Corporate culture is what you do, not what you say you do

Above, Wells Fargo chief executive John Stumpf testifies before the US senate banking committee. Susan Walsh / AP Photo

There is a widely shared video on the internet of the US senator Elizabeth Warren delivering a devastating questioning of John Stumpf, the chief executive of Wells Fargo, in the US senate banking committee following the bank’s recent fine for setting up unauthorised customer accounts.

Just why had thousands of Wells Fargo employees fraudulently opened as many as 2 million credit and deposit accounts in customers’ names without their knowledge?

While the bank initially blamed “rogue employees” and said that it had fired 5,300 employees for misconduct, the members of the senate committee took a different view, blaming the bank’s culture of aggressive and pervasive cross-selling.

In the words of US senator Robert Menendez: “This isn’t the work of 5,300 bad apples. This is the work of sowing seeds that rotted the entire orchard … You [the CEO] and your senior executives created an environment in which this culture of deception and deceit thrived.”

The scandal wiped more than U$25 billion off the value of Wells Fargo shares.

The issue of corporate culture is critical for businesses. Culture is often described by a statement of values that all employees are expected to follow. The Wells Fargo website states that “we define culture as understanding our vision and values so well that you instinctively know what you need to do when you come to work each day”. It then lists concepts which are deemed central to their culture: caring, can-do attitude and better together.

Similar statements can be found on websites of thousands of other companies: putting our customers first, valuing our employees, acting with integrity, etc.

Setting out the expectations is the easy part. It is much harder to ensure that the expectations are relevant and that they are translated into practice.

While companies are now readily communicating their expectations in their codes of conduct, employee handbooks, staff workshops, etc, it is the company’s other policies, procedures, informal signals, leadership style and its reward system that determine its actual culture. In the case of Wells Fargo, it is alleged that its reward system tacitly encouraged misconduct by employees.

As an employee, you set your work priorities based on what is accepted and rewarded by your environment rather than by the organisation’s stated norms.

If the financial reporting systems focus entirely on short-term operating results, this is what will get priority from employees. If a company wants employees to care more about customers, then key performance indicators based on customer satisfaction should be prominent.

But it is also the informal group norms that play a role. After all, how fast you drive on a motorway is often more influenced by the speed of other cars around you than by the speed limit signs.

What this means from a corporate governance perspective is that companies should reflect on their corporate purpose, set their values and strategies accordingly and once these are articulated, the leadership should bring these alive through corporate culture.

The chief executive should actively promote the culture, while the board should actively oversee it and lead by example. Senior management has an important role in implementing, assessing and measuring culture. But ultimately what this means is that a company needs to have an understanding of its processes and what they are telling its employees.

Hawkamah has been a long-term advocate for regional boards and corporate leaders to drive healthy corporate culture from the top. Among regional companies there are positive practices in creating corporate culture; defining, measuring and monitoring culture; and changing the board dynamics by looking at composition and board effectiveness.

After all, corporate governance is about creating the platform for corporate performance, and corporate culture is the often-neglected ingredient.

Hamad Buamim is the chairman of the Hawkamah Institute for corporate governance.

Hawkamah's annual conference (www.hawkamahconference.org) will be held on Tuesday, November 8 in Dubai.

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