Is Wells Fargo’s internal culture to blame for the latest financial services scandal?

The banking and finance industry has a poor reputation. This is nothing new; changing public perceptions and generating a positive image are perennial challenges for banking and finance brands large and small. Despite stringent compliance and regulatory procedures in the industry, there are still far too many scandals — the latest befalling banking behemoth Wells Fargo, which was fined $185 million in September for cheating customers out of as much as $1.5 million after employees set up two million fake checking accounts in order to reach internal sales targets.

Let’s take a moment to understand the bigger picture. Employees at firms such as Wells Fargo must continuously pass everything they do through a compliance officer, including their trades, customer activities — and even tweets. The majority of bankers follow these strict conditions and operate in a constant state of regulatory awareness, ensuring that they always uphold the highest standards. Large firms such as Wells Fargo deploy smaller teams that report to a compliance officer, who is meant to uphold the rules of the regulatory bodies and adhere to the firm’s guidelines.

Fragmentation

When cracks start to appear in the compliance process, it’s easy to see how the seed is sown for a scandal. Large corporations that have completed a number of mergers and acquisitions (M&A) risk losing touch with groups and individuals within the company. There is a lack of consistency in regulatory procedures within different teams and departments, which makes it difficult for the company to monitor individuals who might be tempted to stray outside the lines.

I’m not to making excuses for Wells Fargo; its story simply highlights the importance of reviewing and tightening internal processes following an acquisition. Wells Fargo’s failure to do this has caused severe damage to its brand both within its industry and further afield. Once again, the entire sector takes a hit for one firm’s lack of responsibility.

Merging hurdles

This is also a story of disrupted culture. The fragmentation of large companies following M&As can drive different departments to become out of touch with corporate culture and identity. History is littered with examples of large organizations that struggled to integrate their cultures following multimillion-dollar deals, from AOL and Time Warner to Daimler and Chrysler. Companies need to align newly acquired departments and employees with the brand’s internal operations, culture and identity as an immediate priority. So many executives are completely disconnected from the disarray that can occur within a company following an acquisition that it can become too tempting for employees to get out of control. It’s no surprise that Wells Fargo employees speak of a rotten internal culture, driven by the pressure to hit unattainable sales targets.

It’s not impossible for banking firms to smoothly manage mergers. One brand that could act as an example for Wells Fargo is Santander. It committed significant investment and care to integrating corporate guidelines, which took three years to develop and launch back in 2007and have been a pillar of the firm’s success. When acquiring brands like Abbey National in the UK, Santander has paid special attention to human resources and internal processes. As a result, its acquisitions have provided opportunities and exposure to new markets. Investing resources into the issue of integration has kept Santander clean over the years, meaning the company can focus less on managing tarnished reputations and more on advancing its position in the market place.

In an industry where money is like a drug, companies must take greater accountability for ensuring that those who represent their brand act with the same moral code, ethics and integrity that the brand wishes to portray to its customers. Wells Fargo is clearly struggling with this, as proved by the 5,300 employees it has had to shed for their involvement in this latest scandal. The organization has a lot of work to do to turn around its business — internally and externally.

Damage control

I’m sure that regulatory bodies such as the Financial Industry Regulatory Authority and the Securities and Exchange Commission will bring those guilty to justice and compensate those impacted by the scam. But for Wells Fargo, the actions of this group of employees will leave an indelible mark on its brand for quite some time — and the company itself is far from innocent. In an era where banks cannot afford to lose the trust of the marketplace, the ramifications of a scandal caused by such a strong internal disconnect are yet to be fully realized.

The company’s next steps are critical. It is imperative that Wells Fargo implement a strategic, thoughtful and sincere approach to repositioning its brand if it wants to avoid losing more customers (the California treasurer has already suspended many of its working relationships with the bank). But Wells Fargo CEO John Stumpf’s recent praise for outgoing consumer banking chief Carrie Tolstedt, who headed up the business division that committed the fraud, indicates that those at the very top of the organization still don’t comprehend the severity of the latest indiscretion.

Unfortunately, the banking and financial services industry as a whole must now take another hit to its reputation. The coming weeks will be crucial for Wells Fargo as it seeks to repair the damage done. Only time will tell if the marketplace — and more importantly Wells Fargo customers — will forgive and forget.

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