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.
