Poor John Stumpf. For the past two weeks, members of Congress have been bashing him mercilessly in his role as the Chairman and Chief Executive Officer of Wells Fargo. He’s been threatened with dismissals, massive fines, and even criminal prosecution.
But why? Did his bank really do anything more odious than the other global banks? Given the multitude of complex schemes that these banks have perpetrated recently, what did John Stumpf and Wells Fargo do to deserve such repudiations?
Their scheme was actually a simple one, but it involved thousands of bank employees acting illicitly for many years. When new customers applied to open new accounts, the employees opened those accounts for them. But then the employees opened secret secondary accounts, and never told the new customers about the duplicate ones.
The customers used their primary accounts, and remained unaware that the secret secondary accounts even existed. Although the secondary accounts began with zero balances, they inevitably accrued maintenance fees and became overdrawn. In some instances, the overdrawn accounts were reported to credit agencies, which then downgraded the credit reports, ratings, and scores of the unwitting customers.
Why did thousands of employees engage in this behavior? Because Chairman and CEO John Stumpf was heavily promoting the principle of “cross selling.” In other words, the employees were presented with sales quotas and financial incentives to sell as many products and services to customers as possible.
Without, apparently, implementing the internal controls that might have guarded against the opening of fraudulent accounts.
The ire of the members of Congress was further stoked by the finding that Stumpf was warned about the illegality of the practice by internal staff, and yet allowed it to continue unabated. And he recently permitted Carrie Tolstedt, a senior executive with direct responsibility for the fraudulent activity, to retire with a nest egg that may be worth as much as $125 million.
So what is poor John Stumpf to do? What example can he emulate while dealing with government officials who are furious that Wells Fargo accepted a huge federal bailout during the financial crisis, and is now repaying that generosity with such illegal behavior?
Perhaps he should look outside the banking industry and consider how the leaders of the American automobile industry handled their own inauspicious moment before the United States Congress. In late 2008, they were briefly excoriated when they traveled to Washington DC in their private corporate jets to ask for federal bailout funds.
That’s like driving up to a soup kitchen in a luxury sports car and then asking for a free bowl, isn’t it? The American people and their Congressional representatives were incensed by the action.
But the automobile executives quickly learned from their mistake. The next time they traveled to Washington to testify before Congress, they made strikingly different travel arrangements.
What did they do? They took a road trip! They drove fuel efficient American made vehicles and touted their plans to build affordable and environmentally friendly cars.
The result? The automobile bailout was approved, in a bipartisan manner, without rancor. Although the automobile industry has continued to generate controversies, it has escaped the intense criticism that has stalked the global banking industry since its crisis-era bailout.
And thus there is a lesson that John Stumpf might learn from the automobile industry. Namely, if you’re accused of taking American citizens for a ride in a pejorative sense, why not take ‘em for a ride in a more positive sense? Why not identify a product or service that all Americans could support with enthusiasm? Then invest some of the Bank’s sizable financial assets in it, and find an engaging way to tout its public benefits.
Market analysts may complain that such a strategy may hurt the market valuation of Wells Fargo if the investments don’t yield sufficient financial returns. But considering the billions of dollars that other global banks have paid to settle charges of misbehavior, aren’t such socially beneficial investments worth the risk?