Now John Stumpf, CEO, has resigned from Wells Fargo effective immediately. It had to be so. One can easily see how the problems (!) that plagued their retail banking department might, hypothetically, have been unknown to upper management, but in this case the sales incentive program that drove the criminal misbehavior came from the top, i.e. from Stumpf. With such incentives, management must know, as every reasonable person knows, that there is a risk of misbehavior, so the incentives must be accompanied by a ‘governance’ procedure – audits, at the least – to ensure that everyone is playing by the rules. If such procedures were not implemented, or the procedures were ineffective (it was one or the other), then Stumpf and the executive vice president in charge of the department were either irresponsible or incompetent. Both must go, and so they have.
For regulatory, liability, and reputational reasons – and the reputational hit can be the worst, at least at the bottom line – Wells, like every bank, has firm ‘ethics’ rules and aggressive training and governance programs to match. Upper management well know these costs and that the business and, therefore, executive benefits depend on keeping those costs dear in mind. You will look long and hard, and unsuccessfully, to find a top bank executive, at least at a large bank, who condones the sort of thievery that happened at Wells. But at Wells, there were at least two (and obviously some highly-placed subordinates) who were willingly blind.
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Some years ago, I had a contract at a major bank to help clean up after a third-party vendor who didn't follow the approved scripts (approved by the bank's legal department, for starters) in selling add-on products for the bank. When the bank's auditors discovered the problem, it immediately put the vendor straight and set out to to find every customer who even might have been misled by the off-script pitch, and extended the investigation to every vendor of similar products even where there was no evidence of free-styling. This was a ‘hair-on-fire’ moment for the bank, and the ‘remediation’ program – some days it looked like a crusade – was well-funded and very high-profile there because of the regulatory, liability, and reputational risks that followed, most notably regulatory if the bank wasn't extravagantly ‘all over the problem’ by the time that the regulators arrived on-scene. My inexpert opinion was that the other risks were manageable in that case; it turned out that several banks and credit-card companies had similar problems with cowboy third-party vendors of this particular product, so everyone was hurrying to set it more than right. Reputation only required positive action, not the panicked frenzy that actually ensued.