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Wells Fargo

Wells Fargo protected itself in the financial crisis because of a strong company culture with several important elements: (1) a general conservatism that precluded simply following the market with new products and services, or even acquisitions, until these had been tested within the firm for consistency with the company's culture and values; (2) an emphasis on developing relationships with customers rather than simply viewing sales of products and services as transactions; and (3) a decentralized structure that made heads of business units responsible for the risks of their activities.

These cultural attributes helped Wells Fargo to weather the crisis more successfully than many of its peers. The focus on the customer meant that it refrained from offering the most risky mortgage products. Richard Kovacevich, then chairman of the Wells Fargo board and past CEO, told the Stanford Graduate School of Business in 2009 that the bank "did not offer any no-doc option, negative-amortization loans, to subprime borrowers. These exotic subprime mortgage loans were not only economically unsound, they were not appropriate for many borrowers. We lost 4 percent market share in our mortgage business for three years between 2005 and 2007, $160 billion in originations in 2006 alone."[1]

Wells Fargo supported this customer-centric approach with its core business strategy, which was to be able to cross-sell financial products to its existing customers. Again Richard Kovacevich:

Consistent, organic revenue growth through cross-selling is probably Wells Fargo's most distinctive skill. Our average retail household has 5.9 products, and over one in four has over eight products. These are, by far, the highest cross-sell ratios in the industry and about twice the industry average.

The logic was that if customers lost money on a risky financial product, then they would not turn to Wells Fargo for the many other financial products and services they would purchase from a trusted source.

Wells Fargo also had a management style that sought to promote constructive dialogue. Kovacevich rejected hierarchical control as an effective means to promote performance. Instead, as CEO he had seen his job as:

to select the best people to run [individual Wells business lines] and ... groups, let them do it, coach them so they learn even faster, and assure we have a strong internal check-and-balance audit process that verifies that they are adhering to the principles and the policies that we've agreed upon.

People at the top should, above all, be leaders At Wells Fargo, we believe personal leadership is the key to success. We believe the answer to every problem, issue, or opportunity in our company is already known by some person or team in the company. The leader only has to find that person, listen, and help effect the change. By the way, the people with the best answers are not always the people with the most stripes. True leaders do not demand loyalty; they create it. They use conflict among diverse points of view to enable the team to reach new insights. They exert influence by reinforcing values.

John Stumpf, Richard Kovacevich's successor as CEO, told the FCIC, "We believe at the company that risk is best managed as close to the customer as possible with strong oversight from independent bodies within the company."[2] Part of the process of checks and balances was what Michael Loughlin, the Wells Fargo chief risk officer (CRO), called "[providing] effective challenge." He offered the FCIC several examples of how oversight from his office helped detect risk shortcomings in major business units and led to remediation and, in some cases, changes in business unit management.[3]

The result of the Wells Fargo culture and processes was that the company refrained from taking major losses and came through the financial crisis with greater strength than before. Wells Fargo doubled in size and, through its acquisition of Wachovia, which had failed in the crisis, became a national company.

  • [1] Richard Kovacevich, "What I've Learned Since Business School," 2009. Video available at
  • [2] FCIC interview with John G. Stumpf, chairman and CEO, Wells Fargo, September 23, 2010.
  • [3] FCIC interview with Michael Loughlin, chief risk officer, Wells Fargo, November 23, 2010.
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