Culture Risk is Real: Where Wells Fargo went wrong and how you can avoid it

By David Hasenbalg and Rhiannon Bell

In September, regulators fined Wells Fargo $185 million for illegally opening two million “unneeded and unwanted” bank and credit card accounts under customers’ names without their consent. CEO John Stumpf, who has since been forced to step down, claimed this was not a culture problem, blaming instead the 5,300 employees who created (and have been fired for) the accounts.

But Wells Fargo is facing a culture issue, and it cannot be solved by dismissing the guilty few, demanding resignation of senior leaders, or paying fines and settlements. No matter the organization, culture shapes the behavior of employees. Leaders can either shape their culture intentionally or let culture shape their organization, leaving themselves open to risk.

Where Wells Fargo’s culture went rogue

Stated values should act as beacons in a company’s culture, guiding daily decision-making, helping employees navigate trade-offs, and aligning everyone on a single trajectory. While these values and the envisioned culture of a company are declared at the executive level, the behaviors that embody (or go against) them play out mostly at the employee level.

Wells Fargo executives state that the company’s values are “people as a competitive advantage, ethics, what’s right for customers, diversity and inclusion, and leadership,” but it is clear these values were not translated into behaviors at the employee and manager levels. In the recent Senate Banking Committee hearings, Stumpf said, “The 1% that did it wrong, who we fired, terminated, in no way reflects our culture nor reflects the great work the other vast majority of the people do.” This statement highlights the disconnect between the values established by executives and actual culture at the employee level.

The gap between executive vision and employee behavior must be bridged at the middle management level. As William Dudley, of New York’s Federal Reserve Bank, has said, “Context drives conduct.” Middle managers are architects of this context, within which employees make daily decisions and translate executive-level values into behaviors.

Studies have repeatedly validated that workplace environment has the largest influence on employee behavior—more so than individual personality or values. [i] In fact, managers account for at least 70 percent of the variance in employee engagement scores across business units, according to a Gallup estimate. Middle managers create the systems, processes, practices, and language that either reinforce the stated values and envisioned culture, or relay different, informal values to employees.

The one percent of Wells Fargo employees involved in the scandal were motivated to engage in risky behavior by the systems, processes, and informal values set in place by middle—and even executive—managers. A 2013 L.A. Times interview with a former branch manager at Wells Fargo identified many informal values at play that forced the illegal activity.[ii] The L.A. Times reported, “Regional bosses required hourly conferences on her Florida branch’s progress toward daily quotas for opening accounts and selling customers extras such as overdraft protection. Employees who lagged behind had to stay late and work weekends to meet goals, and anyone falling short after two months would be fired.

While it was middle managers who instilled these tactics to push employees and inflate sales numbers, the pressure to exceed daily quotas ultimately came from executives, who “exhort employees to shoot for the “Great 8”—an average of eight financial products per household.” Language from executives was translated into systems, processes, and practices at the middle management level, which translated into detrimental behaviors at the employee level, leaving Wells Fargo where it is today. Though Wells Fargo executives touted ethics and what’s right for the customer as their company’s values, their language created a very different reality: Wells Fargo values sales and profits over customers and employees.

The importance of culture management

Wells Fargo has removed sales incentives, but this alone will not solve the culture problem.[iii] Bank leadership must invest in culture management just as it would manage any other risk. Culture measurement and management is key to mitigating the risks that negative behaviors can cause within an organization. Culture management provides visibility and early warning for behaviors that are sitting dormant and might cause high risk at any moment. At Wells Fargo, leaders could have identified and altered language from leadership that was inspiring risky behaviors at the manager and employee levels.

Culture management also provides proactive intervention against potential disasters by addressing the most urgent risky behaviors. For instance, Wells Fargo leadership could have intervened to remedy the informal values communicated through systems and processes at the middle management level. A strong, long-term culture management system also provides a set of tools and systematic deterrents to prevent risk and shape culture in the future.

Wells Fargo is not alone

Wells Fargo is not the only bank that has a high-risk culture. CNN recently reported that dozens of employees from other large banks such as Bank of America, Citizens Bank, PNC, and SunTrust have similar sales tactics: “Customers have filed over 31,000 complaints under the category of opening, closing, and management of bank and credit cards, according to stats from the Consumer Financial Protection Bureau.”[iv] Rogue events such as these can destroy market value as well as much longer lasting consumer trust.

For this reason, financial regulators such as FINRA, the Federal Reserve, the IMF, and the SEC have spoken to the importance of culture measurement and management at financial services companies. Richard Ketchum, former CEO of FINRA, told industry leaders, “I can say unequivocally that firm culture has a profound influence on how a securities firm conducts its business.”[v] And Christine Legarde, managing director of the IMF, has argued that financial leaders should take “values as seriously as valuation, culture as seriously as capital.”[vi]

The financial sector may face higher risk from culture because the industry is predicated on consumer trust. The loss of trust in one financial services organization decays consumer trust in the whole industry.[vii] For this reason, every organization must proactively manage culture as they would any other risk.

[i] Jacoba Urist, “What the Marshmallow Test Really Teaches About Self-Control,” The Atlantic, September 24, 2014.

[ii] “Wells Fargo’s pressure-cooker sales culture comes at a cost,” L.A. Times, December 21, 2013.

[iii] Bill Chappell, “Watch Wells Fargo CEO John Stumpf Face House Panel Over Fake Accounts,” NPR.

[iv] “Wells Fargo isn’t the only one’: Other bank workers describe intense sales tactics,” CNN Money, September 25, 2016.

“Wells Fargo and the True Cost of Culture Gone Wrong,” Forbes, September 15, 2016.

Sheelah Kolhatkar, “Wells Fargo and a New Age of Banking Scandals,” The New Yorker, October 4, 2016.

Megan Leonhardt, “Wells Fargo: Steer Clear of Toxic Company Culture,” Time Money, September 29, 2016.

Margaret Heffernan, “What Execs Can Learn from Wells Fargo’s Downfall,” Observer, October 3, 2016.

[v] Richard G. Ketchum, “Remarks from the 2016 FINRA Annual Conference,”, May 23, 2016.

[vi] Christine Lagarde, “Economic Inclusion and Financial Integrity—an Address to the Conference on Inclusive Capitalism,”, May 27, 2014.

[vii] Jeffrey Kupfer and Stephen Scott, “Wells Fargo shows standards don’t matter if company culture is broken,” The Hill, September 25, 2016.

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