The Wells Fargo fake-accounts scandal led to $185 million in fines, the resignation of CEO John Stumpf, and the firing of some 5,000 employees. In the midst of that fall-out, the company’s independent directors released the results of an internal investigation that provides food for thought for leaders in all types of organizations. Three lessons emerge for leaders seeking to prevent unethical behavior and encourage good decision making within their team, department, or company.
1. Align performance targets with what is achievable and supported. Leadership at Wells Fargo was so committed to its business model, which relied on significant annual growth in the number of customer accounts, that it could not see that the performance goals were not realistic. Similar problems contributed to the emissions cheating scheme at Volkswagen and to the gaming of patient wait times at the Veterans Health Administration. In each case, leaders demanded that employees meet certain performance targets despite the infeasibility of those targets or without the necessary resources. The predictable effect? Employees cheated to make it look like those goals were met.
2. Seek out bad news. Multiple levels of leadership at Wells Fargo were perceived to be averse to bad news. The leaders of the division at the center of the illegal activities “were insular and defensive and did not like to be challenged or hear negative information” and the CEO “was not perceived within Wells Fargo as someone who wanted to hear bad news or deal with conflict.” Leadership pushed high sales goals, but did not want to hear any feedback when it became clear to lower level employees that those sales goals were not achievable. Without an opportunity to voice their concerns, some employees felt that the only option was to give leadership what they wanted—high sales—even if it meant creating fake accounts to meet those requirements. Leaders should have sought out feedback from subordinates, encouraged dialogue about performance goals and metrics, and been open to bad news.
3. Don’t assume that bad actions are isolated. When violations of Wells Fargo’s rules came to the attention of management, the top leaders interpreted the violations as the work of particular, nefarious individuals. Those violators were fired, but no effort was made to understand why they violated the rules. As a result, leadership failed to identify people and internal pressures that contributed to the violations. Had leadership understood that contextual factors (e.g., culture, peer behavior, performance rewards) play a significant role in employee decision making, they might have looked further into the problematic business practices—and stopped the violations before they spread.
Ethical leadership takes courageous action—not merely words, but actions that encourage employees to do the right thing, voice concerns about cultural problems, and report perceived wrongdoing. Wells Fargo, like many organizations scarred by scandal before it, talked about ethical behavior. But the actions of leadership belied their commitment to responsible behavior. As in any area of leadership, true leaders must walk the walk.