like-a-rolling-stoneI continue my celebration of Bob Dylan, Nobel Laureate, by reflecting on what many consider to be his greatest recording, Like a Rolling Stone. In 2004, Rolling Stone magazine named it as the greatest song of all time. Interestingly, Columbia Records executives initially rejected the song as too long to be released as a single because it came in at over 6 minutes in length. However, through a campaign of subterfuge, Dylan’s manager was able to have it played by New York City DJs. The popularity of the song became so great that the same Columbia Records executives were forced to release it and it went to Number 2 on the Top 40.

According to the site, “The most important impact of “Like A Rolling Stone” was not commercial but creative. Rolling Stone magazine said Dylan “transformed popular song with the content and ambition of ‘Like a Rolling Stone.’” Or as Bruce Springsteen said of the first time he heard it, “[it] sounded like somebody’d kicked open the door to your mind.”” Yet for me, it was the opening organ riffs played by a 21-year-old Al Kooper who was just sitting in on the session. According to the Financial Times (FT), in it’s the Life of a Song column, Peter Aspden said Kooper began his opening solo, “like a kid fumbling in the dark for the light switch. And suddenly the song turns into the tumbling, cascading version that will become the finished article.”

While I have been writing a great deal about what Wells Fargo did in the past which has brought it such grief, today I want to consider what it might do to begin to dig itself out of the hole it finds itself in with the regulators, the public, its customers, investors and shareholders. In her Fair Game column, appropriately entitled “Wells Fargo Must Make Clean Break, Gretchen Morgenson said, “Even after two big shuffles at the top, Wells Fargo is still working from the same playbook. And for the bank’s stockholders, that could mean more frustration lies ahead.”

Morgenson cited to Sarah Bloom Raskin, deputy secretary of the United States Treasury and a former member of the Federal Reserve Board of Governors, who “said that Wells Fargo needed to shift from a reactive crisis-management stance to proactive risk management. And this may require more significant change than the company is offering.” Raskin added, ““The whole country is watching to see if this bank is seizing the opportunity to make a clean break from doing business in a way that strains its reputation with its customers to one that enhances it. This is an opportunity to bring in a new perspective at the top.””

In an email sent out to Wells Fargo customers, the bank stated, “Over the last several weeks, you may have heard about the settlements we’ve made involving some of our customers receiving products or services that they did not want or request. We are deeply committed to serving you and your financial needs, and in those instances, we did not live up to our commitment. This is inconsistent with our values and with the culture we work hard to maintain. It’s not who we are as a company.” The bank then went on to outline four steps it put forward to try and regain customer confidence.

Yet Morgenson maintains that it is more than simply customer outreach the bank must demonstrate. It is the overhaul of an entire culture which led to the miasma. She cited to “Richard Bove, a veteran bank analyst at Rafferty Capital Markets, [who] said Wells Fargo needed an overhaul that went far beyond the scandal itself. Yes, repairing the culture that allowed the fraudulent practices to occur is a crucial task for Mr. Sloan” but even more is needed. Morgenson wrote, “The pervasive opening of sham accounts, a practice in a division overseen by Carrie Tolstedt, also a top Wells Fargo executive, would certainly seem to qualify as fraud relating to the bank’s internal controls.” Rather amazingly when she asked Wells Fargo for comment on whether this catastrophic failure of internal controls had been reported to the Board of Directors, a spokesman for the bank responded, “the bank had determined that the financial impact of the problematic practices was not meaningful. “The vast majority of the accounts reviewed did not generate fees or result in net income for the company,” Ms. Randolph said in a statement. “In fact, it cost Wells Fargo more than $10 million to open and service those accounts, which generated the $2.6 million in fees that was returned to customers.””

Now Wells Fargo is saying they actually lost money on the illegal accounts that they opened. If employees were engaging in such behavior it must mean they were incentivized to do so. When the conduct sought costs a company as much as Wells Fargo, it means that there were multiple failures of internal controls around a variety of financial, as well as cultural and compliance issues.

Yet the basic question remains of what can the bank do, particularly in light of promoting the former Chief Financial Officer (CFO) to Chief Executive Officer (CEO)? Chris Tomlinson, writing in the Houston Chronicle in a piece entitled “Sizing up companies’ good deeds accurately could bring rewards”, discussed the concept of a “purpose-driven enterprise” that is gaining currency. Such a concept basically says that companies must “do more than make money” and “A company’s purpose should be to identify a societal need and fulfill it using capitalism.” Well Fargo needs to understand that as a bank it is in the trust business and it must fulfill that basic requirement to begin to extricate itself. Whining that controls did not fail because the amount was ‘not material’ is the excuse of every company which is asleep at the switch. Moreover, such an attitude will be well noticed by regulators that a company does not seem to even understand the root cause of its cultural and compliance failures.

So, when Bob Dylan asks “How does it feel, to be a rolling stone?” Wells Fargo may be in a position to answer for some time to come.


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© Thomas R. Fox, 2016