The scandal at Wells Fargo has knocked the company off its pedestal as the nation's largest bank. Notwithstanding, the bank is still huge and an important player in the global financial system and economy. So, it is imperative that the company move forward to put the scandal behind it.
But the goal should not just be to navigate past the bank's legal difficulties. Those will play out over the next few years regardless of what Wells Fargo does. Instead, the goal must be to re-instill a culture of pride, trust and purpose at the bank — from the boardroom to each branch. Here, the steps needed for recovery are more extreme than just legal maneuvering. It is a similar objective that companies in a complex bankruptcy face, like the bankruptcy of WorldCom more than a decade ago. Here is a roadmap for Wells Fargo to get back on its feet:
Get a New CEO and CFO
This is not a recommendation made lightly, nor with malice towards the executives currently filling those roles. I do not like calling for people to be fired, but in this case there really is no choice. Current Wells CEO John Stumpf and CFO John Shrewsberry initially blamed low-level employees for the scandal, even while allowing the executive overseeing retail operations, Carrie Tolstedt, to retire. Indeed, Stumpf tried to whitewash her role in the scam and protect her potential $100 million payday. Stumpf even said she was "a standard-bearer of our culture" when she resigned. To progress, the bank will need to instill a "we're all in this together" attitude that rallies every employee around a common purpose. Stumpf and Shrewsberry's tone-deafness, defense of the indefensible and treatment of senior executives relative to line employees are disqualifying.
Separate the Board Chair and CEO
This proposal has been suggested to Wells Fargo for years, but the board has always opposed it. (In addition to serving as CEO, Stumpf is also the chairman.) But the need for board-level accountability in the aftermath of a crisis demands separating the two positions. Indeed, splitting the chair and CEO functions immediately would allow the board to focus on systemic issues and set the ethical tone for the company, while allowing the new CEO to focus on the operational fixes necessary and on running the bank.
Perform Review of Board's Role in Scandal, and Make It Public
Taking accountability means understanding all the mistakes, admitting fault, and learning from it. This includes delving into what the Wells board knew about the account practices and when. The full truth will come out eventually; investigative reporters and others are likely digging into this and other issues. It would serve the company well to get ahead of the story for once, rather than react to inevitable further revelations.
Install a Board-Level Independent Monitor
Independent monitors — tasked with focusing on corporate culture and ethics — are frequently installed by prosecutors when there has been malfeasance. But companies can tap independent monitors voluntarily as well. The independent monitor at WorldCom, former SEC Chair Richard Breeden, was invaluable in rehabilitating that company prior to its sale. The Wells board should hire its own monitor and charge him or her with not just compliance, but also ethics and culture.
Review All Incentive Compensation Arrangements,
A review of the compensation deals should include those for named executives and for the rank-and-file. The cross-selling goals for Wells' retail division were clearly the driver of the pressure that led to two million fake accounts. And it's understandable that Wells Fargo has announced that the cross-selling incentives program will end. But companies need sales goals and other incentives. The key is to make sure that the proper control environment is in place and that the goals are not creating perverse incentives. The compensation committee of the board should take this opportunity to review, comprehensively, the incentive compensation plans in place, and tweak them if necessary.
Anyone can and is casting stones at Wells Fargo. But once cast, the stones must be picked up to fix what's gone wrong and rebuild. Indeed, the board of directors has some heavy lifting.
Jon Lukomnik is executive director of the Investor Responsibility Research Center Institute in New York City and managing partner of Sinclair Capital L.L.C., a strategic consultancy. He served on the creditor committee for WorldCom, and co-authored the book "What They Do With Your Money: How the Financial System Fails Us and How to Fix It."