When Frederick Nietzsche wrote “that which does not kill us makes us stronger” in 1888, it’s hard to imagine he was thinking of business regulation. Yet, what’s true for people is also true for companies.
Take Wells Fargo. For the last 18 months, the bank has faced every sling and arrow that can be fired at a U.S. company, short of an Arthur Andersen death sentence. Congressional critiques called for leadership change; the Fed restricted Wells Fargo from growing beyond its current total asset size and demanded board member replacement; even the bank’s supportive investor and largest owner, Warren Buffett, cautioned management not to poke back at the bear of government oversight.
Not without reason, of course. Once a pillar of old-fashioned, trusted mortgage banking that avoided the reckless, speculative risk taking and confusion of the highly complex derivatives instruments of its peers, Wells Fargo metastasized into something sinister, thanks to a no-holds-barred sales culture that led to 3.5 million fake customer accounts, roughly 190,000 of which were then hit with unnecessary fees.
But under new CEO Tim Sloan, the company has made genuine efforts to reform. Former CEO John Stumpf and most of senior management were removed, with almost $200 million of executive bonuses clawed back by the company. An outside law firm, Sherman & Sterling, was hired for a massive investigation, while another review by Debevoise & Plimpton was led by former SEC chief Mary Jo White. They surfaced a host of old skeletons, including 570,000 customers being sold car insurance they didn’t need, leading to possibly 20,000 wrongful car repossessions, as well as newly disclosed asset management problems.
The old, dysfunctional sales goals program was scrapped, and the bank refunded almost $10 million in improper charges. The bank also paid a $142 million fine in a national class-action settlement.
Most of the board was replaced, with 10 new members brought on in the past year—including the first female chairperson of the board, former Federal Reserve governor Elizabeth Duke. No one can argue that the company has not changed.
“Wells Fargo did a lot wrong in the last decade, but current leadership has changed course and earned the right to move forward unmolested, strengthened by the experience.”
LIVING IN THE WOODSHED
Yet, Wells Fargo’s leaders remain convenient punching bags for busy regulators and grandstanding legislators conflating the actions of current leadership with past misconduct. Such critiques may fit Takata airbags, Chipotle, Carnival Cruise Line, Wynn Resorts, Facebook or the NRA but not Wells Fargo, where leadership has been responsible, accountable and effective in addressing past problems.
After berating Sloan in October, saying that “he should be fired,” Sen. Elizabeth Warren, in particular, continues to feast opportunistically on the bank, pressing new Fed Chairman Jerome Powell to continue pressuring Wells Fargo. “I want to understand how the Fed intends to enforce the consent order now that you’re in charge,” Warren demanded in a February hearing just days after Powell had taken office. (On April 19, reports emerged that regulators would fine the company $1 billion for its sins).
This kind of war without end risks backfiring on the public. It’s easy to imagine a CEO, contemplating a years-long visit to Sen. Warren’s special woodshed, stalling on self-disclosure when a whistleblower comes forward. That’s hardly the right outcome for anyone—certainly not consumers.
From our bankruptcy code to limited liability companies, part of the genius of America’s business culture has always been its openness to redemption. Wells Fargo did a lot wrong in the last decade, but current leadership has changed course and earned the right to move forward unmolested, strengthened by the experience.
As for regulators, they would be wise to remember another famous Nietzsche quote: “Whoever fights monsters,” he wrote, “should see to it that in the process, he does not become a monster.” Perhaps Nietzsche knew something about regulation—and regulators—after all.