The New York Times has reported that Wells Fargo, a US large bank, is now struggling in the aftermath of the fake accounts scandal. It's hardly surprising really, especially given the questionable response from the board of directors. The drop in earnings and business performance that ensued and the subsequent erosion of trust among customers and in the marketplace has placed a heavy burden on the company, the board especially so.
What can be learned from this now well-storied case? Firstly, no one is perfect. Mistakes happen and people sometimes commit fraud. Secondly, and importantly, recovery is possible but this depends on certain actions being taken. The challenge (or, more accurately, opportunity) for the person or group that has made a mistake or perpetrated a fraud is to apologise and make good, and to re-establish trust with key stakeholders (staff, customers, shareholders and the market) as quickly as possible. This can be tough because it means admitting failure and swallowing some pride. But these steps are necessary if recovery is to be complete. The exemplar that is often cited is the Johnson & Johnson Tylenol case.
Usually, the recovery process involves making good with parties impacted by the event (showing remorse, apologising and making meaningful reparations), and changing behaviours, processes and, potentially, swapping out people to ensure the mistake or fraud is not repeated.
The board of directors has a crucial role to play in the recovery process, because company culture is usually a significant contributing factor in any failure. Boards must accept that ultimate responsibility for culture—as with everything else—resides in the boardroom. The Wells Fargo board and management would be well-advised to check the J&J case carefully for insights; commission an independent review of the operating culture (starting in the boardroom); and, commit to taking appropriate actions to cut away all vestiges of the scandal. A public apology wouldn't go amiss either.
Thoughts on corporate governance, strategy and effective board practice; our place in the world; and, other things that catch my attention.