Faking and Clawing to Reach Sales Goals – A Who Done It?

Wells Fargo’s website says “integrity and principled performance depends on Wells Fargo doing the right thing, in the right way, and complying with the laws, rules and regulations that govern [its] business.” Wells Fargo

 

In its 2016 proxy statements Wells Fargo informed the markets that it had updated its Code of Ethics and Business Conduct to reflect its commitment to hold all employees, executives and directors to these standards.

 

Additionally, to foster integrity in its executive corps and in a nod to SEC clawback provisions, Wells Fargo explained in these same statements that it has “strong recoupment and clawback policies” designed to discourage executives from taking imprudent or excessive risks. These policies apparently kick in when an executive engaged in misconduct that “has or might reasonably” cause reputational or other harm to the company or when an executive failed to manage a material risk.

 

Wells Fargo CEO and its executive who led the Community Banking group were not subject to clawback of their compensation but instead were financially rewarded.

 

Meanwhile, between 2011 and 2015, Wells Fargo had fired 5,300 employees for opening two million fake customer accounts. According to media reports, Wells Fargo employees opened the fake accounts to meet what California prosecutors termed “unrealistic sales quotas” to “cross-sell” Wells Fargo products to its customers.

 

As a result, Wells Fargo, without admitting liability, must pay a $185 million penalty to the Consumer Finance Protection Bureau. It is also facing lawsuits in California and both the U.S. Department of Justice and Congress are investigating its business.

 

In the course of the congressional inquiry, Wells Fargo CEO told Congress that it has a culture of integrity and that Wells Fargo neither directed nor wanted its employees to provide products and services to customers they did not want or need.

 

So then who did it? Who is responsible for the million plus fake accounts, the reputational damage, the loss of value, the declining stock, and costs to investigate and litigate the fake accounts?

 

To my mind, the evidence shows Wells Fargo’s leaders did it because they did not message their expectation of legal compliance and ethical decisions but instead messaged the mandate to meet sales goals.

 

Exhibit A is the fact that 5,300 fired Wells Fargo employees decided they should meet the bank’s aggressive “cross-selling” goals by hook or by crook values be damned. Employees report that the pressure to scrap and claw their way to the sales quotas was so intense that some employees called the Wells Fargo ethics complaint line to raise the issue of the pressure and illicit actions. But at least one of those employees was fired. So intense that employees pressured friends, families, and even the homeless to open multiple accounts. Other Wells Fargo employees report they had hourly conferences with their bosses to see whether the employees were on track to meet the cross-selling goals. Employees who failed to meet the goals, either had to stay late or work weekends. LA Times;   CNN

 

Even if these employees wrongly interpreted that Wells Fargo was implicitly messaging that metrics trump values, at the very least employees seemed to know that Wells Fargo’s internal controls would not catch the fraudulent accounts.

 

Exhibit B is the fact that Wells Fargo communication folks have told us that, considering the size of its workforce, the 5,300 terminated employees is only about 2% of its workforce. Which sort of messages that as far as Wells Fargo is concerned, terminating 5,300 employees is really no big deal.

 

Exhibit C is the fact that prior to news of Wells Fargo $185 million settlement with CFPB being announced, Wells Fargo never considered this matter and the related litigation to be “material” enough to disclose it in their financial statements.

 

Exhibit D is the laudatory remarks about and the retirement of the Wells Fargo executive responsible for the division that instituted and executed the practices. While employees were creating fraudulent accounts to make their numbers, Wells Fargo determined it appropriate to increase the executive responsible for establishing the cross-selling sales goals compensation because she enabled “continued growth in primary checking customers and continued success in increasing online and mobile banking customers.”

 

Wells Fargo leaders are not the first to create stretch goals for its employees.

 

Many business leaders, military leaders, academics and coaches have driven their teams to stretch to reach goals. Even as individuals we often set stretch goals for ourselves. For example, had I not reached, I would never have run a marathon. And, thanks to one of my particularly aggressive spin instructors I stretch to the point of exhaustion every time I take his class.

 

You have to stretch to grow as a person and as an organization but you have to do it within the confines of the law and with integrity. And, plenty of organizations and individuals do it without cheating.

 

Ambitious, aggressive goal-setting business leaders need to be aware of the message the goals they set are sending. That is, are the sales goals so ridiculous to implicitly encourage illegal or unethical practices to reach the goals by suggesting employees use whatever means necessary to reach the goal? Thus, theoretically allowing a leader to plausibly deny a failure to manage risk, comply with the law, or act with integrity.

 

Or, are leaders messaging that employee should reach beyond what teams think possible, yet meet the challenge in a manner that is consistent with legal and ethical considerations?

 

If goals are “unreasonable” because they are pretty much unattainable given the market, leaders need to reassess those goals lest their message to meet these goals be construed as authorizing unethical or possibly illegally practices.

 

Likewise, leaders need to preach legal and ethical choices and they need to make legal and ethical choices themselves.

 

But preaching legal and ethical behavior is not enough, organizations need to have internal controls that will catch illegal or unethical behavior and then the behavior must be punished. This of course, includes actually investigating ethics line calls and not retaliating against complaining employees.

 

Wells Fargo leaders, in my opinion, failed either because their message implicitly directed its employees to engage in this apparent fraud or its controls were inadequate to detect such illicit actions. This leadership failure has stained not only Wells Fargo but our system of capitalism.

 

This whole mess has cost 5,300 employees’ their jobs. It has cost Wells Fargo its reputation; a lot of money; and most likely a lot current and future customers.

 

To remediate this situation, Wells Fargo CEO plans to eliminate product sales goals so its customers know it is focused on their best interest. He explained: “We believe this decision is both good for our customers and good for our business. The key to our success is the lifelong relationships that result from providing each customer with great value.”

 

But was not this the case before Wells Fargo went down the path of establishing its cross-selling goals? Did not Wells Fargo leaders think it owed its customers’ value and a trustworthy relationship before it started cross-selling like maniacs? Had Wells Fargo leaders asked these questions when setting the cross-selling goals and thought for a moment about the long game – perhaps it would not now be in this pickle.

 

Competitors and capitalists love a challenge and love to overcome the challenge but it’s a hollow victory if it is achieved illegally or unethically.

 

To be a responsible steward of a corporation, leaders must communicate challenges to their employees so they can stretch but within the confines of the law. A systemic belief that law and ethics can collapse at the cost of meeting sales goals distorts capitalism and can destroy an organization’s value. (Side note: It is what empowers the government to pass additional laws and regulations that businesses complain about so vehemently.)

 

Any leader that has caused this systemic belief to take root has failed in their duty to lead their company at its most basic level – to sell its goods and services within the confines of the law and with integrity. They need to go, should not receive financial remuneration on the way out, and if they were compensated – it should be clawed back.

 

Henry Ford said “a business that makes nothing but money is a poor business.” I can add – and that includes banks.