John Stumpf, chief executive officer of Wells Fargo & Co., swears in to a House Financial Services Committee hearing in Washington, D.C., U.S., on Thursday, Sept. 29, 2016. Photographer: Andrew Harrer/Bloomberg

This post is from The Harbus, the news organization of Harvard Business School. Click here to see the original article and here to learn more about Professor Sharer.

Every once in a while something happens in the business world that compels us to stop, take notice, reflect, and learn. Enron’s collapse, the financial crisis, the VW diesel emission scandal, and BP’s Macondo oil well explosion come to mind. The Wells Fargo reputation implosion unfolding now is another example, and it is full of lessons for future and current leaders. Like most truly troubling events, it is a multi-element situation that does not easily yield to a single point failure analysis. Of course CEO and board choices and behaviors are at the heart of the problem, but there are many other elements. Let’s use our HBS analysis and critical thinking skills to dissect the case and see what lessons we can take away.

First, some case facts are in order. Wells was the highest market capitalization and most successful bank in the United States. Wells weathered the 2008 crisis better than virtually all other big banks, and prided itself on being a big bank with small town focus and ethos across its many thousands of branches. The CEO is an experienced, respected, capable, and good person who has been in the job for almost a decade, and by all prior measures has done a superb job. The board has the requisite complement of CEOs, ex-government financial executives, diverse leaders, and a lead director who was the successful CEO of a large, complex public company. The company had solid financial performance and a key goal was to cross-sell the bank’s multiple products to its customer base. Cross-selling metrics were a key performance measure for branch managers and employees and central to their compensation.

Several years ago, it became known that some employees opened, without customer knowledge, fraudulent credit card accounts and in so doing received cross-selling credit. The bank discovered this fraud and over the course of several years fired nearly 5,300 employees or about two percent of the total workforce. The fraudulent activity generated millions in fees, but these were in the main small fees which were inconsequential compared to the banks $20 billion plus annual net income. No senior executive was disciplined nor was any compensation for senior executives affected. The retail branch senior executive was to retire with a full and generous retirement package that has been valued at nearly $100 million in stock and expected pension payments.

Then, things changed! The LA Times published a story, the press picked it up widely, top regulators descended and fined the bank $185 million, and the CEO was called to testify at the Senate banking committee. The CEO at first said the problem was the 5,300 bad apples and not the bank, its compensation system, or the executives in charge. At the Senate hearing, he apologized but basically stuck to his story. He was, in the words of the FT, “savaged” and left with his job in jeopardy. In haste the board then decided to claw back $41 million of his previously granted stock and $19 million from the retiring executive’s package. Some see the board’s action as too little too late and the drama continues as the CEO returns to testify in the House. Stay tuned.

How did this stunning, rapid, and steep descent happen? The first and central problem is that the CEO did not properly assess, understand, accept, and act on the root causes. Why did the bank’s internal compliance system and processes not identify, understand, and present for management review such a pervasive problem?

He should have realized the compensation system and managers were as much at fault as the individuals. Next, he held no senior person accountable including himself. He failed to understand the context in which this would be publically viewed given the deep animosity towards banks that still lingers. He did not take personal accountability and tell the board to take compensation action that had teeth. In short, he did not own the problem and did not understand how it would be viewed. Moreover, he did not take initiative to demonstrate his understanding by experiencing personally real consequences. Simply saying "I am sorry" with no consequences is infuriating to others and smacks of insincerity to any observer.

The board also failed. They also did not properly analyze the situation, push back on the CEO, and take action. The lead director and head of the compensation committee were especially delinquent. Finally, it is likely that CEO and board advisors were involved in counseling this course of action out of perhaps fears about shareholder lawsuits or catalyzing other litigation. If so, they were very short-sighted and focused on avoiding what might have been a minor economic event. This sort of possible counsel instead led to a multi-billion dollar market capitalization loss, a permanent dent in the bank’s reputation, and the possible derailment of a CEO and board. This was a totally avoidable event.

The lessons for aspiring leaders? Look hard to understand root causes. Be sure your systems and processes are alert to and able to surface and interpret patterns of data or behaviors that may signal significant problems early. Be alert to and own your part in the problem. Make sure you hold yourself and others to account in ways that are proportional to the mistake. Understand the context in terms of relevant audiences, their perspectives, and their ability to react. In the course of a career, you will likely have a chance to see if you learned these lessons. Pass the test.

This post is from The Harbus, the news organization of Harvard Business School. Click here to see the original article and here to learn more about Professor Sharer.

Our HBS General Management class had just completed a series of cases about decision-making processes. In these cases, time and time again the leader or team had made poor decisions with often devastating results. The class had successfully identified several root causes in each case, but a common thread in the cases was that regardless of the process, it had failed to yield a good decision because the collective wisdom of the group had not been effectively revealed and used.

A student approached me after class. “Here’s the problem,” she said. “We may all hope to be General Managers some day, but very soon we will be in less senior roles. We won’t be the leader, deciding on the process or engaging the team through the process. So, how can we speak up effectively and safely, when we have a difficult message that the leaders have not thought about or, worse, do not want to hear?”

This is a common challenge and is not confined to early-career professionals. Mastering the process and art of dissent is a vital skill for anyone working in a group setting. Effectiveness is often determined by when and how you make your views known. Too often individuals blurt out an ill-formed comment that lacks in logic, facts, or clarity and that is powered by an excess of emotion and alarm. The message is lost in the noise.

Admittedly, this is an extreme example, but in the heat of the moment things can go awry. As with most professional challenges, thinking about the problem in a structured way can help.

