“Our entire culture is centered on doing what is right for our customers,” John Stumpf, the CEO of Wells Fargo wrote to his employees after the bank agreed to pay $185 million in fines for opening 1,534,280 illegal deposit accounts and 565,443 fraudulent credit card applications since January 2011 which generated about $2.5 million in fee income. Every single one of these accounts was opened without the knowledge or permission of the Wells Fargo customers!
You can’t make stuff like this up! One of my readers wants me to talk a little bit more about my qualifications to write about the subjects I choose. In this instance, I have about 40 years experience in the financial services industry and I was the CEO of PenFed for 14 years.
I must tell you that with a staff that spanned the globe there was no way in the world that I could know what an employee in Japan might be doing at any given moment in time. That is a fact.
On the other hand I never had to fire 5300 employees for, in essence, stealing $2.5 million from our members. I’m going to refer to those employees as members of the Stumpf gang, because Mr. Stumpf spoke yesterday at a conference and said, “the bank does not have a bad culture, but that it has been working to weed out bad behavior.”
You have got to be kidding! When 5300 employees over five years illegally open two million accounts, move money and charges fees all without the knowledge or consent of the customer, most CEOs are going to not only recognize that they have a serious problem; they are going to know that their strategy, focus and execution, the very essence of what a CEO is charged with doing, is flawed.
Not Mr. Stumpf who at first, “wouldn’t comment on who was ultimately responsible” for the practices that led to 2 million fraudulent accounts being opened. Then, he and his staff blamed the employees. Furthermore he is on record as saying that the senior executive who oversaw the unit where all this illegal activity took place, “was a standard bearer of our culture and a champion for our customers.”
Then Mr. Stumpf who went on Mad Money and told Jim Cramer the numbers are wrong. There’s just one problem with that. The Consumer Financial Protection Bureau is the source of those numbers and they come from an independent third party analysis done by the bank itself.
So, even if Mr. Stumpf isn’t clear on what took place and why I think it is important that we are. When you open an account with a financial institution you have a valid expectation that they will handle your account with the utmost of fiduciary responsibility. That means they will look out for your interests and not do bad things to you or with your money.
Let’s also be clear that as the CEO Mr. Stumpf is ultimately responsible for the fiduciary responsibilities of the bank. Second, he is responsible and accountable for the corporate strategy as well as insuring that the corporate culture is sound and understood by all employees. Third, he is responsible and accountable for the focus and execution of his direct reports who in this case manage retail banking, human resources and the audit staff.
This has been going on for at least five years! If Mr. Stumpf is to be believed the bank fired one thousand employees every year for five years for the exact same problem. That can only mean one thing; the hiring practices, management and internal controls at Wells Fargo were flawed for that entire period.
Now what do you think would happen if a bank robber came in and stole $2.5 million from Wells Fargo? Do you think the bank would wait five years to call the FBI? Likewise do you think they would wait five years to shore up their security procedures? Of course not.
The difference here is that the bank was making money … lots of money and that was the strategy, focus and execution of the team. It was also the corporate culture as well. Any errors were simply a cost of doing business.
The retiring senior executive in charge of retail banking was lauded for her results in being the standard bearer of their culture. She is retiring with a $125 million payout. That exemplifies what the real corporate culture at Wells Fargo is actually all about.
The fine of $185 million is simply a drop in the bucket relative to Wells Fargo’s net earnings. In the real Wells Fargo culture it too is just a cost of doing business.
But, the question for us is what becomes of the CEO? Mr. Stumpf, of course, wants to stay as the head of his gang. He told Jim Cramer that on his show. That’s not unexpected. He too is making a lot of money.
But in all honesty, do we want him running this business? He may be a very nice person. I don’t know him. What I do know is that great CEOs understand strategy, focus, execution and corporate culture. Poor ones do not. Despite Mr. Stumpf’s protestations the corporate culture at Wells Fargo is flawed as is his own leadership and oversite of strategy, focus and execution.
Mr. Stumpf has failed badly. While Wells Fargo can be a great company again it is not likely to be so under its current leadership. Just like the bank robber, the Stumpf gang of customer robbers needs to go!