Wells Fargo disaster
Management stuff, it can seem nice in principle but in a busy world, do you really need to do it, after all, subordinates have to do what you tell them right? Wells Fargo, one of the largest banks in America has found out the hard way the downside to this approach. The results of poor management have been devastating: employees have lost their jobs, the stock price has plummeted, the CEO retired early and in shame, regulators have fined the bank $185m for misconduct and the company is being sued by ex-employees for $2,5bn. Some customers meanwhile are now refusing to do business with the bank. And it all could have been so easily avoided.
We all know that targets are supposed to be ambitious, and we all (lets be honest) mostly hate sales targets, but senior management of Wells Fargo set what appear to have been wildly unrealistic (and unachievable) targets for opening new banking accounts. According to court papers in a lawsuit filed against the company by ex-employees, 5,000 employees signed a petition in protest, asking the bank to change its quotas; the petition was ignored by management. And of course, employees were evaluated on their ability to meet these unilateral targets.
The sales targets were seen as so ridiculous by most staff that the only way to achieve them was to fabricate results, and this is what employees did. CNN report that Wells Fargo employees opened 1.5 million unauthorised deposit accounts as well as half a million never asked for credit cards. So in the first instance we have senior management not listening to what staff are telling them (that the targets are impossible to achieve), and at the same time, transmitting a code of ethics to the staff that fails to value or respect the customer, but sees them only as a means to an end, that end being of course the enrichment of Wells Fargo itself (read also the enrichment of the most senior management via their share options). Accordingly, through the transmission of their values, senior management created an environment where employees felt that defrauding customers was acceptable. And it gets worse.
Of course, what follows is that the employees who committed the frauds 'met their sales targets' and so got promoted and given pay rises, while those who refused to defraud customers and so missed their sales targets got sidelined and sometimes even sacked for poor performance. Others resigned and took jobs with rival banks because Wells ceased to be an organisation with whom they wished to be associated with. The outcome of this was twofold. First, when the scandal broke and Wells Fargo was forced to respond, they were ultimately required to confront people who participated in the fraud which meant that Wells ended up sacking 5,300 employees. Second, honest employees that had lost out because they failed to meet their targets have launched a $2.5 billion class action lawsuit against the bank for their subsequent treatment. The result is that the bank now has a personnel crisis, stripped largely of the employees whose moral compass drives honest behaviours.
And then of course the ripples spread. The Consumer Financial Protection Bureau fined Wells Fargo $185 million and stated that furthermore, they would be required to pay 'full restitutions to all victims'. The CEO John Stumpf has been forced to step down and as reported by nydailynews.com, 'Stumpf faced two withering Senate hearings in September; at both, lawmakers told the CEO he should face criminal proceedings'. Further action against Board members is expected. Stumpf ends his career in shame (though still rich).
Nor does it end there. Customers are understandably furious and some have boycotted the bank altogether. Wells Fargo's reputation as a bank that cares about its customers is shot and staff morale is rock bottom, which among other things will make it even more difficult to hire good people to replace the thousands of dishonest ones they had to sack.
All of this has been recognised by the stock market which has seen Wells Fargo's stock price fall from $55 one year ago to $46 today (-16%). In the same time frame, the Dow Jones index is up 1.5%, so that the scandal has arguably cost stock holders $45 billion.
It's an extreme example, but highlights that management by diktat and the absence of core values can have the most profound negative consequences. Senior management transmit the values of the organisation (their values) to those below, and if those values simply reference greed, it leaves the door open to detrimental behaviours which in this case included widespread customer fraud. Still think you don't have time for good management?
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