Tuesday, September 20, 2016

On the Difficulty of Ethical Leadership after a Breach: The Case of Wells Fargo’s CEO

On September 20, 2016, U.S. Senators questioning Wells Fargo’s CEO, John Stumpf in the Senate’s Banking Committee “seemed unmoved” by his “attempts to explain why more senior bank executives had not been tied to the widespread illegal sales activity.”[1] Bank employees may have opened as many as two million accounts in customers’ names without those customers’ knowledge.[2] Senator Elizabeth Warren, a Massachusetts Democrat, “said the illegal sales were a big driver of Wells Fargo’s success as one of the nation’s most profitable banks.”[3] She called on Stumpf to give back a large portion of his compensation, resign and be criminally investigated. I contend that giving back some of his compensation and resigning from the bank would have been necessary for the CEO get past the scandal in being able to be a credible and trustworthy ethical leader. That the bank’s board acted independently from its chairman, the CEO, a week later in taking back $41 million of his compensation and $19 million of the stock grants from Carrie Tolstedt, who had led the bank’s retail banking division (and cancelled any bonus for either official) does not lend the CEO any renewed credibility.[4] Rather, the action made the bank’s board members look like they were trying to do what was necessary, given the CEO’s underperformance during the Senate hearing.

“Have you returned one nickel of the money that you earned while this scandal was going on?” asked Warren.[5] Stumpf suggested that the board was considering whether he should also lose some of his compensation, which totaled more than $19 million in 2015.[6] He said the bank’s board was at the time considering whether he should lose some of his compensation, but in a classic conflict of interest, he himself occupied the board’s chairman position. In short, Stumpf admitted that he hadn’t yet been held personally accountable for the actions of his employees.[7]

Furthermore, despite the widespread unethical sales in the community banking unit, the executive who oversaw the retail bank, Carrie Tolstedt, was permitted to retire in July rather than be held accountable for the problems by being fired and having some compensation “clawed back,” Stumpf admitted. [8] Tolstedt received a retirement package that may amount to more than $100 million even though it is unlikely she was not aware of the fraud.[9] If she had been unaware, she clearly failed at her job and did not deserve $100 million.

More than 5,300 employees had been fired for the unethical sales since 2011, but they had been mostly lower-ranking workers, including many who say they felt pressured to bend the rules to meet the bank’s aggressive sales goals.[10] “Have you fired any senior management, the people who actually oversaw this fraud?” Sen. Warren asked the bank’s CEO. “No,” Stumpf replied.

Sen. Warren sized up the CEO thusly: “Your definition of accountability is to push this on your low-level employees. This is gutless leadership.”[11] It is unethical leadership—lacking basic integrity wherein “deed” matches “word.” Rather than putting his money where his mouth was, he offered platitudes, according to many of the senators, “about his willingness to take responsibility for the illegal sales while escaping any real consequences.”[12] To apologize for the actions of others is not sufficient, in other words, to buy back credibility and integrity. Frankly, the words are too easy without accompanying actions that involve real sacrifice by the leader as well as the bank.

Consistency in itself between word and deed is a very important aspect of integrity. A “divergence between words and deeds has profound costs as it renders managers untrustworthy and undermines their credibility and their ability to use their words to influence the actions of their subordinates.”[13] The application to leaders is straightforward: A divergence between word and deed also reduces a leader’s credibility and trustworthiness, and thus detracts from his ability to influence subordinates and the wider society to buy into his vision. Hence, nothing in Stumpf’s efforts at the U.S. Senate to “contain the damage to his bank’s reputation”[14] boosted his integrity, credibility and trustworthiness to his subordinates and at the societal level.

The main point to take away from the CEO’s attempt at strategic leadership before the U.S. Senate is how very difficult it is to go beyond platitudes of apologies to match them with inconvenient actions, such as firing senior-level managers, with “clawbacks,” and including the CEO himself even though he chairs the very board whose task it is to supervise him. Rather than exploiting a structural conflict of interest, a CEO/Chair must “take a hit” in order to have the trust and credibility both organizationally and in society to regain integrity. Such integrity is in turn required for effective ethical leadership to be practiced. Blaming others outside the inner circle of seniority in an organization and offering an easy apology too vague to say for certain whether the leader was part of the unethical practices do not suffice.


