The Federal Reserve’s actions against Wells Fargo and its board last week in response to consumer abuses were significant, but was the Fed too heavy-handed in this instance—particularly in light of Wells Fargo’s efforts to atone for its actions?
Wells Fargo will be restricted from growing any larger than its total asset size as of the end of 2017, and three board members must be replaced by April and another by year’s end. The question now isn’t whether Wells Fargo allowed deceptive practices which hurt customers, employees, and its own brand, but rather if it is being punished unfairly.
“I think that Wells Fargo became a convenient public relations foil for political ends—of both parties, as even President Trump has used Wells Fargo as a convenient scapegoat for financial misconduct,” senior associate dean for leadership studies at the Yale School of Management Jeffrey Sonnenfeld told Corporate Board Member.
Once its problems came it light, Wells Fargo seems to have taken full responsibility for its actions, and has addressed these problems with managerial, governance, cultural and systemic repairs.
“Good institutions, from banks to broadcasters, and from schools to churches, can do dumb things.” – Jeffrey Sonnenfeld
“There has been a huge sweep out of the old management and more than a 50% change out of board compensation, with a terrific new board and dramatic new corrective management processes,” Sonnenfeld says. “Had the Fed required changes in the board, these would have included in the Consent Order.”
The Wells Fargo board has also completed a thorough third-party investigation and held its executives responsible for misdeeds. The board has also elected 7 new members in the past year, including electing the first female chair of the board, former Federal Reserve governor Elizabeth Duke.
In addition, the board brought in former SEC chief Mary Jo White to conduct an independent review of the board and its practices and hired a new CEO in Tim Sloan since the problems became public.
Despite those actions, the Fed still decided to restrict the company’s growth and oust more board members. Did doing the right things once the problems came to light make a difference?
“Good institutions, from banks to broadcasters, and from schools to churches, can do dumb things—even bad things, as human frailty is omnipresent across sectors,” Sonnenfeld says. “The important story that has yet to be written is: how do they recover? The missing story is what do places like GM, JP Morgan, Penn State, Jet Blue, Goldman Sachs, Johnson & Johnson and Wells Fargo do to restore public trust? All these firms did the right thing, while scores of companies did not.”