Wells Fargo Sales Abuses and Performance Management

The rich detail in the Wells Fargo sales practices investigation report (here) by independent law firm Shearman & Sterling offers a wealth of lessons. The report addresses numerous problem areas, all of which can have implications for ethics and compliance education.  This is the first of seven blogs to assess the report’s findings and conclusions in context to what education can and should offer as part of a company’s efforts to demonstrate responsible business conduct.

The report focused on the following problem areas for Wells Fargo:

  • Performance management systems
  • Business model
  • Decentralized organization structure
  • Leadership’s oversight
  • Control functions
  • Sales culture
  • Board oversight

The Role of Performance Management

Performance management systems offer a critical tool for fostering achievement of any organization’s objectives. These systems can profoundly influence employees’ behaviors. When working properly, these systems help an organization to effectively meet strident goals because they focus employee attention on those that are critical to success.

Well-designed and implemented performance management systems are effective partly because their intent is to meet an organization’s multifaceted goals, not just a singular one, such as increased sales. Companies succeed for several reasons: well-designed products, quality service and customer support, efficient operations, continuous innovation and a willingness to stand behind its products, to name a few. An effective performance management system must take such goals into account.

Managers, especially senior leaders, need to understand how these systems work, how to implement and manage them, and when to identify problems with them, for operational purposes and well as other reasons. The intent is not to roll such systems out to an audience of robots who execute directives without consideration for their effects but, rather, to develop managers who see directives in context, implement as appropriate and call out problems.

Finally, all employees need to appreciate the goals the performance management system is intended to promote and behaviors that are contrary to these goals. Milgram’s obedience to authority studies in the early 1960s showed us the risks of unquestioned adherence to authority. Companies should want to encourage thinking employees who can operate beyond simple directives.

Performance Management at Wells Fargo

To begin, the Shearman & Sterling report found a significant disconnect between the bank’s business model and what the performance managements systems were designed to promote.

As time passed and leadership gained experience with the performance management system, they did not make the requisite efforts to see that the system was unlikely to responsibly achieve the business model’s results; over time, the system spawned lower quality sales, which went unheeded for a lengthy bit of time. Also, to maintain the business model over time, the performance management system had to “exert significant, and in some cases extreme, pressure on employees to meet or exceed their goals.”

According to the report, Wells Fargo’s performance management systems in its Community Bank organization were distorted by trumpeting employees with high sales without attention to the quality of these sales. This led many employees to focus overridingly on one aspect of their work rather than the totality of how the bank serves customers.

The Value of Education

These errors were preventable through numerous safeguards, not the least of which is educating senior leaders, managers, and employees about the purpose for, role of and process to manage performance management systems. Too often, we leave such education to “on the job” experience, hoping that staff learn the lessons before critical situations occur.

This need not be the case. Companies can provide at least some base-level training to help employees at all levels understand organizational systems, how they are intended to operate, how to implement them and what to do when they begin to break down. In Successful Onboarding, (Stein, Christiansen, 2010), the authors espouse the importance of ensuring all employees know how all parts of the business work and their interrelationships with other lines of business.   This has the effect of increasing employee engagement and loyalty and increasing effective coordination of business operations.   Business systems are only as good as the people who design, implement, manage and perform according to them.

Wells Fargo learned a difficult lesson, partly because its leadership was not well skilled at working with, evaluating the results of and calling out problems related to the bank’s performance management system. We expect corporate leaders of among the country’s largest and most sophisticated companies, who make very hefty salaries, to be competent in working with such systems, given the potentially grave consequences that can occur both to the organization, the public’s trust in it, and the potential ramifications to the financial system. It’s time for such companies to raise the bar on how these executives are schooled.

Part 2 of this series will address the role of the education pertaining to the business model in the Wells Fargo sales practices case study.

 Do you have questions about your current ethics and compliance training program? Contact us and we can work with you to make recommendations to augment and/or improve your current offering.

Syntrio is a leader in both the ethics and compliance field, as well as human resources and employment law, and is prepared to help your company implement a compliance program aimed at reducing the potential impact of compliance violations within the organization. Syntrio takes an innovative philosophy towards compliance program design and strives to engineer engaging, entertaining, and thought-provoking content. Contact www.syntrio.com for more information about our ethics and code of conduct online courses and remember to follow us on Facebook, TwitterGoogle Plus and LinkedIn for daily updates on employment law and compliance that impact your company!

Written by Jason Lunday, Vice President of Product Development, Syntrio

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