Poor Culture, Misaligned Incentives and Massive Fines… Lessons for Businesses of Every Size
“Many of the employees felt pressure to sell customers multiple products or services… to stay in their jobs or earn bonuses tied to sales goals… branch employees met with their managers several times a day to report their progress on meeting cross-selling targets…” – Article in the Wall Street Journal, September 14, 2016, found here: http://www.wsj.com/articles/wells-fargo-ceo-defends-bank-culture-lays-blame-with-bad-employees-1473784452
Wells Fargo was caught falsifying accounts to meet sales goals for cross-selling products to customers and paid a $185 million fine.
I will not be surprised if we find that this is not the only issue inside of the bank that comes to light. At the core of this type of behavior is a cultural corruption and mis-alignment among the company, employees and incentives.
The Peg Bundy Business Model
Years ago on an episode of “Married with Children” the character Peg Bundy got involved in a home based business selling make-up to her neighbors. Peg made an off handed comment to her friend that ‘while the make-up isn’t very good… every time I order more they send me a check…’ Later in the episode Al Bundy gets the bill for all the orders and explains to Peg that her behavior is how they are ‘rocketing to the poorhouse…’
Peg was not incentivized to sell the make-up, instead she was incentivized to order more make-up because that is how she earned money in the venture.
Likewise, the incentive structure at Wells Fargo was not to service customers, rather it drove improper cross-selling and has cost Wells Fargo a great deal in actual and reputational capital.
Wells Fargo CEO John Stumpf contends that “There was no incentive to do bad things,” in connection with the scandal, the results suggest otherwise.
How About Your Business?
I once participated in a meeting with a Sales Director who was asked – ‘How do your sales managers earn bonuses and commissions? How do they earn their commissions and bonuses?’ His answer: “I have no idea.” Would you be surprised to learn that the company had stagnated growth for five years and over 100% turnover on its sales team? This sales leader had no idea what incentives motived employee behavior. I wondered: How could he lead? He was removed him from the position on the spot – the company grew 15% in the following year as a result of a revitalized marketing and sales team.
As you can see in the WSJ Article, Mr. Strumpf “feels accountable” for what happened. Well, leadership is always, completely accountable for what happens inside an organization because leadership sets the strategy, culture and compensation plans that drive the behavior that determines results.
Compliance and Accountability – Keys to Building Company Value
While the bank explains that the number of people involved is small 5,300 (with few, if any in senior management getting the ax) – it is telling that it was so wide spread and lasted for several years. The compliance department failed to check the accounts – even in the face of customer complaints and the only people held to account are line employees.
Well, in middle market businesses there are no such protective barriers for Owners and Leaders. Make sure your company has a culture focused on effective execution, focused on doing the right things well. Walk the halls of your business, find out what is happening at the loading docks and at the point of delivery of your services. Leadership must hold itself accountable to set the example and hold others accountable before massive failures, fines or worse…
Decide what you want your company’s future to be and call Rich Trimber at General Counsel, P.C. for a free consultation and fitness checkup on your company’s operations, stress points, structure, HR Policies and Procedures (strategic HR with training plans) and team needs so you can grow a great business – a living company that can survive and thrive in the future.
General Counsel P.C. has the expertise, skill and–the real key–unique experience of running companies as C Level Executives that makes a difference when advising our clients on: (i) structuring operations for efficiency and legal protection (which means more value); (ii) administration (not just overhead but value added elements); and (iii) Sales/Marketing (proper incentive based compensation causing the behavior that drives results!).