Wells Fargo was in the news again this week, and not in a positive way. They were fined a whopping $3.7B for the mistreatment of their own customers and investors.
The new charges included “unlawful” overdraft fees to customers, incorrect fees and interest charges on loans for homes and cars, wrongfully repossessed cars, and “improperly denied thousands of mortgage loan modifications,” that in some instances, led to people losing their homes.
Apparently, being caught abusing customers and using shady business practices didn’t end back in 2016 when Wells Fargo was fined $185 million for incentives that led bank employees to open bogus customer bank accounts. In total Wells Fargo has been fined over $20 Billion since 2007.
I think the story of Wells Fargo provides an interesting example for Agile Coaches who strive to influence or change the culture in organizations. Agile Coaches with good intentions may not appreciate just how difficult it can be to make changes in organizations.
The question is, can agile coaches change an organization’s culture?
What Happened at Wells Fargo
Illegal And Unethical Practices At Wells Fargo
I don’t have the space to include everything that Wells Fargo did wrong in this post. These are some of the main issues:
- Illegal sales practices: In 2016, it was revealed that Wells Fargo employees had opened millions of unauthorized accounts in customers’ names in order to meet sales targets. This led to a fine of $185 million and the resignation of the CEO.
- Misselling of financial products: In 2017, the company was fined $1 billion by the Consumer Financial Protection Bureau for misselling financial products such as mortgage-backed securities and auto insurance.
- Discrimination in mortgage lending: In 2020, the company agreed to pay $175 million to settle allegations that it had engaged in discriminatory mortgage lending practices.
- Money laundering: In 2020, the company agreed to pay $3 billion to settle allegations that it had failed to properly monitor transactions for money laundering and other illicit activities.
- Foreclosure abuses: In 2020, the company agreed to pay $10 million to settle allegations that it had engaged in abusive foreclosure practices.
There is a clear pattern of unethical and illegal behavior by Wells Fargo, which has resulted in significant financial penalties and damage to the company’s reputation. Surely someone is accountable for this.
The Top Leaders At Wells Fargo Were Fired
One would hope that CEOs and other top leaders are held accountable for company wrongdoing. And that has been the case at Wells Fargo. The company is on it’s 4th CEO in the last 6 years:
- 2016: Then CEO John G. Stumpf resigns and Tim Sloan is appointed as the new CEO.
- 2019: CEO Tim Sloan resigns and Charles Scharf was appointed as the new CEO of Wells Fargo.
- 2020: CEO Charles Scharf resigns and Charles W. Scharf (no relation to Charles Scharf) was appointed as the new CEO.
So there has been some accountability at the top.
Changing The Leader Did Not Change The Behaviors
What is curious is that the unethical and illegal behaviors of the organization have not changed ended with the leadership change.
As an agile coach, I’ve come to believe that leaders are responsible for culture. I’ve felt that without top leadership support, trying to adopt agile ways of working will fail. I have often cited the Digital.ai Annual State of Agile Report that says managers and leaders are the main barriers to agile adoption:
When we asked specifically about barriers to adopting Agile on the business side of the organization, the biggest concerns were not enough leadership participation (42%), not enough knowledge about Agile (40%), general organizational resistance to change (40%) and inadequate management support and/or sponsorship (39%).
— Digital.ai, 16th Annual State of Agile Report
I have even vilified leaders and managers as the main barrier to agility in organizations. I always believed that if only the managers and leaders were on board, then agile transformation would be easy.
How do we make sense of the Wells Faro wrongdoing? The change in corporate leadership did not change the behavior of the organization. Wells Fargo persisted in their wrongdoing despite the top leadership changes. Give them props for persistence, I guess.
Wells Fargo’s rinse-repeat cycle of violating the law has harmed millions of American families…Wells Fargo is a corporate recidivist that puts one out of three Americans at risk for potential harm.
– Rohit Chopra, Director of the Consumer Finance Protection Bureau
Something in the above quote caught my eye. It was the “rinse-repeat cycle” of violating the law. That statement reminded me of the use of system flow diagrams from my LeSS training.
Let’s see if we can make sense of the behaviors based on system models.
Based on the news reports, it looks like the employees mistreat employees and the bank gets caught and gets large fines and penalties ($20B over the last 10 years). That leads to a lot of bad press and the CEO getting fired.
