Here’s what went wrong at Wells Fargo
For the first time in this 63-year-old man’s recollection, I watched the most conservative U.S. senators lineup and agree with the most liberal senators in their contempt for the actions of Wells Fargo.
Wells Fargo CEO John St um pf was crushed by both sides of the aisle in last week’s Senate Banking Committee hearing. At the heart of the issue is something called “cross selling.”
The ability of a company to add value for its customers and get a fair profit for this value is a great thing. The operative word, though, is ‘fair.” Why in the world would a company as respected as Well Fargo mortgage its future on fraudulent sales practices under the guise of cross selling? After over 40years working in publicly traded companies, I understand what drives them. So here is the harsh truth.
Whether or not publicly traded corporations sell shoes, donuts, pharmaceuticals or banking services, they are held accountable and manage their businesses in 90-day cycles. Making sacrifices to the altar of quarterly results is a systemic problem. Here is how it works:
Stock analysts make recommendations based on quarterly performances. If these analysts don’t like what they hear from top executives, they will down grade their opinion. Every officer of every publicly traded company I have observed is compensated and most are measured, at least in part, based on the company’s stock price growth. Putting incentives in place for executives to be rewarded for share price increase is a good thing, up and until this becomes the Holy G rail and overrides effective values-based management.
Cross-selling, whichis at the heart of the Wells Fargo issue, is not a bad thing. But ifone of the main reasons that an analyst is recommending a stock is based on-cross-selling results, severely negative unintended consequences occur. Marketing and customer service gives wayto just “selling products.”
So what’ s the answer? Keep in mind that Ia ma free market capitalist and I don’t believe that more government oversight is the answer. First and fore most, C-Suite executives’ compensation and performance reviews are weighted too heavily on short-term stock performance. And this compensation model should be de-emphasized. It should be replaced by objectives and metrics that are directly aligned with the values, mission and strategy of thecompany.
In my world, the company’s stated values should trump-everything.