wells fargo

  • Fake Data and the Death of Star Culture

    The recent rash of sexual misconduct accusations against prominent men provide a lens through which we can view the death of star culture. For generations, we have bestowed God-like status on so-called stars whether they’re politicians, chefs, entertainers, executives, athletes or show hosts. This exalted status makes “stars” believe they are special.

    The #metoo movement is a proxy for rejecting star culture. And now this cultural shift is manifesting in other ways. Viewership for last Sunday’s Grammy Awards dropped 24 percent compared with viewership for last year’s Grammy Awards. We’re tired of stars.

    If “stars” like Bill Cosby, Harvey Weinstein, Matt Lauer, Mario Batali, Kevin Spacey, Charlie Rose, Steve Wynn and so many others get a pass on just about everything for being stars, our star culture is responsible for their transgressions. We elevate them to status so rarified that they may believe laws and standards of fairness and decency do not apply to them.

    Star culture reinforces the false notion that we achieve great feats by ourselves. Whether the so-called star is a movie producer, chef, tv host, actor or executive, the reality is that he or she succeeds because of others. Nobody achieves great feats entirely on their own. Behind the scenes, many people work to make the movie, the meal, the talk show, the team, the business a success regardless of the “star.”

    In The Culture of Collaboration book, I describe the Myth of the Single Cowboy. This is the notion that one self-suf­ficient, rugged individual can achieve smashing success without help from anybody. When we perpetuate this myth, we make so-called stars feel that they’re a breed apart and can conduct themselves without consequences.

    Star culture reinforced by the media and society at large also infects organizations. The result is that contributors who are not considered A-listers get sidelined. Their input and ideas are lost, and value creation suffers. Plus internal competition to become a star increases bad behavior such as sabotaging others and hoarding information.

    Our excuse for star culture and for tolerating transgressions is that stars supposedly create more revenue. There is evidence, though, that the financial performance of stars is often overstated. NBC’s Today Show picked up more viewers after the network fired Matt Lauer.

    Rejecting star culture is nothing short of a fundamental shift in our society. This shift will impact companies, universities, government agencies and organizations of all types. Smart organizations will get ahead of the curve and take the necessary steps to replace star culture with a collaborative culture

    People who become stars often cheat to achieve or keep their rarefied status. Social media is a case in point. One way we measure star power is to count the number of followers on social media. Did we really think that stars are so popular that millions of people read their posts and tweets? It turns out that “stars” and wannabe “stars” pay for fake followers which create fake data on which companies base advertising and endorsement decisions.

    A reporting team at the New York Times recently investigated a company named Devumi that sells Twitter followers and retweets. The company reportedly has at least 3.5 million automated accounts for rent. Customers include reality television “stars.”

    So it turns out that star culture is related to another unfortunate phenomenon that compromises collaboration: measurement mania and the tyranny of data. Fake data is by no means limited to social media. In command-and-control organizational cultures that foster internal competition and information hoarding, team members get the message that the goal is winning at all costs. In this type of culture, numbers get fudged and corners get cut.

    Fake data scandals cost these companies plenty. A recent glaring example is the fake bank account scandal at Wells Fargo. Companies that embrace fake data are often the same companies that promote “stars” and minimize the contributions of others.

    Many companies have yet to catch up with our evolving society. Successful organizations use real data and replace star culture with collaborative culture.

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  • Common Sense Trumps Data

    I was in northwest Ohio this summer where Trump yard signs were everywhere and Clinton signs were practically nowhere.

    What changed? The increasing role of data.

    Most Clinton staffers apparently believed that targeted election canvassing and social media produce greater results than yard signs, campaign buttons and bumper stickers. And the data suggests that physical signs have only a slight impact on campaigns.

    Hillary Clinton online ad

    The Hillary Clinton campaign favored online ads like this one over yard signs.

    The lack of Ohio yard signs was a shock in that I covered presidential campaigns in Ohio during my early career as a reporter for WTOL-TV, the CBS affiliate in Toledo. Yard signs always dominated the landscape during election season. For voters looking around for clues of which way the wind is blowing among friends and neighbors, yard signs matter.

