Former Wells Fargo CEO John Stumpf just paid $2.5 million in civil fines. Is the bank’s fake-account scandal finally over? Not for shareholders.
The Fake Account Scandal
People may remember the nationally televised @ss whuppin’ Senator Elizabeth Warren delivered to then Wells Fargo CEO John Stumpf.
On Stumpf’s watch, 5,300 Wells Fargo employees opened as many as 3.5 million fake accounts in the names of hundreds of thousands of Wells Fargo customers.
Stumpf saw boosting the number of accounts per customer as the best way to jack up profits and share price. So, managers told front-line sales staff to “hit your numbers or hit the road.” Staff kept their jobs by opening fake accounts.
Supervisors reported the numbers at face value and collected fat bonuses.
The truth came out. Stumpf’s bumbling before the Senate Banking Committee triggered his ouster a few days later.
Direct and Collateral Damage
In the scandal’s aftermath, the federal government slapped the bank with $190 million in fines and restitution (equal to 0.2 percent of revenues).
Stumpf forfeited $41 million in equity awards, and the Board clawed back another $28 million in pay. Stumpf has also paid about $20 million in administrative and civil fines and been banned from the banking industry. His legal fees likely total in the millions.
He is less rich than he used to be. But still rich, and apparently now home free.
Stumpf initially allowed the line manager most responsible for the scandal, Carrie L. Tolstedt, to retire with a fat financial package. Since then, the Board clawed back about $66 million of Tolstedt’s compensation, while the government seeks $25 million in fines.
Ms. Tolstedt appears ready to fight. Her lawyer declared, “It is unfair and unfounded for the SEC to point the finger at Ms. Tolstedt when her statements were not only true but also thoroughly vetted by others as part of Wells Fargo’s policies, procedures and systems of controls.”
In other words, “my client isn’t responsible because her cheating was not caught and called out by other cheaters.”
Good luck with that.
The Aftermath of the Aftermath
Stumpf left behind a toxic-waste dump of mismanagement. It seems the deeper new management digs, the more cheating and fraud it unearths.
The government ultimately capped the bank’s growth and forced the replacement of some Board members to force Wells Fargo to get its house in order
My book discusses the obvious and deeper meanings of scandals of Stumpf and Wells Fargo.
An important lesson is to look beyond greed. Senator Warren rightly called out Stumpf’s mismanagement. But focusing on “greed” alone loses the larger picture and lesson.
Lambasting a clueless CEO for greed is fun, but the hard work and heavy lifting of ethical business require us to look at the structures and processes needed to combat cheating.
Stumpf and his Board failed to put in place and to monitor processes that might have discovered and thereby largely deterred cheating. This fostered a culture of fraud for which shareholders continue to pay the price