Botched Crisis Management at Wells Fargo?

Microphone crisis management

Recently, the news seems to be reporting one crisis after another. The effectiveness of a company’s, individual’s or government’s crisis management plan and execution can be a virtual make-or-break situation. Just in the last week we have seen Hillary Clinton and her organization exposed by WikiLeaks and Donald Trump fending off charges of sexual improprieties. I am certainly not going to get in the middle of that political quagmire, I’ll take a closer look at two other crisis situations making the news. One is the massive recall of Samsung’s Galaxy Note 7, following reports of exploding batteries and fires. The other is the scandal at Wells Fargo regarding unethical sales practices and the creation of phony accounts to boost sales numbers.

Both companies have been criticized for their crisis management response to these situations so far, but experts who have been offering their opinions have been especially critical of Wells Fargo. All indicators are that Wells Fargo’s management has scored poorly in their early crisis management response. In fact, the Dow Jones business news called their efforts to date “a textbook case of botched crisis management.”

On September 20, senators from both major parties chastised Wells Fargo’s then-CEO John Stumpf over the company’s sales practices. Senator Elizabeth Warren of Massachusetts called it “gutless leadership and fraud”. She went on to call for a criminal investigation. A review of the Senate proceedings indicated that the Wells Fargo team seemed unprepared and did not answer many questions from legislators about faulty sales practices. This ineffective response to the situation ended up in the bank’s agreeing to the payment of a $185 million fine.

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Wells Fargo’s “botched response” reached a peak when, on October 12, Stumpf stepped down after nearly 35 years with the bank, the last nine as CEO. In the opinions of several former Wells Fargo executives, the root of the bank’s crisis management debacle stemmed from an insular culture that left it ill-prepared to effectively deal with this or any other major crisis. They were simply untested and caught off guard. Former Securities and Exchange Commission Chairman Richard Breeden was quoted as saying “The recurring themes here seem to be complacency, arrogance or being disengaged.” When asked about the situation in recent weeks, Stumpf and Wells Fargo Spokeswoman Mary Eshet often answered “No comment.”, a cardinal sin in any crisis management situation.

Yes, Wells Fargo did respond by firing some 5300 employees, but the company said that those layoffs only represented about 1 percent of its employee base. In addition, the bank would neither confirm or deny any wrongdoing. To make things worse, Stumpf showed zero empathy and never said he was sorry. At one point, an Oregon senator accused Stumpf of “scapegoating people at the bottom.”

After a CNBC interview featuring Stumpf aired, Warren Buffett (whose company owns about 10 percent of Wells Fargo’s stock) phoned and said he “didn’t think the interview went very well.” Buffett also said he thought the issue was “much bigger” than Stumpf seemed to think it was.

Things just kept getting worse due to Wells Fargo’s continued crisis management missteps. At one point, it was reported that Stumpf became aware of the faulty sales practices as early as the fall of 2013. Even after weeks to prepare, Stumpf continued to stumble. When he appeared before the Senate Banking Committee, he had few concrete answers.

Things are still not getting better for Wells Fargo. New CEO Tim Sloan got off to a rocky start with Wall Street last week when he announced a drop in profits while analysts were demanding more information on the crisis that had prompted his appointment. On the 90-minute call, Sloan continually deflected questions and referred to the board’s continuing investigation.

Wells Fargo’s crisis management efforts, at best, have been ineffective and, at worst, inexcusable for a company of its size. While it’s true that crisis management and communication can be complicated, there are basic do’s and don’ts that Wells Fargo seemed to be ignorant of or just disregarded.

It is important that, in any major crisis, the top officer in the company is visible and is effectively communicating their response and direction. It seems that Wells Fargo got the first part right but failed miserably on the second part. No executive should be expected to go it alone. They need to be prepared, practiced and have an effective team behind them that are just as prepared. Done right, effective crisis management takes a whole team that represents all critical functions of a company and holds regular drills preparing for a wide variety of issues that might arise in the future. At the minimum, the team should consist of:

  • Senior Management
  • Technical Operations
  • Public Relations
  • Consumer Affairs
  • Investor Relations
  • Legal
  • Publicity and Advertising
  • Internal and External Communications
  • Human Resources
  • Security

I was unable to find out if Wells Fargo has such a team or if they have drilled in order to develop effective crisis management processes. But it is clear that their actions have served to make the crisis worse, not better. Rarely is a company in a position to “tell all” during a major crisis. But they need to make every effort to show some transparency, empathy and cooperation. “No comment,” especially from the top, doesn’t do any of that.

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