On Wells Fargo: Actions and consequences?

The storied fall from grace of Wells Fargo continues to produce fodder for both informed discussion and speculation. And rightly so. Much can be learned from this case, of a once-proud bank that started believing its own press, and then breaching ethical and legal boundaries. To maintain a fictitious facade undermines the confidence that many private citizens place in banks.

The first, and most important learning is that when trust is eroded—regardless of whether through illegal and immoral actions or more simply ineptitude—consequences typically follow. In Wells Fargo's case they have, well mostly. The bank's share price and reputation have both taken a hit: mistrust being a heavy burden.

Now, the results of an independent investigation into the fake accounts scandal have been published. The report is comprehensive (it is nearly 100 pages long). The stated goal of the investigation was to identify the root causes of "sales practice failures", so that "these issues can never be repeated and to rebuild the trust customers place in the bank". So, what was discovered?

Expectedly, operational failings were uncovered. ​The report lays much of the blame on the shoulders of the then chief executive, Mr Stumpf. This is appropriate because the chief executive is the person who is normally responsible for operational performance, in accordance with both approved strategy and policy. Changes to personnel and practice have been made.

​What is perhaps surprising however, is what is not reported. The board does not appear to have looked in the mirror. Yes, the roles of chairman and chief executive have been separated and allocated to two different people—but what of the board's engagement in effective oversight of management? The board of directors knew of the sales practice failures as early as 2014. Remedial actions were (supposedly) taken in 2015, and management reported these were working. But who checked?

That the board knew about the problem and remedial actions were supposedly taken is clear. What is far less clear is whether the board satisfied itself that the actions had in fact been taken and/or that the desired effects had been achieved. Sadly this is not uncommon. That the board trusted management, and blindly so it would seem, does not excuse the board from the consequences of the scandal that followed.

The board-commissioned independent review has shone the light brightly on management. Problems have been identified and actions taken. This is good. Now, one significant step remains: the board should have a good long look in the mirror.