Some 24 years ago, Lloyd Johnson invited me to Minneapolis for an interview as he was stepping down as chief executive of one of the biggest banks in the American Midwest, Norwest Corp. In his aerie atop the 57-floor Cesar Pelli skyscraper the bank recently had constructed from the ashes of a burnt headquarters, Johnson delivered a message that should resonate loudly today inside the financial institution that Norwest begat.
“Ten or 15 years ago, bankers and doctors were put on the same pedestal,” the then 62-year-old CEO said. “Now bankers find themselves at a much lower rung.”
In light of the recent cross-selling-gone-wild scandal that came to light at Wells Fargo, the massive U.S. bank that merged with Norwest in 1998, it’s worth savoring Johnson’s lamentations. If the financial profession finds itself even further down the ladder of respectability, it has Johnson’s successors very much to blame. John Stumpf, Wells Fargo’s chairman and CEO, now shoulders that load.
Given his age and poor response to revelations that thousands of employees fraudulently opened accounts for customers, allegedly without their knowing, Stumpf’s time at the helm may be on the wane. The depth of misbehavior throughout its branches nationwide should prompt Wells Fargo’s board of directors to reconsider any preconceived notions it may have had about who can lead the $1.9 trillion bank.
Wells Fargo has lost some $30 billion of investor wealth since settling with U.S. regulators last month over the fake accounts. Aggressive sales targets appear to have been a big part of the problem. That culture can be traced right back to Norwest and Johnson’s hand-picked successor, Richard Kovacevich, a former Citibank executive who became known in the industry as the king of the cross-sale. He also is perhaps best known as the bank boss who most opposed accepting the government-led bailout of the U.S. financial sector during the 2008 crisis.
Stubborn insistence on a metric beloved within Wells Fargo – the number of accounts held by each customer – arguably led the bank into the morass in which it finds itself today. Wells Fargo’s eagerness under Stumpf’s leadership to push the blame for the opening of some 2 million unauthorized deposit and credit-card accounts to meet internal sales quotas onto 5,300 employees exposed widespread rot inside the bank and a lack of accountability at its highest reaches.
This is hardly the fate envisioned by Johnson, who passed away four years ago. He handed Norwest off to Kovacevich, who after uniting it with Wells Fargo, spearheaded a series of acquisitions and led it through the financial crisis. Its strong financial position allowed the bank to gazump Citigroup with a takeover bid for collapsing Wachovia. Wells Fargo now sits on one of the largest balance sheets on the planet.
Before the Wells Fargo deal, “Norwest was known for customer service and a superior sales culture (branches were called stores and bankers, salespeople),” according to a 2004 Stanford Business School case study. Wells Fargo’s tribulations, however, demonstrate how a successful sales organization can go awry when incentives are misaligned and oversight weak. Though the episode only appears to have cost customers a few million dollars, it fundamentally abrogated trust, the single worst infraction a bank can commit.
Stumpf and Wells Fargo’s former head of community banking, Carrie Tolstedt, have belatedly taken their lumps. Combined they will surrender some $60 million in unvested stock awards, among other financial punishments agreed with the board.
For Stumpf, a native Minnesotan and one of 11 children raised on a chicken and dairy farm, the fiasco will mark an ignominious legacy to his career. He joined Norwest in 1982, even before Johnson arrived to pull the bank out of a crisis involving duff agricultural and overseas loans. Stumpf probably will stick around through the bank’s internal probe, and prove a useful front against any shareholder lawsuits or actions by the Justice Department. At 63, he is approaching the bank’s mandatory retirement age.
The question for the board is: what now? If past is prologue, the bank will retreat internally and in obdurate fashion. That might, for instance, entail bringing Kovacevich back to oversee the board, even if only temporarily. As the company’s cross-salesman-in-chief, however, that might irk relations with regulators.
Timothy Sloan, the president and chief operating officer since last year, has been widely considered Stumpf’s successor. A nearly 30-year veteran of the bank, he hails from commercial, not retail, lending. Even so, Tolstedt reported to him for the past year. Sloan also sat on the bank’s executive committee and was its chief financial office from 2011 to 2014, when the bank was opening those millions of illegitimate accounts.
What Wells Fargo probably could use at this point is a fresh look. The extraordinary depth of its poor conduct, combined with its CEO’s hapless response and the failure of its board to act before Congress forced its hand, suggests a kind of systemic insularity that should worry shareholders and regulators equally.
When the air clears – along with Stumpf’s desk – Wells Fargo directors could do worse than reflect on Johnson’s advice to a cub reporter in 1992: “The biggest thing banks need to know is what they are, what their focus is,” he said. When they do, “the public will once again have confidence in banks.”