When CEOs “take full responsibility”

This summer we saw two serious corporate crises that resulted in significant monetary losses and consequent damage to the reputations of two major international companies. However, it’s likely one will recover more quickly than the other – if the other, in fact, recovers at all. The difference may lie in the responses of the respective CEOs.

          On August 10, if you were relying on Delta Airlines to get you from Point A to Point B, you probably did not make it on time. In fact, you probably didn’t even get there on the right day. Over the course of three days, Delta had to cancel 2,300 flights due to a massive computer failure at its central facility in Atlanta. Placement of Delta airliners was out of synch for more than a week, resulting in extended residual cancellations and delays.

          Initially, the company blamed it on a pre-dawn local power outage. But on closer examination, it turned out that power was uninterrupted. The problem proved to be faulty routing equipment that shut down their entire computer system.

          The airline handed out untold thousands of travel vouchers to inconvenienced (and likely angry) travelers. A month or so later, Delta assessed their total losses in the neighborhood of $150 million.

          Delta’s CEO, Ed Bastian, immediately took full responsibility for the failure while promising to fix the problem and make it up to his inconvenienced customers. There was no hesitancy in his response, per the headline in the Wall Street Journal two days after the outage:

Delta Air Lines CEO Takes Responsibility for Outage

Computer failure suggests past tech investments may not ‘have been in the right place’

Aug. 12, 2016

          Now, for a study in contrasts, consider what happened at Wells Fargo – in this case a very much self-inflicted wound. It came to light that at least since 2011, the bank had opened roughly 1.5 million bogus bank accounts and applied for 565,000 credit cards that appear not to have been authorized by its customers. Sometimes, customers’ signatures were forged.

          This blatantly unethical and illegal behavior was the result of performance metrics that incentivized the opening of new accounts by existing customers, a practice known in the business as “cross-selling.” A massive scam on this scale has not been seen in recent memory. Upon discovery by federal and state regulators, the bank was fined a total of $185 million. More than 5,300 bank employees have been fired.

          And how did Wells Fargo CEO John Stumpf publicly react to the news? The headline in the Wall Street Journal says it all:

Wells Fargo CEO Defends Bank Culture,
Lays Blame With Bad Employees

Says that at the bank, ‘There was no incentive to do bad things’

Sept. 13, 2016

Think about the difference between the reactions of these two CEOs in the context of your notion of a CEO’s role.

          Compounding the bank’s transgressions, Stumpf appeared before the Senate Banking Committee on Sept. 20 for a grilling that yielded some stunning truths. In a nutshell, while 5,300 mostly lower-level employees were fired for their misdeeds, most of the senior level people are still in place, reaping the rewards of a rising stock price that increased with analysts’ praises of the bank’s allegedly successful “cross-selling.”

          Stumpf himself has realized a paper profit of some $200 million from his holdings of nearly 7 million shares. Carrie Tolstedt, the senior-most person in charge of retail banking where the scam occurred, “retired” in July and is expected to receive tens of millions of dollars in separation compensation, not including the company stock she holds.

Who’s Responsible?

While editorial columns across the country reacted indignantly toward the bank and its CEO the day after the hearing, I’d like to address one key point: senior executives’ responsibilities.

          During the Senate hearing, Stumpf backtracked from his initial blame placing and, reading from prepared remarks, said he took “full responsibility” for the illicit activities. But what exactly does that mean?

          A CEO taking responsibility for what goes on within his/her company – for both the good and the bad – is self-evident. It goes with the job. It’s why CEOs are well compensated. With high-level responsibilities come high-level rewards – seven-figure salaries, bonuses, stock options, private jets, etc.

          But all too often in business (as well as in government agencies), “taking responsibility” for organizational improprieties is a hollow feel-good phrase worn like a figurative hair shirt until the storm passes. Afterwards, the hair shirt comes off. The top people resume their normal activities and collect their inflated salaries.

          Rarely today does “taking responsibility” for an organization’s misdeeds result in falling on one’s sword – i.e., resigning in disgrace. When organization-wide malfeasance is uncovered and the senior-most person “takes responsibility,” it always seems done in an effort to end the conversation. In fact, that's what usually happens.

          During the Senate hearing, Sen. Elizabeth Warren repeatedly suggested that Stumpf resign – to no apparent effect. Stumpf just glared back at her and said that that would be up to the Wells Fargo board. Clearly, Stumpf does not feel compelled to step down of his own volition.

          I strongly suspect that, in a month or two, he will still be CEO of Wells Fargo, still collecting his seven-figure salary, bonuses and stock options. Alas.

           Plus ça change plus c'est la meme chose.