- Wells Fargo provides a case study of a misalignment of sales remuneration structure, culture and conduct.
- Developing a deeper understanding of how people actually behave is necessary to identify potential issues and risks and make positive change.
- Leadership within an organisation is a key driver that shapes culture.
'All men make mistakes but only wise men learn from their mistakes' so spoke Winston Churchill. Despite the dissection and debate of corporate mistakes by the media and broader business community, we question whether current leaders give appropriate attention to reflecting on their own corporate decisions and behaviours. It is always easier to dissect other's mistakes than your own. Do leaders really understand the true picture of their organisation's culture as a basis for identifying potential areas of concern?
A brief review of 2016 would suggest that systems for analysing and acting on corporate mistakes are sadly inadequate. Although some corporates have publicly apologised and some have committed to changes, many fail to follow through. They may be unable or possibly unwilling. Perhaps they lack the independence or the expertise to disassemble the corporate machinery to reveal the true picture of how decisions are made, how boards are managed and how their front line team members really 'do things around here'. It may also simply be hubris — 'nothing like that could happen to us' or the 'few bad apples' theory.
Recent global events provided some salutary lessons about brand damage and the risk of financial penalties. Volkswagen was a case in point. The Volkswagen emissions scandal resulted in a fine in the billions, with the organisation pleading guilty to criminal charges. This piece will focus on another global organisation, Wells Fargo and the fraudulent opening of customer accounts. When we consider the events that occurred at Wells Fargo, do we even remotely think that something like this could happen to our organisation? Do we review what happened before quickly concluding that it would never happen here as our company's culture is 'different'?
What went wrong at Wells Fargo?
By way of a quick recap, Wells Fargo had a strong reputation for responsible, conservative banking. In July 2015, the Wall Street Journal named it as the world's most valuable bank. Their strategy was based on selling high numbers of retail banking products, which allowed it to avoid the worst of the subprime crisis. In 2016, it was revealed that over the course of five years, 5,300 staff at Wells Fargo had been fired as a result of approximately two million fake bank accounts and credit card accounts being created to meet the bank's cross-selling targets. Consequently, Wells Fargo was fined US 185 million dollars for the widespread illegal practice of secretly opening unauthorised accounts.
In September of 2016, then CEO John Stumpf was forced to face a US Senate inquiry, where he was grilled over Wells
Norms are evident through behaviours and attitudes rather than values on a page or policies in a manual.
Fargo's misaligned sales remuneration structure, culture and conduct. Watching footage from the Senate inquiry is not easy viewing. Senators focused on the culture of Wells Fargo and proposed that the cross-selling driven by incentives created enormous pressure and was so systemic that the fraudulent opening of accounts was ingrained in the culture. There was also a number of very blunt views given of the leadership of Wells Fargo as one that did not accept accountability for the issues.
The sales remuneration structure and the unethical behaviour that it drove stands out as one of the causes of Wells Fargo's woes. But how does an organisation go from selling products which customers need to widespread fraud? The fraud was such that customers were unaware they had additional accounts due to faking of signatures and ensuring that correspondence never reached the customers. The former CEO of Wells Fargo outlined in a press statement that senior management did not want or direct employees to do this. Yet it happened.
The stretch for those targets resulted in a shift of behaviour that over time became acceptable and part of the 'norm'. Norms are evident through behaviours and attitudes rather than values on a page or policies in a manual. It is not always easy to see the difference between what is written in a value statement, policy or a behavioural expectation and what is happening as part of business as usual. Only by developing a deeper understanding of what drives an organisation's culture and how people actually behave can we identify potential issues and risks and as a result, make positive change.
Getting a true picture of culture that impacts risk involves gathering data to assess what really goes on in organisations. The majority of that data should be of a behavioural nature. To understand the reality an independent perspective is important. We also know that culture is dynamic. It can shift over time in response to the levers that leaders pull. These levers may include recognition and reward systems or simply shortcuts that the front line develop in order to achieve performance requirements or make their day to day work easier. As behaviours become embedded in 'the way we do things around here' and drift away from the expressed values and policy frameworks, cultural blind spots develop which make it difficult for leaders to see the warning signs.
Collecting the right information as part of a regular cultural assessment that is reviewed on an ongoing basis is fundamental to recognising warning signs. For example, with regards to incentives and rewards, understanding the balance of risk, reward and behavioural measures within schemes is one factor. And although the inputs are critical, understanding how people are 'actually' assessed is central to driving the culture. What gets measured and rewarded gets done — so we need to ask ourselves what really does drive the end of year bonus irrespective of what is outlined in the scorecards? Although the information can be supported by historical reviews of performance, the best source of data is from employees through independent and anonymous reviews. This information can help to paint a picture of potentially unexpected consequences which may over time shift behaviour that is contrary to an organisation's vision and values.
Culture and whistleblower behaviour
Another potential warning sign which highlights possible cultural issues is whistleblowing or concern raising. There was considerable discussion about the alleged treatment of whistleblowers in the Wells Fargo scandal. Experience has shown in many cases, whistleblowers leave their organisations, either because they see limited career prospects or they are opportunistically laid off by the organisation. Most organisations including Wells Fargo have whistleblowing or concern raising policies, procedures, investigating capability and reporting to manage issues raised through internal channels or anonymously. This process is often diligently reinforced through regular communication and encouragement from leaders. As a result, most leaders are confident that it works but how do we know the culture actually supports employees to speak up when evidence speaks to the contrary? What they see and hear every day may cause them to feel their career will be impacted if they raise issues. Additionally, do they feel that concerns raised will be appropriately investigated irrespective of who is involved in the issue? If they fear negative impact, then despite best efforts, the process will be ineffective and as a result, unethical or poor behaviour may not be reported and the view becomes clouded.
Understanding what shapes culture, along with the ongoing measurement and action planning to improve culture, is fundamental to business growth and risk management.
The role of leadership
But over and above, leadership within an organisation is the big ticket item that shapes culture. We know that role modelling appropriate and ethical behaviour is fundamental to maintaining a healthy culture. Leaders understanding, challenging and dealing with what is really going on in the organisation is critical. Taking accountability for the inner workings of the business and not turning a blind eye or shifting blame. In the Senate hearings for Wells Fargo, it was demonstrated that the leadership had not held themselves accountable for the issues, instead pushing blame down the organisation and firing lower level sales staff. Examples of good or bad leadership at all levels is easy for others to see and follow as it demonstrates what is valued. Do employees have the opportunity to comment openly about leader's behaviours through confidential upward feedback and independent interviews? Is the data gathered in ways where employees can be open and honest about what they see? Are leaders made to bear the consequences of their behaviour? Organisations need to deal with poor leadership quickly to demonstrate that values, behaviours and policies actually matter.
Taking a clear-eyed view into 2017
Organisations face complex challenges in a rapidly changing landscape and as we move into an uncertain 2017, these challenges will only increase. Values, frameworks, policies and tools are essential but are they designed and implemented with culture front of mind? Understanding what shapes culture, along with the ongoing measurement and action planning to improve culture, is fundamental to business growth and risk management. A positive and open culture provides the foundational line of defence against events that have major cost, compliance and reputational implications. When thinking about, and challenging your organisation's culture, it is worth asking the question — do you really have the true picture or are history, intuition and perception used as your measurement tools?
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