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 isn't that (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 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 for 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 allegedly 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:
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”:
Wells Fargo image via Flickr user Mike Mozart, used under Creative Commons license.