Sad as it is to admit, Wells Fargo's accounts scandal came at a fortuitous time, just as a Republican takeover bolstered stock prices across the entire financial sector. On Sept. 8, the Consumer Financial Protection Bureau, L.A. City Attorney and the Office of the Comptroller of the Currency fined the bank $185 million for opening millions of customer accounts without their consent or knowledge, marking the beginning of a PR nightmare. On that beginning date, Wells Fargo's stock (WFC) closed at $49.90.
To Wells Fargo's credit, it acted swiftly and decisively by being honest about its transgressions. However, unfortunately for former-CEO John G. Stumpf, none of those actions were enough to save his job. I argue that the reason Stumpf had to step down is because of a framework I call the "inverse triangle."
Imagine a segmented triangle. At the top you have executives, then managers, then employees -- and at the bottom, customers. Before the internet and information transparency, executives at the top possessed all of the relevant organizational knowledge. They pushed their vision down through the ranks of the organizational structure and out into the world through its customers. Now, however, executives no longer have a proprietary hold on information. With the internet, everyone has access to this information. In this new scenario, the triangle is reversed -- customers are on top, and executives at the bottom. With this new reality, executives have a new role: to listen, learn and relay the information they receive to ensure that the organization continues to move forward in alignment with its core values.
This kind of transparency is what we all expect out of businesses in the 21st century; therefore, whether Stumpf knew or didn't know about the scandal, there was no way for him to win. To that end, here are two essential takeaways from Wells Fargo's accounts scandal that all executives should consider:
1. In a world with information transparency, no one can hide behind the excuse of not knowing -- especially the CEO.
All C-suite executives must make it their sole job function to both absorb information from every layer of the corporation and ensure that communication is flowing freely throughout the organization. Then, and only then, can executives make sure that their organizations reflect the right values -- values that will prevent a scandal from happening in the first place.
2. In a more educated and transparent world, it's better to ask for permission than forgiveness.
In the past, executives had a fighting chance at getting away with asking for forgiveness for unethical business practices. Today, Stumpf is the first of many executives who will prove that unscrupulous practices of any kind will be a career-killer. Consumers are now simply too intelligent, too savvy and too distrusting of institutions to have the proverbial wool pulled over their eyes. When corporations misstep, the public's reaction will only continue to be brutal, particularly in the wake of the still-recent financial meltdown. Ultimately, the twin core values of honesty and transparency are here to stay, and successful executives must strictly adhere to those pillars if they want to survive.
Peter Kozodoy is an author, speaker, serial entrepreneur and the Chief Strategy Officer of GEM Advertising. Follow him @PeterKozodoy.