The Question Of CEO Culpability – Views From Prabhakar

John Stumpf got added to the list of CEOs over the last year who have pleaded to ignorance to scams happening in their organisations right under their nose. Showing that CEOs seem to be getting away almost anything. In a sense, they seem to be increasingly protected from any wrongdoing in their own organisations.

In fact, in the Senate Bank hearings, John Stumpf kept referring to his board, and almost seemed like a passive CEO who took instructions from his board and didn’t do anything that might, in fact, prejudice his board. But are companies really being run by boards? We thought they were being run by CEOs and boards who endorse the CEO’s opinion.

After all the nature of the offence was serious. 1.5 million unauthorised deposit accounts. 500,000 unauthorised credit card applications. Which resulted in $ 2.6 million in fees for Wells Fargo. Nicely summed up by Forbes in the picture below.

 

(Image source : Forbes.com)

On Sept 8, 2016, Wells Fargo was ordered to pay $185 m in fines to city and federal regulators. These sham accounts may have gone unnoticed were it not for a 2013 L.A. Times investigation that helped uncover the fraud.

And while Wells said it had fired some 5,300 people over five years for creating the phoney accounts it does look like CEO John Stumpf and other senior managers who were perhaps aware of the scam may go scot free. Mr Stumpf’s resignation from the Federal Reserve Board at best is a mild punishment that doesn’t even hurt. It has also led to led to Chairman and CEO John Stumpf’s forfeiture of about $41 million in unvested equity.

Volkswagen and Toshiba

When Volkswagen AG’s U.S. Executive told Capitol Hill that he didn’t know or suspect that the German automaker was using defeat devices to evade emission tests. Mr Horn said he was told that there was a problem with emissions compliance and that engineers were working with the Environmental Protection Agency.

 

 

Mr Horn said “Let me be very clear about this: While I was told about the EPA process, I was not then told, nor did I have any reason to suspect, that our vehicles included such a device,” in his opening remarks before the House Energy and Commerce subcommittee on oversight and investigations. Perhaps the most blatant of all corporate scandals was Volkswagen, which ran commercials of its engineers as angels even when company officials were setting up elaborate systems to lie to customers and get around pollution controls.

 

 

Perhaps no list of scandals would be complete without a good old-fashioned accounting scandal. In September 2015, electronics conglomerate Toshiba finally admitted that it had overstated its earnings by nearly $2 billion over seven years, more than four times its initial estimate in April.

So once again the gullible public at large has to swallow the bitter pill that the CEO is not really responsible for what happens in his company. Is this a continuing trend for CEOs? Is company leadership being re-defined in the future, where CEOs will never be responsible for what happens in their organisations? Which raises the question about who then is responsible?

 

 

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About the Author:

Prabhakar Mundkur is an ad veteran with over 35 years of experience in Advertising and Marketing. He works as an independent consultant and is also Chief Mentor with Percept H. All previous posts of Prabhakar can be found here.

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