Wells Fargo’s recovery from a costly scandal
The bank’s board releases an internal probe on the causes for the fake-accounts scandal and concludes that senior executives failed in their ethical management. Solution: Manage with incentives and examples that inspire employees to act rightly.
Six months after Wells Fargo bank was heavily fined for creating bank and credit-card accounts without customer permission, its board released a report Monday on the causes of the costly scandal. The main conclusion: Senior managers failed to detect the unethical practices of employees, many of whom felt pressure from certain managers to meet unrealistic sales targets. In addition, former chief executive officer John Stumpf did not critically challenge corrupt practices for more than a decade. The board itself should have been more diligent.
The key lesson from the report is that a company’s ethical standards do not trickle down to the workplace by themselves. Many firms can have a policy that promotes honesty and other values. But employees must also see managers who daily live and demonstrate those values, and who also welcome complaints when values are violated.
In a survey last year of large companies in 38 countries, the accounting firm EY found top managers often overestimate their own impact in communicating ethical standards. Almost half of all board directors and senior managers had frequently been exposed to such standards while less than a third of their more junior colleagues had. “If messages around ethical conduct are not being heard across the business, how confident can organizations be that their employees are making the right choices?” the survey asked. It concludes that relaxed attitudes toward unethical behavior are a common characteristic of today’s workforce, particularly among younger generations.
Wells Fargo’s new leaders are rapidly trying to change the culture for workers. They now hold retail bank employees accountable not for how many accounts they open but on their ability to retain customers and how often accounts are used. Whistle-blowers who report unethical practices are protected. And the lines of accountability are more clear. Managers must practice core values that prevent fraud and not just preach them.
The way for companies to inspire employees to abide by ethical principles is to make sure those principles are visible – in the correct incentives given to employees, in transparent procedures for accountability, and other internal mechanisms. Senior managers must encourage a culture of candor and ensure a commitment against fraud by their own behavior.