    Yard signs illustrate how data and common sense can diverge. Common sense suggests that campaign signs, particularly those on residential lawns, have a significant impact. Many people vote for the candidate their friends and neighbors support. And regardless of ads and chatter on social media, there’s nothing quite like the real-world visual reinforcement of a candidate’s signs dominating one’s street or neighborhood.

    And Ohio is by no means the only state that lacked Clinton yard signs.  Published reports indicate that Trump signs dominated rural Pennsylvania. Last January, Wired profiled Edward Kimmel, a part-time campaign photographer and Clinton supporter, who noticed the visual shift from previous presidential campaigns in Iowa. Kimmel voiced concerns about the impact a lack of signs might have on voter turnout. Kimmel was prescient.

    A tyranny of data short circuited the Hillary Clinton campaign and contributed to Donald Trump’s victory. From the bubble of its Brooklyn Heights headquarters, the Hillary Clinton campaign apparently viewed yard signs as obsolete in the age of targeted digital canvassing and social media.

    The Clinton campaign is just one example of how relying exclusively on data can compromise value. Wells Fargo emphasized measurement over common sense, and its reward system encouraged team members to cut corners and open unauthorized accounts for customers as I detailed in my September 13, 2016 post. The company is now paying the price in fines, lost business and compromised reputation.

    Donald Trump yard sign

    A Donald Trump for President campaign yard sign in West Des Moines, Iowa. Photo by Tony Webster. Licensed under CC BY 2.0

    Measurement mania and the tyranny of data are nothing new. In my most recent book The Bounty Effect: 7 Steps to The Culture of Collaboration , I write about the myopic approach dubbed “management by measurement” which dates back to the so-called Whiz Kids. In the 1940s, the Whiz Kids were junior faculty from Harvard Business School recruited by Charles “Tex” Thornton to run the Statistical Control unit of the Unites States Army. The group included Robert McNamara, who would later become president of Ford Motor Company, secretary of defense and president of the World Bank.

    The Whiz Kids applied statistical rigor in running the army, and later Henry Ford II hired the team to bring a similar data-driven focus to Ford. The Whiz Kids also introduced bureaucracy and hierarchy and developed rules requiring that, among other things, memos from vice presidents must appear on blue paper to highlight their importance.

    The Whiz Kids sacrificed long-term value for short-term targets by limiting investment in new equipment and R&D. Plus Ford’s products suffered when plant leaders failed to prove through numbers the necessity for new equipment. Ultimately, this myopic focus on data led to foreign competition from companies that focused as much on engineering and production as on finance.

    The Clinton campaign is by no means the only organization blinded by data. Organizations in every sector and industry suffer from measurement mania that impedes collaboration and value creation. In The Bounty Effect, I detail Five Measurement Counter-Measures to prevent data from short circuiting collaboration and compromising value. One of them is “perform a common sense reality check.”

    Had the Clinton campaign used common sense to check its data, yard signs might have sprouted in the industrial Midwest and, more broadly, the campaign might have adopted a message that would have resonated with swing-state voters.

    Regardless of level, role, region, organization or sector…never rely on data without a common sense reality check.

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  • Fixing Wells Fargo

    Wells Fargo CEO John Stumpf will testify before the Senate Banking Committee next Tuesday about the company’s sales practices. This word comes less than a week after Wells Fargo agreed to pay $185 million in fines from the Consumer Financial Protection Bureau, the Comptroller of the Currency and the City Attorney of Los Angeles. So what went wrong?

    Well, I’ve seen similar disasters in other companies when the structure—and, yes, the culture—of  the organization encourages competing with colleagues and cutting corners rather than collaborating with colleagues, customers and partners. The key building blocks of the organizational structure are principles, practices and processes. We get clues about Wells Fargo’s principles from its written “vision and values” which include:

    “Our ethics are the sum of all the decisions each of us makes every day. If you want to find out how strong a company’s ethics are, don’t listen to what its people say. Watch what they do.”

    So what exactly did Wells Fargo people do to cost the company $185 million plus untold damage to its brand and reputation?

