After the fake-accounts scandal that shook Wells Fargo last year, the bank’s board of directors took decisive action to mitigate the damage and punish those responsible, clawing back tens of million of dollars in stock awards from Carrie Tolstedt, the retiring executive who led the unit where the alleged misconduct occurred, and former CEO John Stumpf. Even more importantly, the bank overhauled the compensation scheme that may have enabled the unethical sales practices at the heart of the scandal and enlisted a law firm to conduct an independent investigation into how these practices came about.
The findings of the investigation, released in April, attributed the emergence of these practices to fundamental problems in Wells Fargo’s business culture, in which executives were subject to too much autonomy and too little oversight. This flaw enabled senior leaders to ignore or minimize problems with the bank’s sales culture and performance incentives until they spiraled out of control.
The challenge for Wells Fargo now is to change its culture to ensure that these bad practices don’t resurface. At Fortune, Geoff Colvin takes an extensive, fascinating look into the cultural course correction the bank’s new CEO, Tim Sloan, is currently in the midst of undertaking:
On Jan. 1 he instituted a new incentive compensation plan in the retail bank that pays employees on the basis of customer satisfaction and achievement of team goals, among other measures, but not product sales goals. The branches aren’t “stores” anymore; they’re branches. No one in the company gets evaluated on products per customer, and after almost 20 years, the company no longer reports that number to investors.
Repairing a critical structural error, Sloan has fully centralized the risk and HR functions, so the leaders of those departments in the business units now report to their corporate chiefs without even a dotted line to the business unit head. He consolidated much of the vast risk-control bureaucracy into a new office of ethics, oversight, and integrity, accountable to the board’s risk committee. …
All of that needed doing before Sloan could finally start the culture-change project in earnest. He knows that culture doesn’t come from policy; it comes from leaders’ day-to-day behavior, and it cascades. What will he ask of his direct reports? Who will get promoted? How will frontline workers be evaluated, promoted, paid? Crucially important: What will happen when an employee calls the ethics hotline? …
It can’t happen quickly. “It takes years to behave your way out of a problem like this, to become the company you dream of becoming,” says Douglas Conant, who transformed Campbell Soup’s culture and rescued the company in the early 2000s.