Stumpf speech doesn’t answer many questions
Wells Fargo CEO seems to know little about his firm’s misdeeds or how they went on unchecked
Why did Mr. Stumpf go to Washington with so few answers?
As in, how many Wells Fargo employees lost their jobs for blowing the whistle on their unethical employer? Not known. Number of whistleblowers demoted? Not known. How many bank branches were engaged in the improper practices in question? Not known. How far up the line did the misbehaviour extend? Umm, not precisely sure. At least as high as the person above the branch manager’s manager, but John Stumpf, the CEO and chairman of the board, does not know what title that person holds. Maybe a vice-president. Or possibly an area president.
If there was clarity offered Thursday as Stumpf appeared before the U.S. House Financial Services Committee, it was in the reaffirmation that Wells Fargo functioned like a modern day Glengarry Glen Ross — pushing leads, cross-selling products (“we love cross-selling,” Stumpf said), prodding employees to be “Gr-eight” (the bank’s cross-selling target in its retail branches was eight banking products per customer).
Is it true that banking reps were expected to make prospecting calls? Is it true that performance charts with sales goals were published in some branches?
Well, Stumpf said, he did not know that level of detail.
We’ve seen executives unsuccessfully assume the ostrich position before (Enron). The difference in the Wells Fargo saga is this: Almost three years ago, the Los Angeles Times revealed that Wells Fargo was a pressure-cooker sales shop demanding hourly reports on quotas, or “goals” as Stumpf prefers to call them. Unneeded accounts were opened to fill those quotas, customer signatures were forged and credit cards were ordered without customer approval. At an estimate, more than two million deposit and credit card accounts were opened without authorization.
Did the Times exposé catch Stumpf unawares? Not at all. The CEO said Thursday that he was not in the least bit surprised. He had been made aware sometime in the fall of 2013 that the megabank faced a bigger problem than previously believed and that problem would have to be “managed.” The issue was discussed at the board level. More than 5,300 Wells Fargo employees have been axed. Penalties have been paid. Yet the story is not over, as much as the bank’s leader might like it to be.
Stumpf has been CEO since the spring of 2007. He was, therefore, chief executive through the tail end of the period when Wells Fargo Financial, a subsidiary, engaged in the practice of steering borrowers unnecessarily into costly subprime mortgages. According to a ceaseand-desist order issued by the Federal Reserve Board in July 2011, Wells Fargo Financial “falsified income information in mortgage applications.” An $85-million (U.S.) civil penalty was assessed.
“We shut that division down,” Stumpf said Thursday, apparently not catching the bigger point that something had turned sour in the Wells Fargo culture and that he was installed at precisely the right time to fix it.
Three years after becoming CEO, he took on the chairman’s title, too. That’s the appropriate structure for the company, Stumpf insisted. So he was serving as both CEO and chairman while the board addressed how to “manage” the problem of the phoney accounts.
Stumpf appeared oblivious to the inherent conflict, despite the declared intention of the mighty California Public Employees’ Retirement System to push for governance reforms, including separating the two functions.
He attempted to reassure Congress by pulling forward the date at which the company will stop setting sales goals, to Oct. 1 from Jan. 1. He told committee members that he “led the bank with courage” and that he knows right from wrong. He promised that a full review would continue and that everybody would be held accountable. It was, roughly, three years too late. Is it the case that employees were issued warnings if they failed to meet their sales goals?
Once again, the CEO was unable to confirm or deny. “I am amazed what you do not know about your business,” said an exasperated Roger Williams (R-Texas). The congressman had one question for the CEO: “When are you going to resign?” Jennifer Wells can be reached at jenwells@thestar.ca.