Wells Fargo Has Shown Us Its Contemptible Values
(Bloomberg Opinion) -- My favorite bit in Thursday's Wall Street Journal story about Wells Fargo & Co.'s latest regulatory screw-up was this statement from the bank's public relations department:
Over the past several months we've built more robust internal processes that reinforce our values, and if we find any situations where behavior violates those values, we take swift action to correct.
To which the only proper response is: What values?
After sidestepping both the 2008 financial crisis and the subsequent Libor scandal — creating the impression that Wells Fargo actually did have values — the bank has spent the last few years cleaning up one awful mess after another. The biggest came first: Low-level bank officials had felt so pressured to meet impossible sales targets that they created fake accounts that customers didn’t ask for and didn't even know existed. (Richard Kovacevich, Wells's former chief executive, was a fervent believer in cross-selling, which created the pressure.)
The fake accounts were exposed by the Los Angeles Times in 2013. Did that scandal cause Wells Fargo to reform itself? Hardly. According to an article by Bethany McLean in Vanity Fair, Kovacevich, who retired in 2007, would later describe the problems that took place on his watch as "infinitesimal" — even though bank employees had been creating fake accounts since the 1990s. After a plaintiff's lawyer filed suit in 2015, then-CEO John Stumpf wrote an email to another Wells executive.
"I will fight this one to the finish," he wrote. "Did some do things wrong — you bet and that is called life. This is not systemic."
Alas, it was systemic, and by 2016, Stumpf had been forced into retirement, with some $41 million in stock awards clawed back. The bank, meanwhile, was fined $185 million by the federal government, and 5,300 employees were let go. In September of that year, after the bank had agreed to settle with the government, it issued a news release that said "Wells Fargo is committed to putting our customers' interests first 100 percent of the time." It added that those who had been disciplined or fired had "acted counter to our values." Naturally.
That was just the beginning. In January 2017, the bank admitted that it had found evidence that senior managers had retaliated against workers who had tried to blow the whistle on the fake accounts.
March 2017: The Office of the Comptroller of the Currency, which rarely rebukes a national bank, accused Wells Fargo of an "extensive and pervasive pattern" of violations of the Community Reinvestment Act, including selling black homebuyers more expensive mortgages than white homebuyers.
July: Wells Fargo acknowledged that 570,000 customers were charged for auto insurance they didn't need — and 20,000 of those customers may have defaulted on their cars as a result.
August: Wells Fargo admitted it had found an additional 1.4 million fake accounts.
October: Wells Fargo had to repay $3.4 million to brokerage customers because the company's brokers put them in investments that regulators said were "highly likely to lose value over time."
November: Wells Fargo agreed to pay $5.4 million in a Justice Department settlement because it illegally repossessed service members' cars.
April 2018: Wells Fargo was fined $1 billion for the auto and mortgage infractions.
Are you getting the picture?
On Thursday, Wells Fargo was accused of improperly altering information on "documents related to corporate customers." Although the bank insisted that no customer had been hurt by this sleight of hand, the behavior appears to have stemmed from the same cultural flaws that were at the heart of the original fake account scandal.
"Wells Fargo," wrote the Wall Street Journal, "was trying to meet a deadline to comply with a regulatory consent order related to the bank's anti-money-laundering controls." In other words, at Wells Fargo, when you are under pressure to meet a tough goal, you do whatever you need to do, even if it’s fraudulent. That appears to be Wells Fargo’s real core value.
Whenever a company gets in trouble, its executives like to cast the problem as the actions of a few rogue employees who don't share its “values.” Volkswagen AG, Facebook Inc., Uber Technologies Inc. — they're all companies that, when scandal hit, insisted these were aberrant missteps that didn’t reflect their true values.
But does anybody really believe that? Volkswagen’s efforts to fool regulators by cheating on emissions tests went all the way to the top of the company. Facebook’s problems are a direct consequence of its flawed business model, which rewards ad sales, not privacy protections. Just the other day, Uber started running a television ad in which its new chief executive, Dara Khosrowshahi, said, “One of our core values as a company is to always do the right thing.” You can stop laughing now.
A number of articles have noted that Wells Fargo has a 37-page “Visions and Values” brochure outlining its supposed values. (According to the online publication Quartz, the brochure uses the word “trust” 24 times.)
But employees don’t learn a company’s values from a brochure; they learn it from talking to their colleagues, listening to their bosses and absorbing the day-to-day culture. They quickly see what behaviors get rewarded, who gets promoted, and what the consequences are for, say, reporting someone who is cheating in some fashion.
Strangely enough, Wells Fargo seems to understand this. “If you want to find out how strong a company’s ethics are,” its ethics brochure reads, “don’t listen to what people say. Watch what they do.”
Unfortunately for Wells Fargo, that’s exactly what observers have done these past few years. And why we all know that there is nothing quite so hollow as a Wells Fargo news release talking about values.
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