itself.

Politicians have publically railed against Wells Fargo, blaming its management and the sales incentive program.  A call for more oversight, a common response for politicians, has largely been the proposed resolution.  In reality, there is no lack of oversight surrounding this issue. The very fact that blame has been thrown in so many directions should be a sign that there is plenty of oversight.   The OCC, the CFPB, FINRA, internal and external auditors, bank management, and others have all placed blame and have been blamed in some way for not uncovering and rectifying the problem sooner.  This fact did not stop the City of Los Angeles or the State of New York from joining the call for more oversight as the cities will now require all large banks to certify that the bank’s practices are not predatory if that bank is to participate in any bid to supply services.  More may have joined in and more may still, and in the end, more oversight is not the solution.  The real problem is not that an oversight agency didn’t see it coming, it is that Wells management didn’t see it coming.  For their lack of insight, they are paying dearly and have a long way to go to fully recover.

Realistically, no large bank will introduce an incentive and/or sales program meant to defraud customers.  Wells surely did not.  Increasing the number of products held by customers was a goal originally meant to improve customer experience and profitability and Wells was often lauded for their impressive results in this regard.  Surely, millions of businesses use sales incentives to motivate employees.  Sales incentives are usually a clear-cut way to align individual goals to the company goals and there is nothing wrong with having such a plan, unless there are no countermeasures to guard against unintended negative consequences. 

To be clear, Wells’ management is to blame for their actions and the outcome.  Before resigning, John Stumpf himself nearly said so.   "I feel accountable and our leadership team feels accountable — and we want all our stakeholders to know that," he said.  And he should “feel” accountable. After all, he is, or was.  Additionally, a significant claw-back of $19 million to Carrie Tolstedt, who was in charge of the retail banking unit, and $41 million forfeited by Stumpf was a significant demonstration of accountability.  The financial penalty of key executives was entirely appropriate given that they should have had the proper insight into their business and failure to do so caused the company a significant setback. The latest cut of bonuses is another demonstration of this.

The response by Wells is to change their incentive plan and link it to customer experience. As announced by Mary Mack, Head of Community Banking for Wells, “Do they use the products they have with us? Do they think of us as their primary bank? Are we growing customers who consider us their primary bank? These are the metrics we are now measuring,” In other words, the management team has established a strategy that requires insight; looking towards results more fitting to their aspirational, customer oriented goals. We won’t know soon whether their bottom line results will rebound as a result, however Wells will overcome this controversy.  They are an institution that has survived many things over their storied 164 year history, and they will learn from this episode and get it right.  Focusing on the customer and being insightful will cause them to get it right.  Perhaps in the end, having a more balanced view of what defines their success will cause others in the industry to again look to Wells as an example of how to engage customers, offer customers more, and improve their bottom line.

Carl LoBue, Jr.

President, LoBue Americas

The LoBue Group works with organizations to develop balanced and insightful performance management solutions to improve customer service, quality, and sales.  The PxCube automated performance management solution delivers key performance metrics to all staff as a transparent method to monitor progress in meeting individual and shared goals.   "Real Experience, Real Results" is the LoBue promise and guarantee to achieve results.  LoBue has had successful engagements in over 45 countries and is one of the leading providers of management consulting services to corporations, governments, and financial institutions worldwide.