    According to the Consumer Financial Protection Bureau, Wells Fargo opened over 1.5 million unauthorized deposit accounts and may have funded these accounts by transferring funds from existing customer accounts without consent or through “simulated” funding. This practice generated about two million dollars in fees from 85,000 accounts. The CFPB consent order also states that Wells Fargo submitted credit card applications, ordered debit cards and enrolled consumers in online banking without customer consent. Clearly, this behavior represents at best a disconnect between principles and processes particularly the reward system process.

    Wells Fargo truck
    © John Doe / Wikimedia Commons / CC BY-SA 4.0

    Wells Fargo’s “vision and values” cover everything from ethics to doing what’s right for customers. But written “vision and values” and mission statements don’t tell the whole story for many companies. Often, the real principles that govern an organization are unwritten. These principles manifest in break rooms, cafeterias, meetings, “off-site” sessions and sometimes during dreaded performance reviews. At best, Wells Fargo’s unwritten principles echo its written values and the problem is a disconnect between principles and processes that culminated in widespread abuses.

    At worst, the company’s unwritten principles are something like “win at all costs” and “loyalty above all” which by some accounts were the unwritten principles of Lehman Brothers.  Lehman, once the fourth largest investment bank in the United States, no longer exists. Neither does Enron which embraced the principle of following orders without questioning them. The wrong unwritten principles or a disconnect between the right principles and processes can start small with, say, approving mortgages for people who don’t qualify and culminate in a near collapse of the financial system.

    Many organizations espouse collaborative principles while short circuiting collaboration and value creation through reward systems that reinforce internally-competitive, command-and-control behavior which can easily morph into cutting corners and illegally fudging numbers. Along the way, trust dies among team members and ultimately among customers, partners, regulators and others. This happens in industries ranging from financial services and healthcare to manufacturing and technology. And it doesn’t help that increasingly team members across multiple industries prefer to interact with devices and computer systems rather than with their customers.

    Why would the third largest U.S. bank by assets—and a favorite stock of Warren Buffett—risk its reputation by cutting corners? The most likely answer: to keep the squeeze on team members through a reward system that the bank believed would deliver ever better quarterly returns.

    When I hear analysts and others suggest that a company has a secret sauce shrouded in mystery that delivers outlier returns, alarm bells reverberate in my brain. This is also true of financial advisors touting a particular investment. In 2009, Warren Buffett suggested in a Fortune interview that there was something special about how Wells Fargo does business. “The key to the future of Wells Fargo is continuing to get the money in at very low costs, selling all kinds of services to their customer and having spreads like nobody else has.” This sounds sort of like a secret sauce—and there go the alarm bells. Sometimes there’s a reason why a company is an outlier. Mostly, what Buffett was referring to is the Wells Fargo practice of cross selling which is simply selling more products to existing customers. It turns out that cross selling involved phantom sales. Wells has told some team members to stop cross-selling amid the crisis.

    So how can Wells Fargo be fixed?  The company has fired more than 5000 employees, because of the illegal practices. But is the real problem these team members or the company’s principles, practices and processes?  Wells Fargo CFO John Shrewsberry apparently feels it’s the former. Shrewsberry reportedly told the Barclays Global Financial Conference in New York on Tuesday that the team members who committed the illegal acts were “at the lower end of the performance scale” and they were trying to hold onto their jobs.

    Wells Fargo senior leaders are missing the point. The real villain is the reward system they created or approved that drives the behavior of team members at bank branches. This system apparently rewarded employees for opening accounts regardless of whether customers funded these accounts with new money. What value does this create? None. In fact, it likely costs more to open and ultimately close an unauthorized account than to do nothing. It makes little sense to blame bank branch employees for trying to retain their jobs when senior leaders have likely created principles, practices and processes that prevented more than 5000 people from acting ethically, selling products and creating value.

    As its CEO prepares to testify before the Senate Banking Committee, Wells Fargo announced today the company is eliminating sales goals for retail bankers. Fixing the reward system without systemic repair may help for a while, but a lasting solution requires a more comprehensive approach. I’ve learned that trying to change an ingrained culture fails without changing the organizational structure.

    The unfolding crisis provides an opportunity for Wells Fargo and many other companies in multiple industries with similar issues to replace an obsolete organizational structure while revamping the flawed reward system. This involves focusing like a laser beam on the key building blocks of a value-creating collaborative company: principles, practices and processes. Only then can the culture evolve.

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