Wells Fargo CEO John Stumpf is scheduled to testify to the Senate Banking Committee today about his bank’s recently disclosed egregious misbehavior – creating some two million customer accounts that customers didn’t ask for or even know about, so that salespeople could earn bonuses. The New York Times and other news organizations obtained an advance copy of his prepared testimony, and it shows how Stumpf is recovering from an early blunder in this classic leadership moment.
Last week, after the bank had agreed to pay regulators $185 million to settle investigations, Stumpf appeared to blame the employees, not leaders, in an interview with the Wall Street Journal. “There was no incentive to do bad things,” he said. Referring to the 5,300 employees who were fired over five years for improper sales practices, he said that “if they’re not going to do the thing that we ask them to do—put customers first, honor our vision and values—I don’t want them here.”
That’s not leadership, and Stumpf seemed to realize it quickly. Later that day he said through a spokeswoman, “I feel accountable and our leadership team feels accountable—and we want all our stakeholders to know that.” In his prepared testimony for today he goes further, entirely reversing the impression he gave in his WSJ interview: “I accept full responsibility for all unethical sales practices in our retail banking business, and I am fully committed to doing everything possible to fix this issue, strengthen our culture, and take the necessary actions to restore our customers’ trust.”
Fully accepting the blame is a leader’s first step in responding to a scandal, but it just clears the way for Stumpf to start dealing with the real issues, which are major. If 5,300 employees were doing something unethical, it’s impossible to imagine that managers didn’t know. How high up did the rot extend? A group of Democratic senators headed by Banking Committee member Elizabeth Warren is already pressuring Stumpf to claw back bonuses received by Carrie Tolstedt, the since-retired executive who oversaw the unit in question.
The scandal also threatens the heart of Wells Fargo’s success in becoming America’s most valuable bank (until the stock tanked in response to the scandal). Cross-selling is a religion at Wells Fargo. The average customer has about six products, such as a checking account, brokerage account, mortgage, or insurance, and that’s far more than the industry average. Cross-selling morphed into a monster, and Stumpf must slay the monster without damaging the business.
More broadly, the scandal threatens what may be Wells Fargo’s most valuable asset, its image as the giant bank that ordinary people can relate to, the heavy hitter based 2,900 miles from Wall Street, the down-to-earth bank that came through the financial crisis in glowing health under Stumpf’s leadership because it shunned flashy, high-risk strategies. If hearings and investigations portray it instead as a scheming profit hound, contemptuous of customers, the damage could be profound.
Stumpf is one of America’s most esteemed business leaders. He’s scheduled to retire in 2018. For him, this scandal poses a reputational risk that’s more than corporate. It’s personal.
You can share Power Sheet with friends and followers here.
What We’re Reading Today
GM avoids strike
Mary Barra‘s company reached agreement with the union representing Canadian workers late last night, preventing a strike that could have hobbled U.S. vehicle production. The crux of the deal is increased investment in three Canadian plants. The union will negotiate next with Mark Fields‘s Ford and Sergio Marchionne‘s Fiat Chrysler. Detroit News
The Wells Fargo board committee to protect customers….
…met just three times last year. As CEO John Stumpf testifies before Senators to apologize for sales practices that victimized customers, board members on a committee to ensure customers weren’t being mistreated met the minimum number of times required over the past four years. That practice continued even as reports of misbehavior surfaced. Judith Runstad headed the committee until she retired earlier this year. Fortune
Takata bidders consider bankruptcy
The troubled airbag manufacturer is expecting bids from chemical maker Daicel Corp, KKR, and Carlyle Group, among others. The rescuers are considering taking Shigehisa Takada‘s company into bankruptcy in order to protect it from liabilities to debt holders while it handles worldwide recalls of its airbags. Bloomberg
Donald Trump continues to support Chris Christie
Federal prosecutor Vikas Khanna said in court that New Jersey Governor Christie knew about the decision to close lanes on a highway in order to punish a political rival. Christie hasn’t been charged with any wrongdoing. Trump says he will continue to support the former foe, calling him a “spectacular advocate” for his campaign. NYT
Building a Better Leader
Bringing play into work
More evidence shows that if employers give employees opportunities for fun, “there are better outcomes in terms of productivity and motivation,” says Dr. Stuart Brown, founder of the National Institute for Play. Huffington Post.
As younger workers try to impress their bosses,…
…showing perseverance may be one of the best ways to stand out. That means once you start a project, finish it. Fortune
If you’re focusing on multiple tasks at once…
…then you’re probably achieving about 50% less than if you focused on one job at a time. CNN
GlaxoSmithKline names new CEO
The pharmaceutical company selected insider Emma Walmsley, who heads GSK’s consumer healthcare unit. She will succeed Andrew Witty, who will step down at the end of March. The choice invites controversy; some major shareholders wanted an outsider in order to help change the business’s structure. Fortune
Feds back self-driving vehicles
New guidelines from the National Highway Traffic Safety Administration support innovation in self-driving cars. Transportation Secretary Anthony Foxx‘s announcement constrains car makers but also encourages speedy testing. New rules enable staff to provide faster interpretations of rules and to grant more exemptions, which let car makers test ideas more quickly. Wired
Tesla warns that SolarCity deal could be delayed…
…by shareholder lawsuits. Four suits argue that Tesla’s board didn’t do its fiduciary duty in weighing the deal. Tesla CEO Elon Musk is on Solar City’s board, owns about 20% of the company, and is a cousin of SolarCity CEO Lyndon Rive. WSJ
Fortune Reads and Videos
CEO Jack Ma expects 40% of Alibaba’s business…
…to come from outside China in 10 years, vs. just 5% today. Fortune
Donald Trump Jr. likens refugees to…
…Skittles that could kill you. Mars, owner of Skittles, wasn’t pleased. Fortune
The late Aubrey McClendon’s wine collection…
…netted $8.44 million at auction. Nearly 80% of the wine sold above the already high estimates. Fortune
Half of the 262 million guns owned in America…
…are in the hands of just 3% of the population. This group of “super-owners” has between eight and 140 guns each. Fortune
Xerox CEO Ursula Burns turns 58 today. Britannica