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Essential Management for Doers

Trees Die from the Top: A Formula for Fixing Company Culture

Contributor: Jim Champy
Posted: 12/15/2016
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Editor's Note:

Follow the leader. But what if he or she lacks a moral compass? 

Scandal and out-of-touch executives have sparked a wave of resentment toward top management in institutions of all kinds and sizes.

There is no substitute for knowing the difference between right and wrong; between convenient rationalization and dishonesty.

Low ethical standards can destroy people (the most valuable resource of the enterprise), spirit, and performance.

Peter F. Drucker once said: "The spirit of an organization is created from the top… If an organization is great in spirit, it is because the spirit of its top people is great.” 

If it decays, it does so because the top rots. As the proverb says, “Trees die from the top.” 

How does one safeguard company culture from a downward spiral? In this article, James Champy, renowned business consultant and author of Reengineering Management, provides clear practices and processes every company must build into their organizational DNA.

Quick Case Study: Where Wells Fargo Went Wrong

The reports from Wells Fargo were shocking: Over a five-year period, its bankers opened 2.1 million accounts without customers’ knowledge. In some cases, they moved customer money into accounts and charged them fees. 

The bad behavior has been attributed to a hard-driving sales culture and misguided incentives, costing the bank its reputation and its longstanding CEO, John Stumpf, who resigned amidst the fallout. Many others lost their jobs.

Trying to Make Amends

To regain customer confidence, the bank has been running full page ads in the Wall Street Journal proclaiming the bank is now putting customers first, proactively communicating, becoming fully transparent, and fixing what went wrong.

But the words in print seem shallow to me. There’s no sense of contrition, no sense of the egregious nature of what has happened.  

I don’t see the initiatives to correct what went wrong. Rather, I see a PR campaign trying to atone for what could be a deeply flawed culture. 

In fixing what went wrong, Wells Fargo says it has “provided full refunds to customers we have already identified” and is “broadening our scope of work to find customers we may have missed.” 

What they should have said is: We are conducting a deep self-examination of our culture and radically changing our incentive systems and processes to prevent our bad behavior from ever occurring again

Without that degree of introspection and change, I would not trust any turnaround.

Of course, I am an outsider, and more change may be going on internally than the bank publicly acknowledges.

But from what I can see, much more may be required to fix this institution.

What is Culture? Where Does Culture Come From?

I have always defined company culture as the shared values of its people and the behaviors those values drive. Values are usually driven from the top. 

That is, the most senior people in the enterprise set the tone and exhibit the dominant values and behavior—others follow.

And when others don’t, they are sometimes punished.

There are reports of retribution against Wells Fargo employees who tried to expose the bad behavior—and that’s not surprising.

I have been watching to see whether the phenomena of social networking will allow a company to self-regulate, so that people can more broadly influence an enterprise’s culture.

I’m sure there are many good people at Wells Fargo, who were unable to change the culture from the bottom up. But for now, I will still look to the top.  

Can a Company Culture be Changed?

A lot has been researched, written, and practiced to change company cultures.

I have experienced many multi-year change programs and behavioral exercises, but the only change process I trust is to change the work people do and hope that it changes how they think and behave.

Most cultural change programs fail and leave people adrift in what they are supposed to be doing.

Peter Drucker always told me I was wasting my time in trying to change a company’s culture. Peter would draw analogies to country cultures.

He was fond of saying, “Look at France. Would you ever try to change the culture of the French?” Peter was the ultimate pragmatist.

But if you cannot change a culture, the bank can at least establish a set of rules for the time being, a poor substitute for culture—but when enforced, they work.

So What Should Wells Fargo’s Executives Do? 

To begin with, the Bank’s executives have to acknowledge they are all accountable for what’s happened.

Their profit-driven focus is likely to blame.

These executives have to move back—way back—from their hard-driving behaviors.

I was surprised when I read Wells Fargo’s new CEO, Timothy Sloan, recently told an investor conference that the bank’s management team “is concerned about the risk of overcorrecting.”  

I understand Sloan’s need to assure shareholders the bank is still motivated to produce profits, but his real risk is signaling to his employees that any modicum of past bad behavior is acceptable.

I would not be concerned with “overcorrecting.”

A sole focus on profits is also a danger. It’s that same sole focus that drove bad behavior in the mortgage industry during the last decade. 

Mortgage brokers and bankers sold mortgages with onerous terms to unqualified buyers—failing to adequately disclose those terms and ignoring the financial weakness of borrowers.

This contributed to the financial crisis of 2008. We have seen what can happen when profits are the sole purpose of an enterprise. 

What’s Missing? How Can We Improve?

Of course, any business enterprise must maintain profit disciplines. But that focus should be countered by other values and beliefs. 

It’s risky to judge from a distance what might have been missing at Wells Fargo, but I suspect it was a genuine sense of respect for customers and care for their wellbeing.   

It may be a harsh assessment, but how else could these bad behaviors have continued for five years?

Other enterprises have managed to generate good profits while caring for customers. 

I have always been an admirer of Zappos, the online shoe retailer, now part of Amazon. Zappos founder Tony Hsieh has always encouraged customer service staff to stay on the phone as long as it takes to understand a customer’s needs and best serve the customer—something not practiced by most call centers.

(A banker reading this column might cringe at being compared to a shoe retailer, but there is dignity and virtue in all forms of commerce.) 

In the financial services industry, Vanguard, the mutual funds company, is focused on keeping its costs at a minimum so that it can operate with low customer fees. 

Its founder, John Bogle, believes a customer is best served when Vanguard can charge low fees and not eat into the earnings of investors.

Vanguard remains profitable and has great customer loyalty.

In both companies, the founders play a key role in driving these cultures. In fact, their roles are designed to reinforce these values.

Maybe Wells Fargo can redesign the work of its bankers to drive a culture that is more about serving than selling.

A Formula for Cultural Change

Cultural change is hardly formulaic. It must be company specific. 

But if I were asked by Wells Fargo to design a cultural change process for the bank, I would tell its executives the following:

Step 1: Undertake a deep dive to understand the values and behaviors of your people. What work, processes, and incentives drove toxic behaviors?

What did you, as executives, do (and not do) to allow and enable this culture and these behaviors to exist? Remember, you’re accountable.

Step 2: Redesign the work of your people to focus first on serving your customers, while maintaining operating disciplines to maintain good profits.

A company needs to be simultaneously focused on both customer and profits.

Step 3: Make sure executives are about action, not just talk. It’s not a time for caution or safe mediocrity (or fear of “overcorrecting”). It’s a time for radically elevating your ambition to serve.

All of this is with the caveat that cultural change is very difficult and may take years to accomplish, so there is no time to waste.

We may never know all that has gone on at Wells Fargo, but we will see the result. I suspect that somewhere deep in the bank’s culture, there are some good values to which the enterprise will return. 

Contributor: Jim Champy