Wells needs big change, not just a quick fix

When Timothy Sloan started his career at Wells Fargo 30 years ago, he worked in the department that fixed troubled loans. In ordinary terms, Sloan helped customers struggling to pay debts by offering more lenient repayment schedules or perhaps lower interest rates.

Now as the CEO, Sloan is once again trying to fix a troubled financial vehicle — only this time, it’s the whole darned stagecoach.

Last week, the San Francisco banking giant set the wheels in motion. The company announced major changes to the way it pays branch employees. Instead of requiring workers to sell each consumer a certain number of financial products, Wells Fargo will now focus on things like signing up new customers and keeping existing ones happy.

“The changes under way ... specifically around the new compensation plan, are creating a new way to talk about the experience we deliver to our customers — one that puts our customers’ needs ahead of our needs,” Sloan recently told employees during a town hall meeting in Dallas.

The changes, at least on the surface, are a solid start to preventing the fraud that cost Sloan’s predecessor, John Stumpf, his job. Employees, under pressure to meet those sales targets, created as many as 2 million fake checking and credit card accounts under the names of real consumers. Wells Fargo paid $185 million in fines to regulators and is facing investigations by the Securities

and Exchange Commission, the U.S. Justice Department and the state of California.

“These new changes will go a long way to reducing problems with sales compensation incentivizing the wrong behavior,” said Clifford Rossi, a former chief risk officer at Citigroup’s consumer lending unit, who now teaches finance at the University of Maryland.

But unlike a troubled loan, Sloan can’t immediately fix the problem by just stretching out payments or lowering rates. To prevent another scandal, Wells Fargo needs to fundamentally rethink its very identity, which has been built around the idea that it’s a one-stop financial shop where customers can get everything from loans to investments to insurance.

“It’s a cultural transformation and all cultural transformations are tough,” said Jill Rowley, a former Bay Area software executive who now advises other companies on sales and customer service. “It has to be from the top down.”

Rowley was a top sales executive at Eloqua before it was purchased by Oracle in 2013. Shortly after, Rowley clashed with Oracle’s aggressive sales culture, which was more attuned to signing contracts and earning commissions than making customers happy, she said.

“I told them ‘I’m here to stop you from selling so you can help people,’ ” Rowley said. “Compensation programs will drive behavior. If I’m compensated to sell you five products, then I’m going to sell you five products whether you need it or not.”

When Norwest acquired Wells Fargo in 1999, then-CEO Richard Kovacevich launched the now infamous crossselling strategy, in which employees would sell multiple products — savings and checking accounts, mortgages, credit cards, mutual funds, student loans — to the same consumer.

From a financial perspective, the strategy was hugely successful and propelled Wells Fargo ahead of its peers. But it also transformed the bank from an institution rooted in service to a sort of sales factory that turned out “products.”

For many years, leadership justified the approach with the argument that employees sold only products consumers needed. If not, surely those consumers would walk away. And selling more things to the existing consumer is a lot easier — and cheaper — than finding new ones.

There’s a basic flaw in Wells Fargo’s logic. People today have limited time and switching from one bank to another can be pretty cumbersome. That inertia shouldn’t be confused with loyalty. And people walking in to cash a paycheck aren’t likely to need a mortgage. While there’s no justification for the fraud Wells Fargo employees engaged in when they created fake accounts, it’s clear they did it because they were struggling to meet unrealistic sales goals.

Wells Fargo’s new compensation plan seems to put a greater emphasis on signing up new customers versus milking existing ones for more business. It may be more of a challenge, but it’s an honest way to grow a business.

Many companies, including those in retail and software, are adopting something called net promoter scores to measure performance. Net promoter scores are built on surveys that ask a simple question: Would a customer recommend the company’s products and services to friends? Sales numbers can be goosed any number of ways, but such word-of-mouth recommendations are hard to manipulate.

Perhaps not surprisingly, Wells Fargo — and big banks in general — earn low net promoter scores. Customers who feel that way aren’t going to walk away, because switching banks is cumbersome and annoying — but they’re not going to bring their friends in the door.

Personal finance website Credio determined net promoter scores for banks based on a major consumer survey it conducted in January 2015. To calculate each score, Credio subtracted each bank’s percentage of detractors from the percentage of promoters. Any score above zero meant the bank had more advocates than critics; any score below zero meant the opposite.

USAA, the financial services firm that focuses on military families, topped the list with a whopping 81, followed by BB&T, which scored a 18. Wells Fargo earned a dismal minus-12, followed by Bank of America (minus-24) and Citigroup (minus-41).

Wells Fargo currently commissions Gallup to conduct consumer surveys by email and then incorporates that data in the overall performance of a branch, said spokeswoman Mary Eshet.

But if Wells Fargo truly wants to transform its culture, then the company should embrace net promoter scores. For one thing, a positive score suggests the bank could gain new adherents through referrals. That would help Wells Fargo’s stated goal of increasing its number of consumers.

More importantly though, such a system encourages employees to focus on serving new customers instead of haranguing existing ones for more business. Or, worse, just faking it.