Skip to Content

Wells Fargo CEO John Stumpf’s Fatal Flaw

John Stumpf’s sudden retirement yesterday was no surprise. As Wells Fargo’s fake-accounts scandal continued to grow, it became clear that the bank couldn’t move on until Stump left the building. What makes the news interesting is that it fits a larger recent pattern, along with the Samsung Galaxy Note 7 disaster and the never-ending VW mess. All look increasingly like examples of the same leadership failing.

The failing is a common one: demanding results at all costs in the belief that pushing people to their utmost limits is the only way to make them deliver everything they’re capable of. That belief holds an element of truth, of course. That’s what makes it seductive and insidious, a trap for leaders who don’t fully understand what they’re doing.

The trouble started with each of those three companies’ leaders facing monster strategic goals that simply had to be achieved.

-For Samsung mobile chief D.J. Koh it was beating Apple’s iPhone 7 to market with a knockout competitive product. Product development and testing got rushed, and the result will cost the company some $4 billion in direct costs and lost sales, plus incalculable damage to the brand.

-For Wells Fargo’s Stumpf it was doubling down on cross-selling, the key to its excellent performance over many years, which would be its salvation in a low-growth, low-interest-rate environment. Now the company will undoubtedly face massive class-action lawsuits and likely punishment by federal regulators.

-For former VW CEO Martin Winterkorn and former chairman Ferdinand Piëch, it was making the company’s diesel engines compliant with U.S. emissions rules so it could increase U.S. sales, as it desperately needed to do in order to meet its audacious goal of becoming the world’s largest automaker. Ultimate costs of the defeat-device scandal are unknowable but certainly in the tens of billions of dollars, not counting reputational harm.

In each case the company’s future was at stake, or so the leaders believed. Failure was not an option. Except, of course, that in demanding success at all costs, each leader has now damaged his company in profound ways that will hurt employees, investors, suppliers, and communities for years.

In the Wells Fargo and Samsung cases we don’t yet know to what extent each leader cracked the whip over subordinates, creating an unbearable atmosphere in which employees did what they surely knew was wrong. Investigations into the VW case over the past 13 months have revealed that Winterkorn and Piëch were quite explicit in demanding results or else.

Another developing pattern: Winterkorn stepped down abruptly, as Stumpf has now done also. Is Samsung next? Its unique conglomerate structure makes that a tough call, but it’s hard to see how the company recovers until some top-level executive pays a heavy price.

The leaders in these cases already knew that the art of leadership lies largely in striking the right balance between risks and rewards. What they didn’t fully appreciate is the staggering cost of getting it wrong. And perhaps they never imagined that they actually might get it wrong.

You can share Power Sheet with friends and followers here.

What We’re Reading Today

Women accuse Trump of grabbing them
The NYTimes, People and The Palm Beach Post are reporting stories of women who say Donald Trump groped them despite their protestations. One woman said he grabbed her on a plane, another at his Mar-a-Lago Club. The women have come forward after Trump said at Sunday night’s debate that he has never touched women without their permission. Trump denies the new claims. USA Today

Uber drivers entitled to unemployment insurance 
The New York State Department of Labor has agreed with two former drivers who argue they should be treated as former full-time employees and be paid unemployment insurance benefits. While the ruling applies only to those two drivers, taxi drivers and operators hope to get it applied more broadly. It’s a threat to Travis Kalanick‘s business model, which relies on contractors. NYT

Snap picks bankers for IPO
The parent company of Evan Spiegel‘s Snapchat is nearing its goal of going public after choosing Morgan Stanley and Goldman Sachs to run the deal. The best-case scenario is that it lists in March at a valuation near $25 billion.  Business Insider

Jack Ma shares his vision of retail’s future  
In letters to shareholders, Alibaba founder Ma and CEO Daniel Zhang outlined how they believe retail will evolve over the next 30 years. Alibaba will work with retailers as they “upgrade into a brand new retail model,” says Zhang. Ma envisions a world in which Alibaba and retailers work alongside each other, with his company guiding them past this “inflection point.” Fortune

Building a Better Leader

If you don’t want to dance during an interview…
…but the company asks for your favorite move, maybe that employer is not the right cultural fit for you. More companies are creating ways to test cultural fit before hiring.  WSJ

New government report on artificial intelligence…
…says advancements in AI will take some jobs, mostly low-paying work, and may increase wealth creation. Some experts foresee a much greater impact.  Fortune

Integrating strategy and leadership
Good ideas go nowhere without someone to inspire action, while strong leadership achieves nothing without sound strategies. The two must work in tandem. Knowledge@Wharton

The Wells Fargo Saga

Wells Fargo CEO steps down
After weeks of pressure to resign, John Stumpf has decided to retire. He will not receive severance pay and has already relinquished $41 million in unvested equity awards. It’s a rapid fall for Stumpf, long considered one of America’s best CEOs. His slow response to the fake-accounts scandal and grudging acceptance of responsibility made his departure inevitable. WSJ

The new CEO faces immediate test
COO Tim Sloan will succeed Stumpf as CEO. Previously the clear heir apparent, he will quickly have to respond to Wall Street when he presents third-quarter results on Friday. Investors want to hear how Wells will grow with one of its top revenue generators, cross-selling, under fire after the fake-accounts scandal. Reuters

Sloan didn’t see a problem with Wells’s culture
Just three months ago,  Sloan didn’t think that the bank’s cross-selling practices had created cultural problems, and he has defended the culture against numerous reports dating to 2013 that aggressive sales goals led to illegal behavior. Some analysts argue that an outside CEO would have been a better choice to fix the bank’s problems. Fortune

Fortune Reads and Videos

Alaska Airlines removed a passenger…
…from a flight for catcalling one of its flight attendants. Fortune

A Facebook note reminding followers to register to vote…
…increased registration. A number of states credit the reminder with getting young voters to sign up. Fortune

Novo Nordisk’s Lars Rebien Sørensen has been named…
…the world’s “best performing” CEO by the Harvard Business Review for the second consecutive year. Fortune

Major mall developer says it’s closing 72 locations…
…on Thanksgiving. The move by CBL & Associates signals another welcome blow to Black Friday creep. Fortune

Quote of the Day

“Throughout history, technological disruptions have followed similar trajectories: 20 years of technological disruption followed by 30 years of further rapid change as new technologies are applied throughout society…Over the next 30 years, with computing power as the new `technology breakthrough’ and data as the new `natural resource,’ the landscape of retail, financial services, manufacturing and entertainment will be transformed.” — Alibaba founder Jack Ma  Fortune

Share Today’s Power Sheet: 
http://fortune.com/newsletter/powersheet/

Produced by Ryan Derousseau
@ryanderous
powersheet@newsletters.fortune.com