What happened to hoary old ideas of leadership like "The buck stops here"? In our Brave New World of elite impunity, if Wells Fargo's John Stumpf had been the captain of the Titanic, not only would the crash be the fault of the iceberg, but he would also make sure he got the first seat on the lifeboat.
In an exclusive interview with the Wall Street Journal, Stumpf made the intelligence-insulting claim that the opening of a total of over 2 million bogus accounts was the result of nefarious plotting by ruthlessly clever employees, victimizing Stumpf as much as the customers themselves. From the Journal:
As public and congressional pressure mounted on Wells Fargo & Co. executives, its top two bankers had an explanation Tuesday for allegedly illegal sales practices across the company: It was employees' fault.
Chief Executive John Stumpf defended the firm and the efforts it had taken to stop the behavior, which included opening accounts for customers without permission. "There was no incentive to do bad things," Mr. Stumpf said in an interview with The Wall Street Journal. He called the conduct that led to last week's settlement with federal and local authorities "not acceptable," adding that the bank doesn't "want one dime of income that's not earned properly."
At the same time, the San Francisco bank said it would soon eliminate the practices at the center of the controversy: branch-level sales goals that encouraged employees to cross-sell products to customers.
As we've stressed, retail banks are highly controlled organizations. Lower level staff and their supervisors are closely monitored and have very little discretion. Branch-level activities are subject to strict protocols designed and rolled out across the entire retail banking operation. Needless to say, it wan't hard for the Journal to find sources that disputed Stumpf's flattering account:
Many of the employees felt pressure to sell customers multiple products or services—for example, home-equity lines to certificate of deposit holders—to stay in their jobs or earn bonuses tied to sales goals, according to interviews with current and former Wells Fargo workers. Some branch employees met with their managers several times a day to report their progress on meeting cross-selling targets, they added…
Some employees who recently left were critical of the executives' message. Mita Bhowmick, a former Wells Fargo teller in Pennsylvania, said of responsibility for the sales tactics, "It was all management: their boss, then their boss, then their boss." Ms. Bhowmick took early retirement from the bank in 2014 at age 58. "They are putting pressure on employees, and it's sad," Ms. Bhowmick added. "People need their jobs."
As members of the commentariat pointed out, and we neglected to mention in our coverage, most of the 5,300 employees that Wells piously claims were fired for cross-selling abuses from 2011 to 2015 were almost certainly booted for missing targets or other issues. The Los Angeles City Attorney didn't begin its investigation until early 2014, which means it's highly unlikely anyone was terminated prior to then for being overly zealous.
Even the normally pro-big-business, anti-regulatory readers of the Wall Street Journal weren't buying Stumpf's spin. The comments were overwhelmingly skewed against him. Some examples:
Mr. Stumpf's response was despicable…
This CEO's public statements are worse than the BP CEO complaining that his weekend was interrupted. "there was no incentive to do bad things". What about the "keeping our jobs" incentive???
In his mind, Mr. Stumpf probably thinks he didn't tell them to lie and cheat even though he created a culture that allowed lying and cheating. At the very least, even for the minuscule possibility he knew nothing about what his 5,300 employees were doing, he should be fired for incompetence and mismanagement.
Blaming the employees and pretending you have a corporate culture of peaches and roses is like binding 250,000 people to a wall and blaming the 1% who decided chewing off their own feet to escape was better than starving to death. And believe me, in retail banking you either get promoted or you get fired.
The San Francisco bank also promised to turn over a new leaf by ending cross-selling targets. But experts don't find that credible. Again from the Journal:
"Cross-selling has been a religion there," said David Hendler, founder and principal of bank research firm Viola Risk Advisors, LLC. "They can't say we're not going to do that and not have another idea to roll out in the meantime," Mr. Hendler said.
Stumps apparently thinks he can brazen things out with his "blame the little people" version of events next Tuesday before the Senate Banking Committee. Perhaps he is betting on Elizabeth Warren not being as tough as usual because she praised the conduct of Consumer Financial Protection Bureau, which represented $100 million of the $185 million settlement. Coming down on Stumpf for not taking responsibility or clawing back pay would undermine the story that Warren wants to tell about the CFPB, that it did a great job, which means believing its punishments were adequate.
The media and investor community has already taken note of the failure to claw back the pay of Carrie Tolstedt, head of community banking during the entire period of the fraud and thus the immediately responsible executive. She received $125 million worth of compensation upon her retirement at the end of July, and had received multi-million annual pay awards on top of that.
In the London Whale scandal, once Jamie Dimon got the memo it was not going away quickly, he threw the manager of the Chief Investment Office, Ina Drew, under the bus, even though we and others described at length why Dimon was also culpable. Similarly, now that Stumpf is being criticized by investors, the logical survival move would be to seek to claw back some of Tolstedt's pay. The total amount that customers were falsely charged is reportedly a mere $5 million. That's a teeny proportion of Tolstedt's payout. Dinging her for that would seem to be an easy face-saving gesture for Stumpf and the bank.
So why isn't Stumpf going that route? The timing of Tolstedt's departure, as settlement negotiations were almost certainly underway, raises the possibility that her exit was an informal concession, or even part of the deal but agreed by all parties to be kept secret. If that's the case, the fact that the regulators and Wells badly misread how the public would react makes it hard to execute a do-over, since Tolstedt will (perversely) believe she already took a fall by leaving the bank earlier than she wanted to.
Even if Tolstedt instead left out of a sense of self preservation, it's likely that the receipt of her retirement/deferred comp payout was conditioned on her signing a non-disparagement agreement (and these agreements often contains the provision that the party also agree to keep the agreement confidential). It would be normal for her lawyer to try to have the deal be mutual, as in have the bank agree not to criticize Tolstedt. So watch and see if Stumpf or any other Wells Fargo officials go to some lengths to avoid saying anything bad about her.
Stumpf may be correct: that the short amount of time that each Senator has to interrogate him means that no one will be able to mark him up all that badly, and this fiasco will blow over in a few weeks. But the continued glare of the media hot lights and the fact that Wells' stock has taken a hit says Stumpf is in hot water. If he has bet wrong and the Tuesday hearing goes badly for him, he may be find out the hard way that his board can and will make the buck stop with him by ending his reign.