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CSI Fargo


The fake accounts scandal at Wells Fargo offers a stark warning for pretty much every business owner. Heed the lessons of this fiasco or you could find yourself Fargoed.

As you will recall, Wells Fargo decided to increase its cross-selling ratio and placed heavy pressure on its branches to deliver more accounts per customer. Many of the employees in those branches streamlined the process by taking customers out of the equation. Why waste time explaining mortgage insurance to a customer when it’s much easier to just sign them up for the product?

According to published reports, Wells Fargo opened millions of accounts for customers, without their knowledge, between 2011 and 2015 in pursuit of a cross-sell ratio of eight. So, after each customer has a checking account, a savings account, a mortgage, a home equity line, a credit card, and a safety deposit box, they still need another two products to meet the benchmark.

Before we all assume this couldn’t happen at our companies, let’s take a quick look at the pathology that might, conceivably, possibly have unfolded at Wells Fargo.

  1. The senior management team thinks about ways to improve financial performance and discovers that earnings will soar if only the cross-sell ratio goes up.
  2. The finance team looks around the network to see if any branches or regions are performing at higher ratios and finds several stellar examples. Clearly, they conclude, there is no reason that everyone can’t reach the same performance levels as the top tier of branches.
  3. The management team sets up a series of incentives (money) to encourage people to work toward the new goals. Regional managers are compensated when the local managers do well and local managers are compensated when their employees meet their goals. Everyone’s compensation depends on how much they can get out of the people under them. (Yes, it sounds like a pyramid, but trust me, it isn’t.)
  4. The corporate team “emphasizes” to the regional leaders that these goals are critical to “delivering shareholder value.” The regional guys harangue the branch managers about the need to hit the goals. (“Those are the numbers and, if you can’t deliver them, I’m sure we can find a new branch manager who can,” a hypothetical regional manager might say.)
  5. The branch managers, in turn, harangue the local employees about the need to hit the goals. (“Those are the numbers and, if you can’t deliver them, I’m sure we can find a new relationship manager who can,” a hypothetical branch manager might say.)
  6. At some point, managers or employees complain to their bosses that the benchmark—the “stretch goal”—is impossible to achieve. Perhaps, they get a response along the lines of: “This is the number we have to reach. Period. I don’t care how you do it; just get it done.”
  7. Employees decide to stretch the boundaries, “just this once.” Then again. And again. The employees who are best at doing worst are held up as examples to peers and rewarded with bonuses. Everybody knows that Joe could not possibly have obtained a 97-product cross-sell ratio without cheating, but nobody calls him on it and the rest of the staff feels like suckers for trying to do it the right way. After all, didn’t the boss say, “I don’t care how you do it…?”
  8. After setting the goal, management declines the opportunity to police itself or its employees. Corporate assumes the regional guys are handling it, the regional guys assume the branch managers are handling it, and the branch managers assume the employees are following the handbook. IF, that is, any of them think about it at all.
  9. The timer starts ticking until, inevitably, the pyramid crumbles.

In a way, Wells Fargo was remarkably successful. You get what you measure, as the saying goes, and Wells Fargo got exactly what was being measured. They wanted a higher cross-sell ratio, they emphasized their benchmark level, they rewarded achievement of the number, and they got what they pursued.

Which is, of course, our lesson for the day. Pick the wrong benchmark and your success in achieving that goal can destroy your company, or your reputation. For many companies, the siren song is revenue, without the appropriate focus on profitability. For others, it’s return on equity, which can drive excessive borrowing risks. Every benchmark includes its own seeds of destruction, so even the best benchmarks need to have a counterbalance, a limiter that prevents excess.

We all owe Wells Fargo a debt of gratitude for its cautionary tale. Now, it’s up to us to avoid Fargoing ourselves with flawed benchmarking.