Guest Commentary: Is Wells Fargo Remorseful?
Actions speak louder than hollow words.
At its most basic level, the Wells Fargo scandal is about broken trust between the bank and its customers, employees and investors. As most know, Wells Fargo is in trouble with regulators and lawmakers for opening more than 2 million phony bank and credit card accounts over the past five years without customers’ knowledge or consent. This scam resulted in then-CEO John Stumpf testifying on Capitol Hill, where he essentially feigned ignorance and drew the ire of lawmakers who accused Wells Fargo of “gutless leadership.” With pressure intensifying, Stumpf “retired” in October and 29-year insider Tim Sloan, the bank’s president and COO, was named CEO. Many are questioning this decision, as it does not signal the bank is sufficiently distancing itself from the cultural breakdown that caused the phony accounts to occur.
Since the scandal became public, Wells Fargo has reached out to its customers and the public via multiple media with an ad campaign, in essence. But those messages are benign because they don’t offer an apology for their actions, nor are they signed by the new CEO or a board member. This conflicts with the company’s values statement, which says, “when we make mistakes, we admit them, we learn from them, and we keep moving forward with … a commitment to doing what’s right.” But are their leaders truly remorseful and dedicated to doing what’s right by changing to a new culture?
It doesn’t seem that the bank’s customers think so. In my conversations with other bankers, Wells Fargo customers are coming to them “in droves.” Wells Fargo’s quarterly earnings statement ending September 30 revealed that openings of consumer checking accounts tumbled 30 percent from August to September and were down 25 percent year-over-year.
The bank’s employees don’t seem to think so either. The vast majority of Wells Fargo employees are ethical, hard-working people caught up unfairly in the scandal, and in conversations with several of these employees, they expressed embarrassment over the scandal and worry about their futures. Some former employees have filed a $7.2 billion lawsuit in federal court in Los Angeles, alleging that they were fired or demoted over the past 10 years for refusing to open bogus accounts to meet aggressive sales goals.
Investors also don’t seem to think the bank’s actions are enough. Wells Fargo’s reason for not disclosing the phony accounts as a material event to its auditors is because they accounted for only $2.6 million, a drop in the bucket of the $86.1 billion in revenue the bank recorded in 2015. However, from early September to mid-October, the value of Wells Fargo stock declined by $28 billion. At least one class-action lawsuit against Wells Fargo on behalf of investors has been filed, alleging that the bank kept investors in the dark about its sales practices and that the investors were harmed as the bank’s stock plummeted. And lawmakers are indicating that they don’t think Wells Fargo is sorry, either. They are speaking out against the bank’s insistence on enforcing arbitration clauses in the fine print of the bogus accounts, meaning that customers must agree to use company-appointed arbitrators rather than getting their day in court. Sen. Al Franken, D-Minn., said, the bank was taking the position that the arbitration agreement on the bogus accounts is binding, adding, “That’s absurd.” In addition, the California attorney general is investigating allegations that the bank engaged in criminal identity theft when it created accounts without customer consent.
So what do you think? Does the evidence suggest that Wells Fargo is truly remorseful? For my nickel’s worth, accountability and remorse continue to be lacking, which will likely cost millions, perhaps billions, of dollars to resolve and could have huge implications for many years to come. I fear that this situation will become the poster child for the “break up the big banks” activists. In October, the Office of the Comptroller of the Currency sent letters to large and regional banks seeking information about their sales and incentive programs. This is one example of how this incident is creating a political environment that will affect the entire industry.
If Wells Fargo wants to turn the tide, its leaders need to exhibit sincere remorse through actions instead of hollow public statements. Rather than following the protective advice of their legal and public relations spin advisors (as it seems they are doing), they should do “what’s right” and act consistently with their values statement by admitting their mistakes and apologizing. A good start would be to simply sign their names on their newspaper ads and their emails to customers. The next step should be to take affirmative actions to prove the bank’s tarnished culture will be changed. A few bold steps, such as immediately convening a team of senior managers to examine the bank’s entire business system and recommend to the board necessary changes, would show accountability and remorse. Courageous actions such as these would go a long way toward retaining customers, rebounding revenues, and appeasing investors and lawmakers, and would prove that Sloan is able to sufficiently distance himself from the past culture that allowed the scam.
The bank is now associated with deception, and its continued ploy to ignore accountability and not apologize just won’t work in today’s age of consumer activism. It’s time for Wells Fargo to prove its leaders are truly sorry and committed to change.
Mark W. Sheffert (email@example.com) is founder, chairman and CEO of Manchester Companies Inc., a Minneapolis-based board and management advisory firm.