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Wells Fargo needs to appoint a new CEO immediately

  • Wells Fargo CEO Tim Sloan lacks credibility and is in denial of how massive the bank's problems really are.
  • Sloan failed to recognize the financial misbehavior of thousands of employees who created fraudulent accounts when he was CFO.
  • Wells Fargo should appoint a new CEO immediately— someone with stellar reputation for ethics and compliance.

Wells Fargo CEO Tim Sloan appeared before the Senate Banking Committee Tuesday a year after his predecessor was in the same hot seat. Sloan was elected CEO after his predecessor, John Stumpf, was ousted in the wake of the fake accounts scandal at Wells.

Sloan is the wrong person to right the ship at Wells Fargo. That job requires a level of recognition, competence, and credibility that he lacks.

A leader will not be able to fix a problem without first recognizing how extensive and serious the problem is. Sloan is on record as saying of Wells Fargo, "I don't think we need to fundamentally change the core culture but we need to massage it a fair amount."

That suggests a state of denial. It is as if the mayor of San Juan, Puerto Rico, in the wake of the recent devastation of Hurricane Maria there, said "I don't think that we need to do a lot of rebuilding but some refurbishing may be in order."

Fixing a serious problem also requires a high level of competence. Senator Elizabeth Warren directly questioned Sloan's competence at the Senate Banking Committee hearing Tuesday saying, "At best you were incompetent, at worst you were complicit."

Sloan has worked at the bank for 29 years and was chief financial officer while millions of fake accounts were created and hundreds of thousands of auto loan customers were signed up for auto insurance that they did not request, approve or need.

Wells Fargo and Sloan have argued that Sloan was not supervising the consumer banking division that was the central locus of the fake accounts scandal at the time, and so was not responsible for what occurred there.

"Sloan is the wrong person to right the ship at Wells Fargo. That job requires a level of recognition, competence, and credibility that he lacks."

That defense would be more persuasive if the fraudulent accounts were the work of one or two rogue employees in one division of the bank. That isolated misbehavior might be hard to detect. But the misbehavior at Wells Fargo involved thousands of employees creating 3.5 million unauthorized accounts over a period of years.

It is one thing for a senior executive in a company to not recognize the wrongful but isolated behavior of one or two rogue employees. It is quite another thing for that leader to not notice the wrongful behavior of thousands of employees.

There are grounds for questioning the competence of a chief financial officer who fails to recognize thousands of employees engaged in financial misbehavior just as there are grounds for questioning the competence of a firefighter whose spidey sense is not activated when smoke enters a room.

Where there's smoke there is usually fire, and given the extent of wrongdoing at Wells and the number of employees involved, there had to have been a lot of smoke.

Sloan also lacks the credibility needed to lead Wells through an ethical turnaround. Appointing Sloan CEO after the fake accounts scandal repeats a mistake that BP made after the Deepwater Horizon tragedy.

As part of a program to rebuild trust in that company, incoming BP CEO Bob Dudley announced the creation of a new safety and occupational risk department. The new safety department was described as having sweeping powers to audit and oversee operations of BP around the world. Mark Bly was put in charge of the new safety division, to report directly to Dudley.

That all sounded good. But the problem is that Bly was head of safety during the time period leading up to the explosion of the Deepwater Horizon drilling rig.

If BP wanted to send a message that it was transforming its safety culture, then it should have put an executive from the oil company with the best safety record in charge of the new global safety division, not the guy who was in charge of safety before the Gulf tragedy.

And if Wells Fargo wanted to send a strong and clear message to employees, investors, customers and lawmakers that it was transforming its culture, it should have appointed a new CEO from a bank with a stellar reputation for ethics and compliance.

As banking analyst Dick Bove observed when Tim Sloan was elected CEO at Wells:

"To take Tim Sloan, who was CFO in a good portion of that period, and say he's the salvation is totally incorrect…. They need to go outside the company. They need to steal somebody from JPMorgan."

(Bove this week reversed his position, singing Sloan's praises, but I stand by his initial assessment.)

Senator Warren told Sloan at the Senate Banking Committee Tuesday that because he was either incompetent or complicit he should be fired. I hesitate to recommend that anyone be fired, but at a minimum Sloan should be reassigned to make room for someone who has what it takes to right the ship at Wells Fargo. Sloan does not.

Commentary by Joseph Holt, a business ethics professor at the University of Notre Dame's Mendoza College of Business. Follow him on Twitter @busethicsdude.

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