While all eyes are on Washington and the incoming Trump administration, regulators, prosecutors, elected officials from both parties and the media continue to swarm all over Wells Fargo due to the worst scandal in its 164-year history.
Things are so bad that even the Better Business Bureau took away the bank's accreditation. Numerous jurisdictions, including the state of California and the city of San Francisco — the bank's home for more than 100 years — have taken steps to reduce business relationships with the bank. San Francisco officials have weighed cutting ties altogether. As a result of the scandal, customer satisfaction, loyalty and new accounts are all falling.
But these developments are likely just the beginning.
For example, the bank's regulator, the Office of the Comptroller of the Currency, recently made the extraordinary move of unilaterally revoking key parts of its initial settlement with Wells, thereby imposing new limitations on executive pay among other things. Meanwhile, Democratic lawmakers have just filed a bill to nullify the bank's arbitration agreements, which would make it easier for customers affected by the scandal to file class action lawsuits.
However, as bad as things are, they are going to get much, much worse.
What compounds the risk from Wells Fargo's egregious sales practice violations is that the public, the media, politicians, regulators and prosecutors are all still looking for someone — anyone — to punish for all of Wall Street's illegal and predatory conduct, both in causing the 2008 crash and practices that have occurred since.
Since Wells Fargo's alleged crimes are so easy to understand by the public, the bank's executives and directors are all sitting ducks to shoulder the blame for general grievances with Wall Street's biggest banks.
The irony, of course, is that Wells Fargo is not one of those Wall Street banks. It's actually the type of commercial bank that America needs: Its lending supports families, communities and the real economy — creating jobs, growth and wealth. Unfortunately, that's not going to matter much when the undifferentiated anger against "Wall Street" is so high, and many are looking for scapegoats.
To avoid unfairly paying for the many sins of Wall Street, Wells Fargo has to make fundamental and, at times, painful changes, and it needs to do so quickly and convincingly. Wells Fargo, to its credit, has already taken some important steps, like separating the roles of CEO and chairman of the board.
But the bank hasn't gone far enough to deal with the gravity of the crisis engulfing and threatening the bank. To avoid the fate of the bank's former CEO, who seemed surprised by his rapid fall, the new CEO must see this unanticipated crisis as a unique opportunity. That will require bold leadership that goes on offense to change the narrative and restore the Wells Fargo brand, while doing the right thing for customers and shareholders.
Here are some actions that Wells Fargo needs to consider.
First, the board and management must take personal responsibility for what happened. The resignations of both the former CEO and the executive who ran the unit at the heart of the scandal simply aren't enough. Similarly, saying, "We're sorry and will do better" is not taking responsibility.
Management must start by putting their money where their mouth is: Top executives must take initiative and announce that they are voluntarily giving up a significant portion of their bonuses for 2016. In addition, regardless of rank, any performance pay related to the fraudulent and illegal actions must be clawed back from anyone who improperly benefited financially.
Second, to help prevent such misconduct from happening again, all future performance pay should be contingent, to a significant degree, on customer satisfaction. That should become a key determinant of any executives' measure for success. Some companies already do this. For example, BMW has an aggressive independent customer satisfaction requirement for dealers. Wells Fargo should adopt an industry-setting example of a customer-satisfaction compensation system.
Third, Wells Fargo must structurally and permanently put customers' interests at the core of the management of the bank. Just as the Securities and Exchange Commission was required to create an Office of the Investor Advocate and a whistleblowers program after missing the Madoff Ponzi scheme for years, Wells Fargo should create an Office of the Customer Advocate and appoint a senior executive vice president to run it and to serve on the bank's executive committee.
Fourth, given the disreputable role mandatory arbitration clauses apparently played in concealing the illegal conduct, Wells Fargo should not enforce any arbitration clauses related to this scandal and should establish an expedited process to settle all claims fairly and quickly. Separately, the bank should become a leader in reforming the private arbitration process so that customers willingly choose it as a fair, low-cost alternative to litigation.
Fifth, Wells Fargo should take clear public action to put itself on the side of its customers' best interest. It should start by advocating for the financial regulatory agencies to finalize a mandatory clawback rule at least as strong as Wells Fargo's existing discretionary policy. It should also defend the Consumer Financial Protection Bureau from attacks. Yes, the CFPB fined Wells Fargo $100 million for the illegal sales practices, but the bureau is an effective protector of consumers and it served Wells Fargo's customers very well.
Of course, all of these actions must be in addition to a thorough and independent investigation of the sales practice violations that gets to the bottom of what really happened and how it could have gone on for so long. The mind-boggling scope of this illegal conduct reveals a broad-based breakdown in the bank's ability to detect operational and legal risks, and then to use risk management to strengthen compliance. This deep systemic failure is a red flag for the board and senior management and proves that they must go far beyond the standard "circle the wagons" PR and legal defenses.
Taking these actions would prove to appropriately skeptical and jaundiced customers, prospective customers, regulators, policymakers, elected officials and the media that there is a new, transformed Wells Fargo, fully and genuinely committed to protecting customers. Plus, by taking responsibility with aggressive action, Wells Fargo would also prove that it is the opposite of a Wall Street bank.
In an October statement, the bank said its "No. 1 priority is making things right with our customers and restoring public trust, and we are dedicated to ensuring that all aspects of the company's business are conducted with integrity, transparency and oversight."
Making good on that statement will require the leadership of one of America's most storied companies to confront the breadth of this crisis by driving fundamental and dramatic change that restores its reputation as trustworthy and benefits its customers and investors.
Dennis Kelleher is the president and CEO of Better Markets.