CULTURE IN BANKING IS EVERYTHING

• WellsFargo,knownandlovedbyinvestorsforitscross-sellingstrategy.• On8September2016WellsFargoisfined$185milliontosettlealong-runninginvestigationthatchargedthebankwithfalsifyingmillionsofcustomeraccountstoboostsales.• CEO,JohnStumpf sells$61millionworthofWellsFargosharesinthemonthpriortothefraudrevelations.• Stumpf iscalledtotestifybeforeCongress.• WellsFargosharepricecollapses,losing$25billioninvaluewithinthefollowingweek.

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JohnStumpfmanagedtounitetheusuallydiscordantBankingSenateCommitteeinachorusofoutrage.

CULTURE IN BANKING IS EVERYTHING

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WellsFargoisnowassociatedinthemindsofconsumerswithappallingcustomermistreatment.Publictrustinthisoncereveredbankhasbeenshattered.

WELLS FARGO CULTURE

• Hightemposales–drivenculturedominatesafter1998mergerwithNorwest.• WellsFargoadoptsacentralsalestarget:“eightisgreat”.• Thiscross-sellingstrategybecomesthecornerstoneonwhichthebank’scultureisbuilt.• Thehardsellingcultureisevidencedineveryannualreportgoingbacktothe1980s.• Strategyandculturearecloselylinked,oftenbecausethesamepersonputstheminplace.

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CONSERVATIVE LENDING, AGGRESSIVE SELLING

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• Branchstaffexperiencedfreedomfromcentralcontrolregardingcreditdecisions,only.

• Loan-todeposit-ratioin2015is0.7%• USmainstreet-typebanksaverage0.9%• Tangibleequity-to-assetsratioishighbyinternationalstandardsat7.8%.

• Wellswouldbeahighlyprofitablebankevenwithoutthehardsellingculture.

STUMPF ON CULTURE“IfthereisonejobImustdoforourteammembers,customers,communitiesandshareholders,itistobethekeeperofourcompany’sculture.Itistheroleofallteammemberstounderstandourculture,internaliseit,liveit,teachitandreinforceit”.

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WHAT WENT WRONG?• However,internally,thebankwasawarethatthehigh-pressuresalesculturewasleadingtoseriouswrongdoing.

• Since2011,byitsownadmission, ithadbeenfiringemployeeswhosoughttoboosttheirsalestargetsbysecretlyopeningfakecustomeraccounts.

• Yetthebankcontinuedtopromotethesecross-sellingmetricstoinvestorswithoutinformingthemofthefakeaccountgeneration.

• Topexecutives,meanwhilemaintainedthattheproblemoriginatedwithlow-levelemployees.

• ItisworthrevisitingStumpf’s visionofcultureandwhereitstopsandstarts.

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WHAT WENT WRONG?• WhatwentwrongatWellstoderailabusinessmodelthatwassosuccessfulforsolong?• Ourcontentionisthatnothingwentwrong.• Butthatanoverlyaggressivecentraltargetwilleventuallypushabankintotrouble.

Itisonlyamatteroftime.

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WHAT IS CULTUREAcorporateculturemaybeviewedascomprisingtwodimensions:

1.Anethicalstance– theextenttowhichanorganisationwillgotoexceedingitsminimumobligationtostakeholders:• servingshort-termandlong-termshareholderinterests• multiplestakeholderinterest• contributiontosociety

2.Aculturaloperationalmodel- howtosteerthebankoperationstoachieveitsethicalstance.

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PROBLEMS OF CULTURE• Post-8SeptemberannouncementWellsFargoannouncedamoratoriumoncross-selling andisaddressingitsriskcontrols.• However,thisismorethanaprocessproblem-simplyeliminatingsalesquotaswillnotrepairthebank’scorporateculture.• Tosucceed,theseeffortsmustleadwithaccountabilityintheexecutivesuite.• Thoseeffortsmayalsogetaboostfromexternalforces,ascallsgrowlouderforprosecutorstofocusmoreonexecutives.

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PROBLEMS OF CULTURE

1. Bankingisnotretailing2. Productdevelopment3. Remunerationstructures4. Excessivefocusongrowthand

marketshare5. TheCEO

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RECOMMENDATIONS

1. Committhebanktoalwaysactinthecustomer’sbestinterests– andmeanit.

2. Committhebanktoademandingcodeofethics– andpublishit.

3. Makesuretheoverallcultureofthebankisright.4. Gettoknowyourcustomer’srealneeds- makecross-buying

theobjective.5. Changethemanagementteamifcross-sellingisacoreculture.

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CONCLUSIONS

• Letfrontlinestaffhaveaninputintothetarget-setting– orabolishcentraltargetsaltogether.• Anoverlyaggressivecentraltargetwilleventuallypushabankintotrouble.• Thebesthopeforbetterretailbankingliesinbankingbecomingarecognisedprofessionlikeaccountancyandlawwherebankersareobligedtoactintheircustomer’sbestinterest.

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GETINTOUCH:

EvelynHunterChiefExecutiveOfficerEmail: evelyn.hunter@rb-a.orgPhone: +442030085283Mobile: +447725243821Skype: evelyn.hunter-jordan.2

www.retailbanking-academy.org

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