This student research project* about Wells Fargo was published as an editorial in the Springfield Business Journal, in their Oct. 24-30, 2016, edition.
The article is a summary of extensive research completed over 7 weeks into the leadership reputation, acquisitions, technology, and financial results to assess whether Wells Fargo was still a great company. The assignment is a key component of the Strategic Management course that business majors take in their senior year as the capstone course for each major. — Prof. Bernie Dana
SPRINGFIELD, MO — In his book, How the Mighty Fall in 2009, Jim Collins discusses the demise of companies that were once great and are great no more.
Extensive research that began with 60 corporations representing over 30 industry sectors identified five steps of decline: (1) Hubris Born of Success, (2) Undisciplined Pursuit of More, (3) Denial of Risk and Peril, (4) Grasping for Salvation, and (5) Capitulation to Irrelevance or Death.
San Francisco-based Wells Fargo (NYSE: WFC) was one of the 11 companies identified as moving from good to great in previous research by Collins in “Good to Great” published in 2001. Our team of six senior business majors at Evangel University recently studied Wells Fargo to determine its current status.
We looked at its history over time along with a more intensive research into the past five years.
As a result, we assert that Wells Fargo has been in decline since at least 2007 and is currently in late stage 3, Denial of Risk and Peril.
Unfortunately, the first two stages and much of the third stage of decline are difficult to see because the organization continues to appear successful. We admit that we may not have reached this conclusion if it had not been for the recent revelations about unethical behaviors at Wells Fargo and the initial defense of those behaviors by its leadership.
The Hubris Born of Success stage refers to pride that the company will succeed simply because it has succeeded in the past. After 20 years of unbroken financial success, management and employees alike began to expect greatness for nothing from Wells Fargo.
The initial response from CEO John Stumpf, who has since resigned, demonstrated the arrogance of Wells Fargo leadership by blaming the impropriety on a few of their many employees rather than to accept that the very culture of the company encouraged the activities.
Evidence of stage 2, the Undisciplined Pursuit of More, was also clear. The high expectation of success led Wells Fargo to overreach without considering the potential consequences of its actions. In Stumpf’s first two years at the top, 2007-2008, Wells Fargo engaged in six mergers. While the Wachovia merger set Wells Fargo up to become a national bank again, six mergers could be considered frivolous spending, particularly during a time of economic uncertainty.
Somewhere, it appears that Wells Fargo began setting their goals more from bravado than from an understanding of how best to add value for their customers.
We also see evidence that Wells Fargo has been moving through stage 3, Denial of Risk and Peril, for at least the last two years. Collins predicts companies in denial will see a plateau in financial indicators followed by a sudden drop at the end of the stage. Stumpf refused to confront the obvious problems in multiple arenas, including the financial plateau of 2014 and 2015 and the ineffectiveness of the current accounts per customer goals and compensation structure.
Throughout stages 1 and 2, 2007-2013, Wells Fargo’s stock price and financials continued to rise at previous rates. As Wells Fargo entered stage 3 in 2014, financials began to plateau and then decline throughout the 2015 fiscal year. In the last month, Wells Fargo’s stock price has been slipping, as Collins predicts will happen in this stage.
Based on the evidence compiled above, we strongly assert that Wells Fargo is no longer a great company by Jim Collins’s standards in “Good to Great.”
Wells Fargo has previously gone through periods of decline followed by renewed greatness, so perhaps current events will be a wake-up call to management.
* The students are:
- Briana Collins, senior Management major with Human Resources minor from Lenexa, KS
- Sarah Elam, senior Applied Mathematics major with concentration in Accounting from Springfield, MO
- Erica McGuire, senior Nonprofit Business & Social Enterprise major with minor in Biblical Studies from Hampshire, IL
- Taylor Harnar, senior Management major from Bella Vista, AR
- Josh Lachnit, senior Management major from Springfield, MO
- Billy Thompson, senior Marketing major from Boca Raton, FL
Business professor Bernie Dana provided oversight of the work.