What about the rinse and repeat cycle? What causes the employees to keep on mistreating employees?
Perhaps employees should be held accountable as well?
Let’s Fire The Bad Employees
It may not be a surprise to you that Wells Fargo did fire some of the employees who mistreated customers. It may have been an attempt by the CEO to shift the blame from themselves to others.
CEO John Stump, just prior to his resignation in 2016, fired thousands of employees who took part in setting up false customer accounts. Stumpf called the employee’s behavior unacceptable:
The 1 percent that did it wrong, who we fired, terminated, in no way reflects our culture nor reflects the great work the other vast majority of the people do.
Let’s ignore for a moment Stumpf’s blamefest and what quality guru Edwards Deming said, “a bad system will beat a good person every time.”
That changes our system diagram. If employees risk being fired, there is a disincentive to continue to mistreat customers.
The diagram looks better though now it is more perplexing. We’ve added a disincentive for employees which makes the rinse and repeat cycle more difficult to explain. There must be other factors at play.
If we take a quick look at the financials for Wells Fargo, we can see the revenues have grown pretty much every year for the last 10 years. There was a significant decline in 2020. This can be attributed to the pandemic and to an asset cap that was imposed on the bank for the previous wrong doings.
Data by Macroaxis
What about profits during the time of the wrong-doing? Did they go down as one would expect from someone who shells out $20B in penalties and fees.
Interestingly, with the exception of 2020, profits were pretty steady at about $22B per year. In 2021 and 2022, Wells Fargo made the same level of profits as previously despite the imposed limits on assets and the significant financial penalties. In other words, Wells Fargo is making a shit-ton of money even while being penalized for unethical and illegal actions!
Data by Macroaxis
We can update our systems diagram with another piece of the puzzle.
That still doesn’t explain why employees continue to mistreat customers. It doesn’t make sense.
The only thing that could explain would be if there were some type of incentive for employees to mistreat customers. Let’s add that to our system model and see if it fits.
Ah yes, that could explain it. If there are those in the organization – leaders of all types – that prefer steady profits, they must be providing some type of incentive to employees. After all, employees behave in rational ways and wouldn’t risk getting fired unless there was something in it for them.
In a great example of corporate misdirection, then CEO Stumpf stated in 2016 that “There was no incentive to do bad things. The 1 percent that did it wrong, who we fired, terminated, in no way reflects our culture nor reflects the great work the other vast majority of the people do.“
I don’t think it is possible that there are no incentives.
I also disagree with Stumpf’s statement that the fired employees in ‘no way reflects’ the culture.
I would contend that the bad employee behavior is there exactly because of the culture.
The Culture at Wells Fargo
Culture is shaped by the values, beliefs, and behaviors of an organization’s leadership and employees, as well as the systems, policies, and practices that are in place.
Culture is the product of the behaviors, values, and beliefs of the people involved in an organization or department. Cultures can obly be shifted by changing behaviors. These new behaviors must be supported by new policies, metrics, structures and leadership styles. Only then will the culture shift.
-Karim Harbott, The 6 Enablers of Business Agility; How to Thrive in an Uncertain World
The culture at Wells Fargo produces the exact results that managers and leaders want it to produce. The culture is that way because that’s what leaders wanted.
As my mentor says about individual behaviors, outcome reveals intention.
Can an Agile Coach Change an Organization’s Culture?
Let’s come back now to the original question of culture change. We’ve come to accept that for most, agile transformation will require a change in the organization’s culture. The question is, can an Agile Coach drive culture change?
Based on the example from Wells Fargo, I think it is unlikely that coaches can change the culture.
Why not? Well, first it is very hard to understand the culture in an organization, let alone to change it.
Second, the existing culture is the way it is by design, not by accident. Managers and leaders reinforce the culture through the policies and procedures.
At Wells Fargo, we have repeated abuse over more than 10 years. There were massive penalties and fines. CEOs were fired. Employees were fired. And it looks like things haven’t changed.
If the culture of an organization is not already consistent with agile ways of working, I think it will be very hard to change it.
Bottom Line – Changing the Culture of An Organization
Coaches need to be realistic about the difficulty of changing culture. Culture change is difficult even with top leadership support. Even with vocal top leader support, the culture of the organization may not change to be receptive to Agile ways of working.
Agile coaches should pay attention to the behaviors and outcomes the culture produces. Not what leaders say.