How Wells Fargo can dig out of a financial crisis all its own
The scandal resulting from Wells Fargo employees setting up millions of fake accounts could have a residual effect on the rest of the financial sector’s reputation. It should enact a complete culture change in response, say financial communications experts.
In a sector that has struggled for years to shake its image as greedy and morally bankrupt, Wells Fargo had fared better than most financial services companies. Over the past two years, the third- largest bank in the U.S. climbed industry rankings, such as Makovsky’s Wall Street Reputation Study, American Banker’s Survey of Bank Reputations with the Reputation Institute, and GOBankingRates’ Best Banks survey.
But in a sobering example of how quickly a good reputation can come undone, Wells Fargo is facing an escalating crisis all its own. Earlier this month, news emerged that the bank fired more than 5,300 employees over the past five years for improper sales tactics in its community banking division.
The bank is facing multiple class-action lawsuits from former Wells Fargo employees, some of whom say they were fired when they refused to open accounts unauthorized by customers to meet aggressive cross-selling quotas. Others claim they were forced into opening fraudulent deposit and credit-card accounts because of a pressure-cooker atmosphere encouraged by management. The Justice Department is also investigating the bank.
Oscar Suris, EVP of corporate communications for Wells Fargo, declined to comment. However, the bank said in a statement, “We disagree with the allegations in the complaint and will vigorously defend against the misrepresentations it contains.”
“This is a major crisis for Wells Fargo,” says Scott Tangney, MD at ICR. “Most people stay at their bank because of inertia. But from all the studies that I’ve done on the industry over the last seven or eight years, this is the type of thing – fraud and unchecked access to customers’ personal information – that will compel people to move their money.”
Tangney says the news is particularly damaging for the bank’s brand, because “Wells Fargo had come out of the financial crisis of 2008 relatively unscathed. Their strength came from their community banking and sticking to their knitting and not losing sight of their core values and taking care of the customer.”
In an interview with PRWeek last year, Suris spoke about the initiatives the company undertook to build strong community ties. One example was the then newly launched online magazine called Wells Fargo Stories, which showcases how the bank helps customers and communities, as well as how team members live its values.
“Every day we suit up to earn that trust back by explaining how our bank operates and what we do on behalf of customers,” Suris told PRWeek.
Experts note there’s a whiff of hypocrisy about this scandal, because Wells Fargo’s internal culture seems extremely at odds with what was conveyed externally.
“There is definitely something within the culture and management that is wrong and needs to be fixed,” says Tangney. “Every company in the financial sector cross-sells, but the difference between this and the financial crisis is that Wells Fargo is isolated in this incident; they have the limelight on them.”
Ken Makovsky, president at Makovsky + Company, comments that while this crisis is Wells Fargo’s alone, the scandal will have “negative reputational ramifications for the entire industry.”
Conducted before the fraudulent account story broke, Makovsky’s 2016 Wall Street Reputational Study found that 86% of financial services marcomms executives say the financial crisis of the last decade still has a major effect on the perception of their companies. That number was up from 78% in 2015, a lift that could be attributed to the banking industry’s role as a talking point in the presidential campaign.
When the executives were asked to identify reputational risks, 70% picked negative employee perceptions of their company and its products and services. “Employee perception had already been a concern before the news broke about Wells Fargo, and this kind of impact will just impact it even more across the industry,” Makovsky says.
Too little, too late
Wells Fargo is taking a number of positive actions to stop the damage to its reputation, according to financial communications pros. It has changed its policies, including eliminating all product sales goals effective October 1, a date moved up from the start of next year. Wells Fargo’s board of directors is also investigating the company’s sales practices.
Earlier this week, Wells Fargo said its CEO and chairman, John Stumpf, agreed to forfeit $41 million in salary and stock and not take a paycheck while the company is under investigation. The bank’s head of community banking, Carrie Tolstedthead, will also forego $19 million in unvested stock.
Yet communications experts believe Wells Fargo underestimated the seriousness of the crisis and the response needed to weather the storm, and say it should have taken action much earlier than it did. On September 8, regulators revealed that Wells Fargo had been ordered to pay $185 million for its “outrageous” sales culture as part of a settlement with the Office of the Comptroller of the Currency, the Consumer Financial Protection Bureau, and the Los Angeles City Attorney.
The bank issued a statement about the settlement, but admitted no wrongdoing and provided few details about how it would address a culture that resulted in millions of fake accounts. And in a September 13 story in The Wall Street Journal, Stumpf said, “There was no incentive to do bad things. The story’s headline: “Wells Fargo CEO defends bank culture, lays blame with bad employees.”
Mike Hatcliffe, founder of the Hatcliffe Group and a former Ogilvy Public Relations and Ketchum executive, says the attempt by Wells Fargo to blame more than 5,000 low-level employees was misguided.
“You can’t point to thousands of people and say, ‘It was just them; it wasn’t us,’” he says. “It is not that you can’t scapegoat, because however unpleasant, it is a perfectly legitimate tactic in crisis management. General Motors CEO Mary Barra fired 15 employees during the automaker’s faulty ignition crisis and that really helped to firewall it.”
“But there are just too many people to deploy that tactic,” Hatcliffe adds. “It must the firm, it must be the culture, and it must be the leadership.”
He says Wells Fargo needs to turn the narrative of this crisis around by “showing how they’re going to change the culture of the organization.”
“They don’t really seem to want to understand that,” Hatcliffe adds. “They seem to be treating this like a legal situation rather than a reputational issue, and that is a big mistake.”
They also note the pay clawback – so named because it takes back stock having already been awarded – only came after Sen. Elizabeth Warren (D-MA) grilled Stumpf before the Senate Banking Committee last week. The populist senator told him he had demonstrated “gutless leadership.”
“You should resign; you should give back the money you took while this scam was going on, and you should be criminally investigated by both the Department of Justice and the Security Exchange Commission,” she said.
Makovsky says the company’s best move would be to ask for Stumpf’s resignation.
“That would be the ultimate PR move indicating the sincerity of the bank in that it is unhappy with the fraudulent performance,” he says.
Makovsky adds that the bank needs “to admit the firings were wrong and make some restitution of some sort to current employees and customers who were charged for services and products they didn’t sign up for.”
Richard Dukas, chairman and CEO of Dukas Linden Public Relations, agrees that Wells Fargo can’t forget about employees in the actions it takes. “What they need to do is address the abuses by first admitting there was a problem with the culture and incentives in the banking division and then helping all the account holders that were defrauded by the bank with cash payments, debt forgiveness, or something else,” he says. “Organizations make mistakes and they need to keep the victims on the top of their mind as this moves forward… They also need to put in a robust internal whistleblower program to make sure this never happens again.”
Tangney suggests the board should go further than just asking a committee to investigate its sales practices.
“They really need to go beyond the typical audit that a law firm would do,” he says, suggesting it create a steering committee made up of customers violated by the breach to help the bank rebuild trust with communities.
“The best companies use a crisis situation of this level to develop a new business model,” Tangney says. “Wells Fargo needs to find a way and convert back to a customer-focused institution from a cross-selling one.”