Here is the Half Truth: Executives Don’t Know What is Going On

She says, he says

An article in the Washington Post of June 13 titled “Ex-loan officer claims Wells Fargo targeted black communities for shoddy loansincludes a number of “he said, she said” claims. In this case “she” is Beth Jacobson, who worked as a loan officer for Wells Fargo. Amongst other things she claims that the bank deliberately pushed people into signing contracts for subprime mortgages at higher interest rates than their incomes and credit histories warranted. She says in an affidavit “there was always a big financial incentive to make a subprime loan wherever one could,” because these are so much more lucrative for the bank.

The “he” in this case is Wells Fargo’s spokesman, Oscar Suris, who denies Jacobson’s claims. She makes “unfounded and opportunistic accusations that are offensive, inaccurate, and contrary to Wells Fargo’s commitment to fair, responsible and unbiased lending practices”.

Where is the truth?

Is either of them telling the truth? In this case, I believe both are – at least some truths.

Listening to Ms Jacobson, we hear enough from whistleblowers, including banking industry insiders, to know that businesses, from pharmaceutical corporations to higher education firms, engage in predatory practices even when they strongly deny the accusation. When they do, their actions are guided by one question: can we get away with it. There are neither rules nor ethics. It does not matter whether customers/consumers/clients suffer financially, are hurt emotionally, if their lives are disrupted (banking practices produced all three), or if they are merely inconvenienced, as happens, for example, when a business “downsizes” its customer service department in the interests of “greater efficiency”. Ms Jacobson, who knows the bank’s business practices from inside, is speaking the truth with her view from practice.

If these claims are correct, can Mr Suris be speaking the truth too? The answer, in a word, is “yes”; although it is really a half-truth.

Before you jump to the conclusion that I’m defending the institutions which nearly brought the US and many other economies to their knees, I am not. Banks’ actions were and are unconscionable. They have thrown normal human responses to uncertainty, like prudence and conservatism, or even having a certain minimum ratio of assets to liabilities, out of the window. These “outmoded habits and policies” are inconvenient. They stand in the way of bigger profits and, with these, bigger bonuses. One result is that the hopes of many individuals and families for longer-term financial security – which banks promise in one advertisement after another – have vanished. Citing recent Federal Reserve data, another article in the Washington Post, reveals that from 2007 to 2010 the net worth of families in the USA fell by almost 40 per cent, putting them roughly where they were in 1992. It is difficult to comprehend the muted response, especially from middle-income families, the hardest hit. If this didn’t bring people out onto the streets in protesten masse, what will?

Median income 2001-10

Executives’ half-truths

How can Mr Suris also be telling the truth, or even a partial truth?

I assume he is not speaking for himself, but, as a spokesman giving Wells Fargo’s official line, is telling things as executives see them. And executives don’t and can’t see things in the same way as people doing the work of writing loans. The management mindset does not allow them to. Managers, with a view from top, are preoccupied with “performance measures”. This viewpoint is scary in two ways.

First, your field of vision is limited to what I call “six D’s” – data, documents, directives, deliverables, deadlines, and dollars. You don’t see the work people are actually doing, how they are doing it, and why they are doing it. Data, directives, …, etc. are not the work. ‘Work’ is what it takes to meet deadlines, produce deliverables, and so on. So, with a view from the top, you don’t actually know what is going on. A loan officer, with her view from practice, knows (or should know) something about her clients’ financial situations. She also knows how the rules the bank sets for granting loans to prospective clients with different income-earning and debt-payment histories shape people’s practices and how incentives and penalties imposed on loan writers for following or failing to follow the rules also influence what they do. Managers aren’t concerned about these ‘hows,’ ‘whats,’ or ‘whys’. What executive’s see on their ‘dashboards’ or ‘scorecards’ may be even more limited: aggregated performance data, set out in broad categories like ‘financial performance’, ‘productivity,’ and similar.

A second and equally big problem with the view from the top is that it drives strategy and induces managers further down the chain of command to set targets for workers, frame their incentives, and measure their performance in ways that (they believe) are compatible with an executive’s narrow field of vision. Managers spend their time looking ‘up’. They run their departments putting executives’ expectations (framed by view from the top) ahead of customers’ interests. In short, the bottom-line focus of the view from the top pits businesses against their customers.

While IT vendors give false assurances that their products, designed to move data around the organization, enable managers to stay in charge and in control simply by monitoring their ‘dashboards,’ in fact their products help to hide from managers and executives what is actually going on. Which is why, when Mr Suris says Ms Jacobson’s claims are “contrary to Wells Fargo’s commitment to fair, responsible and unbiased lending practices” he is no doubt speaking thetruth of the view from the top. After all, the company’s mission and/or value statements no doubt contain such language and, to executives who don’t see or know the practices, these statements plus their data are all they see and all that matter.

Which begs the question, if executives don’t know what people are doing – if they don’t and can’t see work practices – why do they receive exorbitant remuneration packages. Oh! I forgot! Their “compensation” is tied to bottom-line results. Which is why we have this mess, including unethical practices, in the first place.

Originally published by Mark Addleson at Management is Dead: Taking Charge at Work

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