The startling revelations of unethical, if not illegal, practices of Wells Fargo, America's third-largest bank, have a strong local flavor.
Minnesotans shaped the culture that permitted, even encouraged, unethical practices by Wells Fargo. Its past two presidents came from Minneapolis, and a member of the board since 2003 and subsequently its chair was a long-serving president of one of our major Minnesota corporations.
Wells Fargo was formed by a merger in 1998 of the California bank, Wells Fargo, and the Minnesota bank, Norwest Corp. (aka Northwestern National Bank). The headquarters were established in San Francisco, but the leadership came from Minneapolis. Northwestern National Bank had been the longtime banker to my firm and I had many friends among their management ranks and board of directors. I knew them to be competent and highly ethical individuals.
So, how does the train go off the track?
For 21 years I was the chief executive of a midsize manufacturing company. As such, I was a member of our board and ultimately its chairman. I also served on the board of six other public corporations, including a major bank.
From these experiences, I became intrigued with the role of corporations in our society. This changed my focus from the traditional measurements of profit and loss, balance-sheet strength and cash flow to understanding the purpose of corporations in our democratic free market capitalistic system. Eventually, I developed a portfolio of beliefs by which I directed my efforts as a CEO and as a board member.
• In the United States, we have chosen democracy and free-market capitalism as our political and economic systems, a conjunction we call democratic capitalism. In this union, the political sector is the dominant partner, utilizing, orchestrating and regulating the economic sector to achieve the public good. Corporations are an economic tool used by government to achieve its broader economic and political goals. The special privileges, such as limited liability of shareholders and favorable tax treatments, without which corporations could not exist, are granted by the government with the expectation that corporations will make positive contributions to the economy and to society at large.
• To sustain the public's support of democratic capitalism, it is mandatory that there be fairness in the distribution of the fruits of the enterprise among its constituencies: employees, shareholders and the communities in which it lives and works. The public's perception of the fairness of the distribution acts on the social cohesion vital to the workings of democratic capitalism.
• The responsibility of corporate leaders — CEOs and board members — is to manage the human, financial and physical resources of their organization to the end of increasing the wealth of their shareholders, employees and the larger community, doing so in a manner that improves the general welfare and preserves the world's resources and environment for future generations. Corporate leaders must earn the public's trust for their corporation's privileges, and powers are derived from the public through the agency of the federal and state governments.
• The public good transcends the rights of individuals and firms to seek profit without regard to societal consequences. Democratic capitalism is based on a balance of the rights of society with sufficient, but not unlimited, freedom for market capitalism to flourish. Implicit in the granting by the state to corporations of special powers and privileges is the understanding that a corporation shall do no harm — to the users of its products and services; to its employees; to our common environment; and to the communities in which it lives and works. No individual, firm or industry can be permitted to put the nation's well-being at risk. In this regard, our financial industry has repeatedly failed.
So, how did the train go off the track? Before the debacle, Wells Fargo was considered one of America's finest banks, the envy of its peers.
I would suggest that because Wells Fargo's management and its board were fixated on the measurements of this success — pursuit of growth, profit, market share and share price — they failed to remember the basic purposes of their incorporation; namely, to be a positive factor in our democratic, capitalistic system.
As an industry leader, Wells Fargo had the responsibility and privilege of setting the standards of conduct for its industry. Its failure in this respect is its legacy.
Chuck Denny is the retired chairman and CEO of ADC Telecommunications and has been active in many community groups.