Lip Service to "Core Values" - Anomaly or a Trend

“There is nothing quite so useless as doing with great efficiency something that should not be done at all” - Peter Drucker

Summary

Decades of wisdom has been published on Culture, Core Values, Employee engagement, & Leadership in the context of managing a large company. Key among the lessons is the Welchian principles of leadership and management that won the popular contest although lot more companies have outperformed GE during the same timeframe. Shareholder return became the prima facie mantra of leaders emerging during this time.

The one glaring issue in my opinion about a singular focus on shareholder return is, It has created a significant imbalance in concern for communities and people, employees and customers alike. Top of mind reasons, couple of them include:

• Catastrophic consequences that is not reflected as intrinsic cost of doing business.

• Disillusioned leaders driven by greed, perverse incentives, short term thinking, & the attitude to achieve the end by any means.

The world is littered with examples of the 1st type and a few I can point to include Exxon Valdez, more recently British Petroleum spill, and Volkswagen, a topic of interest for another day and another time.

When it comes to the disillusioned leaders Enron may be in a different league, but lately the Financial services industry gets the top honors. Be it the subprime lending, derivative instruments, and even simple banking.

Case Study

If you are up to it, play along with me and see if you can identify the company based on a few images along with some commentary.

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Company A - Can you guess?

Here is a stock chart from a company that has increased its Market capitalization by 80% and added approximately $115B in value starting in Jan 2009 until end of July this year. All this, while paying dividends that amount to approximately 25% cumulative on the amount invested in 2009. The performance is slightly below S&P during the same timeframe excluding dividend payout. Let us see if you can take a guess as to which company this is.

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Company B - Can you guess?

Here is quick snapshot of Core Values from one of the well known companies in the financial services industry

The company goes on to elaborate Ethics as follows.

"We strive to be recognized by our stakeholders as setting the standard among the world's great companies for integrity and principled performance. This is more than just doing the right thing. We also have to do it in the right way"

It seems to me the company has invested well in developing a very principled set of "Core Values", to help empower the employees. The company has also published a page on Culture Any takers on guessing this company?

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Company C - Can you guess?

Here are few recent Headlines and you don't have to be a news junkie to guess this company. (1), (2), (3)

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Company C, for those who did not guess it right, is Wells Fargo. Two of the three headlines above are recent while I was in the process of researching the steps Wells Fargo had taken to address the account opening issue.

The lawsuit that accuses Wells Fargo of ripping off mom-and-pop shops left me with disgust. A 63 Page contract with deceptive language & targeting a specific type of business, and a quote from one of the ex employee of the company "go out and club the baby seals: mom-pop-shops that had no legal support". These do not seem like the right thing to do and in a right way.

Unfortunately I have been talking about the same company in all of the above instances. A company that has taken time to publish 7500 word+, Vision and Values document and with more than reasonable performance in the market cannot get its act together. The difference between the published "Vision and Values" document and the actions and behaviors are so wide apart, it puts Grand Canyon to shame.

The company has set aside $1.5B in reserves to handle the fraudulent account opening issue a drop in the bucket for Wells Fargo. So far I have seen two major actions that may have an impact on the reserve. $185 M in fines to LA Comptroller of Currency and CFP Bureau, and $ 142 M to settle a consumer class action.

$100+ Billion in Market capitalization since 2009 is no motivation to start a movement that will directly address the culture on the front lines of the company. Having been curious about how Wells Fargo is handling the situation I found this 130-page report by independent board of directors investigating Sales Practices.

My observation about the report, while detailed, is not sufficient to prevent future incidents at the company. I don't even think the root cause is thorough enough to identify the fundamental issue.

Denials, Centralization of certain functions, tactical initiatives to address the sales practice and remediation's that are heavily internally focused is how they have chosen to handle the problem. I still give them some credit for actions that have been taken, but needs a lot more work.

In Conclusion

A leadership team that is crafty with machinations, wears arrogance with pride, operates without transparency, shuts down it's listening sensibilities and cannot stop thinking about the sales targets will influence a movement that enables the wrong culture. How sustainable this is, only time will tell.

The behaviors and norms in a company is not driven by what is articulated on a website, or the posters, or the walls, rather the actions and decision within the hallways of an organization. The fundamental definition of organization culture includes values and behaviors contributing to both social and psychological environment.

What we need from leaders is that

• The decisions and actions are aligned with the values they espouse

• The teams are empowered and incentivized to do the right thing

• They lead by example and be the change they want to see

• They enable a culture on the front lines and align the talent lifecycle with it

What we don't need from leaders is

• Lip service to "Core Values"

• Put mechanisms in place to help avoid getting caught rather than fixing the issues

• A top down and centralized control mechanism to force the behavior

• Just ROI your way out of an adversity

Do you think the gap between values published and behaviors is more prevalent than it did 10 years ago? I believe it is and may be it is worth a study. What do you think Mr. Simon Sinek?