by Gael O’Brien

Merck CEO Kenneth Frazier recently said in an interview, “There are lots of examples of companies that have lost their souls, which is a funny word to use, but companies do have souls.”

Consider the implications when leaders believe their company has a soul; how that impacts their wanting to be more vigilant against causing harm or ethical meltdowns. When leaders see their company as an organization of stakeholders that bring life to a corporate structure, it isn’t enough to just correct ethical failings. The culture also needs to be healed: a touch-and-go process when its immune system has been shut down.

It is a dilemma Wells Fargo faces, continually trying to correct practices that fueled their massive consumer fraud which came to light September 2016. With new leaders (including CEO Timothy Sloan) and changes underway, the extent of the scandal’s repercussions and customer disregard still aren’t known. This month, the U. S. Justice Department broadened its investigation beyond the bank’s retail sales practices to include the wealth management business. Beyond correcting practices, whether the bank can actually heal its culture (and perhaps soul) may depend on its relationship with 25 shareholder investor groups.

All but two of the 25 groups are members of the Interfaith Center on Corporate Responsibility (ICCR), an organization of faith-based and other institutional investors that presses companies on environmental, social and governance issues. They have been passionate, persistent and laser-focused in the last four years offering shareholder proposals that ask Wells Fargo to undertake a business standards review. They want the bank to understand the root cause of why, in the financial meltdown and amid subsequent consumer scandals, its stated values were disregarded. The goal: to make sure it doesn’t happen again.

The shareholders are being led by Sister Nora Nash, Director of Corporate Responsibility for the Sisters of St. Francis of Philadelphia. I first spoke with Sr. Nora in December 2016 regarding her work addressing the problems at Wells Fargo. Perseverance, it seems, pays off. This month, the bank’s proxy statement indicated that it has agreed to conduct the business standards review that she and the shareholder group have been pressing for. Sr. Nora talked recently about the significance of Wells Fargo’s commitment to the review process and how the company would be held accountable for conducting it.

The Potential for a Transformational Process

“I talked to CEO Tim Sloan at one of our meetings,” Sr. Nora said, “and told him I expected that the business review would be a transformational process.” As spelled out in the proxy statement, the review includes analyzing the impact of the scandals on the bank and its reputation; identifying systemic cultural and ethical root causes of scandals, including at the board level; frameworks to address issues, systems, changes and plans to strengthen culture and raise ethical standards; key performance indicators to evaluate effectiveness of changes; transparency in progress updates; and how identified issues will be factored into executive incentive and compensation decisions.

Sr. Nora said the shareholder groups have continued to think about what will ensure the review’s success and strengthen its process. In a recent several-page letter and ongoing conversation with bank leadership, she said, the shareholders conveyed expectations of “a meaningful process” and “the engagement of the bank’s leadership throughout it, taking the time necessary and doing it with purpose.”

The shareholders expect Wells Fargo to ensure cross functional participation to build ownership and leadership from every business function, probe issues from multiple perspectives that break down silos, and to be comprehensive. “If everyone is aware of the review,” Sr. Nora pointed out, “it has to happen.” The review can be transformational for the bank, she said, because it is “a process that will start some new conversations and instill some meaningful commitment to ethics, to a culture that puts the customer and society first within the company.”

Hearing that Wells Fargo plans to update its human rights policy, Sr. Nora said she recommended the company incorporate the lens of  “protect, respect and remedy” which is contained in the United Nations Framework for Business and Human Rights. Applying a stakeholder perspective, she said, could have avoided some of the controversies the bank has faced regarding mortgages, auto loans, executive compensation and other issues. A particular concern, she said, regards those who have been victimized, “the millions of people who have been left out in the cold and especially people who have lost their homes, their cars and their dignity.”

One snapshot of past debt collection practices and callous disregard for customers at Wells Fargo was highlighted in a recent New York Times article about an employee lawsuit filed in 2015. The employee, Duke Tran, claimed the bank told him (and other debt collectors) to call in the mortgage loans of more than 100 customers even though the bank lacked the documentation to prove the customers owed the money. Tran’s lawsuit alleged that he was fired for refusing to lie and participate in the bank’s cover up. Wells Fargo settled the case for a reported seven-figure amount just before the trial date.

The shareholders have also asked the bank, “to examine critically and end its practice of forced arbitration as a distinct part of this process,” Sr. Nora said. This is important, she added, “given extensive evidence that handling consumers’ claims individually and in secret hides misconduct from shareholders and the public and hampers efforts to hold Wells Fargo accountable.”

“I have to give Tim Sloan credit for coming aboard,” said Sr. Nora. “I’ve now met with him three times and I’m representing ICCR on the bank’s new Stakeholder Advisory Council,” which is led by new company board chair Elizabeth Duke. “I think he (Sloan) is serious (in thinking) that he can successfully address the challenges the bank is facing,” Sr. Nora added. “I have a good sense at this point that Wells Fargo will do what we are asking them to – and they know we will stay on the task.”

In the company’s recent proxy statement, Mr. Sloan said Wells Fargo’s “top priority remains rebuilding the trust of our shareholders.” He will doubtlessly hear more about that at the bank’s annual meeting, which is scheduled to be held in Des Moines, Iowa, on April 24.

Gael O’Brien, a Business Ethics Magazine columnist, is an executive coach and presenter focused on building leadership, trust, and reputation. She publishes The Week in Ethics and is a Kallman Executive Fellow, Hoffman Center for Business Ethics, Bentley University