Article originally published in the American City Business Journals on September 23, 2016
Sen. Elizabeth Warren skewered Wells Fargo CEO John Stumpf when he appeared in front of the Senate Banking Committee earlier this week. Stumpf deserved the skewering.
Warren accused Stumpf for not holding himself accountable for the unethical sales culture at the bank’s retail branches, which put intense pressure on bank employees to cross-sell products and open as many as 2 million accounts customers did not ask for or need. These actions generated fees for the bank, which boosted earnings and its stock price.
Warren reminded Stumpf that he has often said, “I am accountable.” Warren asked how?
“You haven’t resigned, you haven’t returned a single nickel of your personal earnings, you haven’t fired a single senior executive,” the senator from Massachusetts said at the hearing. “Instead, evidently your definition of ‘accountable’ is to push the blame to lower level employees who don’t have the money for a fancy PR to defend themselves.”
Wells Fargo fired 5,300 of these employees over five years, but did not fire the senior leader of Consumer Banking, Vice President Carrie Tolstedt, the individual responsible for setting the tone at the top and organizational culture within her operating unit. She resigned in July, but is still with the bank until year-end.
During the Senate Banking Committee hearing, Warren referenced portions of the Wells Fargo vision and values statement. An excerpt states, “We believe in values lived, not phrases memorized. If we had to choose, we’d rather have a team member who lives by our values than one who just memorizes them.”
I guess that this values statement doesn’t apply to employees working at bank branches selling retail customers products they don’t need.
Quoting a statement by Stumpf from the Wells Fargo website, “Integrity is not a commodity. It’s the most rare and precious of personal attributes. It is the core of a person’s — and a company’s — reputation.”
Stumpf has not lived up to this statement. Does he have any credibility left with Wells Fargo employees? With customers? With legislators or bank regulators?
Stumpf has often stated that unethical actions were committed by only 1 percent of his employees, as if that was no big deal. It continued for more than five years. Why was no action immediately taken during this time to reimburse customers for the fraudulent fees they were charged?
On Sept. 16, a class action was filed against Wells Fargo on behalf of the customers who were defrauded by the bank. More suits will follow, as will investigations by regulatory authorities.
Where was the Wells Fargo board during the past five years as the fraudulent practices continued? Why was Stumpf not held accountable for tone at the top and corporate culture?
What actions did the board audit committee take when it heard from the bank’s internal auditor about these unethical practices, year after year?
Stumpf serves as both chairman and CEO of Wells Fargo. There are now calls for a stockholder resolution at the next annual meeting to split the roles. A strong independent lead director can ensure that employees of the bank, including the CEO, are held accountable for unethical and fraudulent actions.
Stephen Sanger, has served as the independent lead director on the Wells Fargo since Jan. 2012. He is the retired CEO of General Mills and is an experienced director, having served on numerous boards. It would be interesting to hear from him on how the board held Stumpf accountable for the unethical practices of the Consumer Banking Division over the past five years.
On Sept. 22, Stumpf resigned as the San Francisco appointee to the Federal Reserve’s Federal Advisory Council.
Now Stumpf needs to also resign as CEO of Wells Fargo and leave the board.
Will the Wells Fargo board ask for his resignation?
Stumpf’s inability to stop these unethical and fraudulent business practices and hold the senior leadership of Consumer Banking accountable undermines his ability to lead Wells Fargo. He will not be an effective CEO of the bank moving forward.
Stan Silverman is the former president and CEO of PQ Corp. He also is founder and CEO of Silverman Leadership and is vice chairman of the board of trustees of Drexel University. Silverman earned a Bachelor of Science degree in chemical engineering and an MBA degree from Drexel University. He is also an alumnus of the Advanced Management Program at the Harvard Business School.