1. Michael Corkery, “Illegal Activity at Wells Fargo May Have Begun Earlier, Chief Says,” The New York Times, September 20, 2016.
2. Ibid.
3. Ibid.
4. Stacy Cowley, “Wells Fargo to Claw Back $41 Million of Chief’s Pay Over Scandal,” The New York Times, September 27, 2016.
5. Corkery, “Illegal Activity.”
6. Ibid.
7. Emily Peck, “Elizabeth Warren Hammers Wells Fargo CEO: ‘You Should Be Criminally Investigated,” The Huffington Post, September 20, 2016.
8. Corkery, “Illegal Activity.”
9.  Ibid.
10. Ibid.
11. Ibid.
12. Ibid.
13. Tony L. Simons, “Behavioral Integrity as a Critical Ingredient for Transformational Leadership," Journal of Organizational Change Management 12 No. 2 (1999): 89.
14. Nathan Bomey, “Four Things to Watch as Wells Fargo CEO Testifies,” USA Today, September 20, 2016, p. B1.

Thursday, September 15, 2016

On the Meaning and Value of Leadership: Formulating a Social Reality as a Vision

I submit that leadership is the formation of a vision and persuading other people to adopt it. From this standpoint, leadership is distinct from management—the latter taking the vision as a given and going from there to formulate strategy and implement it as policies. In short, a vision is open to leaders to change but closed to managers, who must take a vision as a given.

Regarding a leader’s vision, I contend that it contains meaning and values held together in a social reality; hence the breadth of a vision. Two scholars insist that a leader works to shape and interpret situations out of what has previously remained implicit or unsaid, guiding by common interpretation of reality via vision through foresight, hindsight, a world view, depth perception, peripheral vision, and revision.[1] The social reality in a vision is thus deep as well as broad, reaching even the subconscious level of the human mind. To the extent people have bought into the leader's social reality, the leader has led.[2]

Detecting or fashioning "meaning" is crucial to formulating a social reality for a vision. A couple scholars suggest that leaders "structure experience in meaningful ways."[3] In "defining the reality of others", leaders influence "systems of meaning," which circumscribe a leader’s vision as well as organizational activity.  In short, an essential factor in leadership is the capacity to influence and organize meaning."[4]

Humans are "congenitally compelled to impose a meaningful order upon reality."[5] Some people are able to do this better than others. Leadership is therefore basic to the human condition.[6] In fact, accurately defining reality can be considered a leader’s duty, with ethical implications not only from that duty, but also in the meaningful content of a leader's construed social reality, which can be laced with ethical principles and values.[7] Regarding the content, leaders interpret social reality in such a way that particular values and/or beliefs are highlighted.[8] In other words, a leader's "meaning making" includes giving meaning to shared values that are important and make a difference.[9] 

Therefore, both the doing and product of leadership can be viewed normatively. Accordingly, ethical leadership can pertain to the doing of leadership as well as to the content of visionary leadership. For example, a manager being called to serve in a leadership position can view accepting the promotion as an ethical imperative to impart meaning and values for people in the organization, who are otherwise having difficulty coming up with a social reality that is gripping and thus meaningful and of value. Such meaningfulness and values can themselves involve ethical principles set as duties, which followers as well as the leader should undertake.

For more, please see the following two booklets: Ethical Leadership and Christianized Ethical Leadership.



Endnotes



[1]. Warren Bennis and Burt Nanus, Leaders: The Strategies for Taking Charge (New York: Harper & Row, 1985).
[2]. Skip Worden, “The Role of Integrity as a Mediator in Strategic Leadership; A Recipe for Reputational Capital,” Journal of Business Ethics 46 No. 1 (August 2003): 31.  
[3]. Linda Smircich and Gareth Morgan, “Leadership: The Management of Meaning,” Journal of applied Behavioral Science 18 (1982): 258.
[4]. Bennis and Nanus, Leaders, 39.
[5]. Peter Berger, The Sacred Canopy: Elements of a Sociological Theory of Religion, (Garden City, NY: Doubleday, 1967): 22.
[6]. Worden, “The Role of Integrity,” 32.
[7]. Worden, “The Role of Integrity,” 32; Max DePree, Leadership is an Art (New York: Doubleday, 1989): 53.  
[8]. Kate Rowsell and Tony Berry, “Leadership, Vision, Values and Systematic Wisdom,” Leadership & Organization Development Journal 14 No. 7 (1993).
[9]. Jim Kouzes and Barry Posner, Credibility: How Leaders Gain and Lose it, Why People Demand It (San Francisco: Jossey-Bass, 1993): 197, 206.