Lessons from the Wells Fargo Scandal, Mismanagement, and Gaming the Numbers
It's been a busy fall so far. I've wanted to blog about the Wells Fargo scandal and management mess, but haven't had the time to really write a comprehensive blog post about it until now.
In less busy times, I might have written a 3,000 word mega-post about the situation… but this post isn't that long (and maybe that's good for you, the reader).
In a nutshell, thousands of Wells Fargo employees across the nation fraudulently opened unwanted bank accounts or credit card accounts for customers. Two million accounts. This probably hurt the credit scores of customers and they were hit with $2.5 million in fees for the unwanted accounts.
Why would these employees do that?
They were under a lot of pressure from bank managers and executives to hit arbitrary goals… eight financial products per customer.
Why eight? The CEO, John G. Stumpf, said (I kid you not), “It rhymes with great.” Employees are lucky, perhaps, that he doesn't know that nine rhymes with “fine?” Or that eleven rhymes with “heaven?”
Eight sounds like the perfect definition of an arbitrary goal, as Dr. Deming would say. Deming would ask, “By what method” would you accomplish such a goal? There apparently wasn't a method (at least a good one) provided by management.
This article summarizes and has other links:
Reports by the Los Angeles Times and the L.A. city attorney have made it clear that there has long been a culture of fear, born of threats to workers' livelihoods and impossible sales goals, at Wells Fargo.
Multiple employees have complained of a company culture that encouraged fraud by setting impossible goals in “crossing-selling” — ie. selling multiple accounts to the same customer — and then offering big bonuses to employees who hit them. Tuesday's hearing clarified that Wells Fargo's sales goal was eight accounts per customer, while most banks average only three.
When employees couldn't hit that arbitrary target organically, they realized they could cheat the system. You can't blame them for wanting to save their jobs. They were only being paid about $12 an hour. They weren't financial wizards or criminal masterminds. There was no grand conspiracy cooked up by the CEO or other executives… but they should have anticipated how this could go awry.
Senator Elizabeth Warren said:
“You squeezed your employees to the breaking point so they would cheat customers and you could drive up your stock,”
I heard some analysis yesterday that if Wells Fargo did conspire to commit this fraud, that it was really dumb because opening and closing fake accounts added cost and didn't really add any revenue. The higher “accounts per customer” number gave the CEO something to brag about on earnings calls with Wall Street, which might have boosted the stock price… something that benefitted CEO Stumpf more than the employees.
Wells Fargo says they have fired 5,300 front-line staff and managers over the past five years. There's been a lot of blaming going on… the CEO blaming all of these employees for not living up to Wells Fargo's alleged ethics and values (read their online statement to see how far off from reality this is).
The bank has been fined $185 million for the shenanigans.
Yet Carrie Tolstedt, the Wells Fargo executive responsible for the 6,000 branches during this time, received a $126 million retirement package, even though these bank practices were under investigation for a while. So much for accountability.
5300 “bad apples” certainly sounds like a system problem to me… and that's leadership's responsibility.
Here are a few links to articles I've read:
Wells Fargo CEO Defends Bank Culture, Lays Blame With Bad Employees
Wells Fargo Warned Workers Against Sham Accounts, but ‘They Needed a Paycheck'
How Wells Fargo's High-Pressure Sales Culture Spiraled Out of Control
Wells Fargo's Incentives Go Awry
Wells Fargo under siege: Drops sales goals tied to bogus account scandal
‘You Should Resign': Watch Sen. Elizabeth Warren Grill Wells Fargo CEO John Stumpf
I called the Wells Fargo ethics line and was fired
Those links should give you a good sense of the situation… and how this could have been anticipated and avoided through better management.
As we've learned in other situations, when it's easier to game the numbers or to distort the system than it is to actually improve the system, bad things will happen.
I learned this from Dr. Deming's work and from Brian Joiner wrote in his outstanding book Fourth Generation Management: The New Business Consciousness.
As Joiner wrote, there are three things that can happen when you have a quota or a target:
- Distort the system
- Distort the numbers
- Improve the system
What's the lesson for managers in any setting?
When you set an unrealistic quota… and then pressure people to hit the quota (through threats or promises of rewards)… you need to anticipate how people might game the numbers or distort the system.
Below are some related posts and scandals involving “gaming the numbers”:What do you think? Please scroll down to post a comment or share the post with your thoughts on LinkedIn. Don't want to miss a post or podcast? Subscribe to get notified about posts via email daily or weekly.
From the Deming Institute blog:
“Using Outdated Management Practices Can Be Very Costly”
Comment via LinkedIn:
Right… metrics + lack of a method + undue pressure = gaming and cheating
More from LinkedIn:
I think “avoiding blame” (my thought) is not the same as never holding anybody accountable. Have you studied the “Just Culture” approach from healthcare, Michael? There is a time to hold an individual accountable if they made a bad choice that they knew would cause harm. One test is “Would another person in that same situation make the same mistake?” At Wells, that certainly seems to be the case, times 5300
S. Max Brown:
More in the news:
“Ex-Wells Fargo Employees Sue, Allege They Were Punished For Not Breaking Law”
[…] Look at what happened at Wells Fargo. […]
Stumpf is out as CEO, but is probably taking home a huge retirement payout.
This NY Times article tells some of the stories from people who lost their jobs and really had their lives affected by the quotas and pressure. Sad stories on many levels.
Wells Fargo Fires Four Executives Following Probe of Sales-Practices Scandal
Terminated executives won’t receive 2016 bonus and will forfeit unvested equity, bank says
Wells Fargo is now running ads asking people for a second chance.
The ad says they’ve ended “sales goals for branch managers.”
I’m glad they’re focused , it seems, on the system instead of running ads saying they have fired all of the bad people.
I watched this really sad Netflix documentary on Wells… how badly their bank employees were treated and how careers were ruined because they spoke up and/or pushed back: