By Tom Lee, Senior Partner, 451 Marketing
With the whirlwind of controversy currently surrounding Wells Fargo and its newly retired CEO & President John Stumpf, it’s frighteningly possible to forget that seven short years ago, the institution played a key role in our country’s worst financial crisis since the Great Depression. For good measure, the Financial Crisis Inquiry Commission concluded said crisis was caused in most part by “widespread failures in financial regulation and supervision” and “dramatic failures of corporate governance and risk management at many systemically important financial institutions.” Other banks were involved to be sure, but Wells Fargo is the second-largest in the U.S.—you do the math.
Financial regulation aside, as a crisis communications specialist, I don’t have to trace back far to find series of PR missteps from Wells Fargo. Just this year, it reached a settlement with the federal government, agreeing to pay out $1.8 billion for falsely underwriting thousands of home mortgage loans prior to 2008 that should have never been eligible for Federal Housing Administration insurance—the largest settlement in FHA history! Wells Fargo’s official statement reads that the ruling “allows us to put the legal process behind us, and to focus our resources and energy on what we do best—serving the needs of the nation’s homeowners.” The statement wasn’t attributed to Stumpf or any of their senior executives. Instead, it came from Franklin Codel, president of Home Lending.
This was a complete missed opportunity for Stumpf to directly apologize for the company’s part in the 2008 crash and firmly establish Wells Fargo as a trusted institution dedicated to the financial well-being of its customers. Instead, the bank appeared to brush the ruling off as a nuisance and waste of energy. The fact of the matter is that Wells Fargo is one of the institutions that emerged from the Great Recession a much stronger company.
I would have strongly urged the company to use this as an opportunity to highlight all they have done in the wake of the recession by building a stronger corporate governance, but downplaying the ruling and saying as little as possible seems to have worked. It was barely a blip in the national news cycle when the ruling passed in April. People assumed that if Wells Fargo was doing well, they must have changed their unscrupulous ways.
Fast forward just five months. On September 8th, the federal government and the state of California announced that they had fined Wells Fargo $185 million after discovering employees had opened more than 2 million bank accounts or credit cards without customers’ knowledge over the course of four years—a blatant violation of customers’ trust and security.
When I read the news I thought surely, the Wells Fargo corporate communications team would take a much different tack than in April. This has the makings of a crisis that could cripple the institution. The CEO must get out in front of it with a strong public apology to every customer and announce immediate reparations to all those affected. Certainly a senior executive will be publicly fired and a third-party investigator will be hired to get to the bottom of the incident.
Instead, Wells Fargo issued a company statement, attributed to no one, downplaying the incident once again: “Wells Fargo reached these agreements consistent with our commitment to customers and in the interest of putting this matter behind us.” It basically says that while the circumstances are unfortunate, it’s really not a big deal. It goes on to say: “Wells Fargo is committed to putting our customers’ interests first 100 percent of the time, and we regret and take responsibility for any instances where customers may have received a product that they did not request.” This is the company’s only official apology for what happened.
Following a public backlash that somehow took Stumpf and his communications team off guard, the company issued a follow-up statement, yet again attributed to no one, and that yet again downplayed the incident, this time without any trace of an apology. “While we regret every interaction that was not handled properly, the number of instances and team members involved represent a very small portion of our business,” the statement concluded.
What I mistook as a calculated PR strategy in April turns out to be a deadly combination of arrogance and stupidity. It wasn’t until Stumpf was dragged before the U.S. Senate Banking Committee that he finally took responsibility for the bank’s actions and apologized before the committee saying that he is “deeply sorry” they failed their customers and didn’t act sooner to stop “this unacceptable activity.”
It’s clear that Wells Fargo didn’t have a sound crisis communications plan in place, nor anyone on staff with real crisis experience who could have properly handled an incident of this magnitude. Much of the fallout can be attributed to its communications team’s failure to anticipate the media’s response and adequately address the issue.
The first step in addressing any crisis is to display strong leadership. All statements should have been immediate, and attributed to the CEO from the get-go. Rather than hoping the issue would fizzle out, they should have firmly stated that the fraudulent practice was unacceptable and that Stumpf would personally ensure that every employee involved would be punished appropriately, and every customer affected compensated immediately. He should have announced (and followed through with) the hiring of an independent consultant to take a thorough look at the company’s existing policies and procedures to prevent similar fiascos from ever happening again.
Had Wells Fargo taken this approach, all the sweeping changes, penalties, and fines the bank is dealing with today would have rolled out within the context of Stumpf’s strong leadership. He’d likely still be at the bank’s helm today rather than “retiring” without severance. Instead, the credit now goes to the U.S. Senate Banking Committee and the federal agencies that uncovered it. If handled properly, most customers probably would’ve given Wells Fargo the benefit of the doubt again – change takes time. Instead, this incident further deepens the distrust Americans have with their financial institutions, causing massive ripple effects to the banking industry as a whole.