Last week, Wells Fargo CEO John Stumpf’s testimony before the US Senate Banking Committee brought to a head long-standing illegal activity at his bank, and further exposed a seriously misguided corporate culture. Stumpf admitted his employees had created some two million fake accounts to meet sales targets, at the expense of their customers.
Stumpf was grilled by legislators from both sides of the aisle, and received harsh rebukes for his company’s conduct and failure to hold those responsible for the fraud accountable. Regardless of how this matter is resolved, Stumpf is the public face of his company’s wrongdoing and he had an obligation to speak on Capitol Hill.
That said, these recent events bring up a much more nuanced question: what role do prominent shareholders have in addressing accountability for their investments’ actions? Warren Buffett and his firm, Berkshire Hathaway, hold over 10% of Wells Fargo’s stock – more than enough to be influential in setting standards of conduct.
Historically, Buffett has been outspoken in calling out wrongdoing—even where he had a vested interest—particularly concerning issues of image and reputation. In the 1990s following a scandal at Solomon Brothers where he was also the largest shareholder, Buffett spoke at a Congressional investigation about improving the investment bank’s culture: “lose money for the firm and I will be understanding; lose a shred of reputation for the firm and I will be ruthless.”
As yet, Buffett has yet to voice an opinion, supportive or critical, on Wells Fargo. He doesn’t have a managerial role within the bank and perhaps isn’t obligated to speak out – but at what point does his silence damage not only Wells Fargo’s reputation, but his own brand? Wells Fargo, a large American financial brand, encouraged investment from Warren Buffett, another large American financial brand, not only because they needed the capital, but because of the image boost that comes with an endorsement from “The Oracle of Omaha.”
Wells Fargo’s misdeeds put forward an interesting dilemma at the intersection of the financial and public relations worlds. Criticizing the bank potentially undermines the value of Mr. Buffet’s investment in the short term, but might help him preserve his reputation for honesty. As the influence of the celebrity investor rises, what is their role in corporate responsibility? If consumer fraud were discovered at Weight Watchers, for example, should Oprah Winfrey be expected to speak out against her own investment in the company?
Unwinding the resolution of events at Wells Fargo could reveal some uncomfortable lessons for both brands and investors in the true value of a “shred of reputation.”
–Doug Allen
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