Let’s break the challenge into its constituent parts. Each element can be considered, understood, and appropriately mastered for the situation at hand. It’s probably not so useful in a do-or-die emergency situation, but hopefully you will not see that circumstance. In those cases, intuition and gut-based judgment will take over. For the more normal, non-emergency circumstance, five elements are in the mix:

1. What is the context and decision process?
2. What is the right time to comment/advocate?
3. Who are likely allies or opponents and what are their views and power base?
4. What phrasing or message will be most impactful, considering both words and emotional content?
5. What follow-up strategy is needed?

Context

Understanding context and the decision process in use should not be too difficult but is often overlooked. In a sense these are the “rules” for how things will go. How close to making the call is the group? What is the history and culture of the process? How important is the outcome and to whom? What is the actual decision process being used and how open is the group to dissent historically? How does the group, and particularly the boss, like to consume information?

Timing

Someone said timing is everything in life and, when trying to change the course of a decision, this is certainly true. There are times when an intervention is too early and times when it is too late. Knowing the context and process helps, but there is also art here. Discussion processes can be organic with discussion ebbing and flowing. There are no hard-and-fast rules. When should you take your shot? Too early, your message evaporates in the noise or, worse, you seem brash. Too late or too cautious, the moment passes with no impact. Listen closely! Your experience, the advice of others, and good instincts will all inform your timing.

Allies

Creating allies ahead of time and knowing who in the room they might be helps. Equally important is understanding who is in opposition, as well as their logic and history. Without a working understanding of the opponent’s view you will likely not be effective in the moment in answering questions and building your case. If you are in a meeting and do not have a clue on this subject, you are lost. Surprising your boss might happen, but is not recommended. Convincing influencers ahead of time and getting advice is never a bad idea. You might find your boss or other more powerful allies can be more effective advocates for the idea than you. You can support his or her position with analysis and important facts.

The Message

How to get the message across is worth real reflection and preparation. What not to do? Use too much emotional heat, be disrespectful or patronizing to others in any way, give a long-winded spiel, or try to talk over others as we see in TV “debates." It is never a good idea and can be fatal to do anything remotely unethical (i.e. pack facts, misstate, exaggerate).

Make your message logical, fact-based, succinct, genuinely respectful of uncertainties and others’ opinions, and be able to answer the obvious questions or objections. Facts and analytics are important if they bear on your logic and are available. State your views with confidence and clarity in an even tone and do not get rattled or flustered. Again, experience will help and observe and learn from others who seem particularly effective.

Follow-Up

Follow-up also counts. At an extreme, if you feel conviction that the group is making a decision that will have truly dire consequences, you may decide that you must share your views outside the work group. In the absolute extreme, you may need to go to the CEO or even the board. This would be a momentous decision that is rare in practice, but know it could be the right decision. Normally, your follow-up is much less dramatic but should be considered. Depending on your conviction, you might want another shot. Again, get your boss’ advice but be prepared to respectfully and thoughtfully appeal. All the elements discussed above are still in play and need to be considered. Persistence can pay off as long as you develop allies, the logic and facts supporting the position are clear and persuasive, your credibility is solid, and you find a time, place, and way for the decision makers to hear. Developing the skill of honest and effective advocacy is a journey but starts with understanding and mastering the basics.

This post is from The Harbus, the news organization of Harvard Business School. Click here to see the original article and here to learn more about Professor Sharer.

When we think about “Leadership” we think about action. The word is kinetic. What verbs come to mind? Decide. Choose. Inspire. Speak. Allocate. Risk. Win. Here at HBS, where our mission is to develop leaders, we reward these actions explicitly through the practice of assessing class participation as half of the grade. We expect you to analyze, speak, judge, and share every day.

What about listening? Did anyone come here with the goal of improving their listening skills? Probably not. But in my experience, careers are too often derailed by a candidate’s inability or unwillingness to listen.  As leaders, how can we expect to be effective negotiators, counsellors, team members, collaborators, decision makers if we are not exceptional listeners?

I think about listening as both offense and defense. Offensively, we can listen with purpose and curiosity in order to gain insight and opportunity. Defensively, we  listen with an awareness that truth is often below the surface or even contradictory to the words being said. Through defensive listening we better navigate the often danger-filled jungle of our business and personal ecosystems.

Like leadership, we must work throughout our careers to hone our listening abilities.  We can all get better, but it is especially urgent that those of us who are Type A personalities to resolve to develop this talent. It’s not innately our strong suit. In a more positive sense, being a truly good, complex, and sophisticated listener will help you recognize and understand things lost to others and give you a career advantage.

Let’s consider three different contexts in which listening skills are progressively more challenging: one-to-one, one-to-many, and one-to-ecosystem. 

Listening to one person seems easy. Maybe not. A little listening hygiene is in order. No multitasking! Clear your mind of competing thoughts: that text message, plans for the weekend, the case you haven’t yet read, the unpleasant handoff at daycare this morning—you get the idea. Now you are listening, but please stop plotting your next response, judgement, argument, or objection and just listen for comprehension. This need to prepare the ground by eliminating distraction and deciding only to understand is a massive shift for most of us. Give the person you are listening to your full attention and at first only ask questions to understand rather than argue, or convince. Listening with full attention and for comprehension conveys your respect in a powerful way, and the other person will be encouraged to share more completely in the psychologically safe atmosphere you have created. You are not in class competing for airtime. You are seriously connecting and receiving concrete information, personal experience, and shared intuition.  

As valuable as the words are, they are only part of the communication. An experienced leader at the end of his executive management days said he started listening to body language at least as much or even more than the words. This focus gets more important as you are more senior when others will be trying very hard to meet your expectations. They will be ever so careful in language but their body will reveal truths they might not want to share explicitly. Once you have listened it can be useful to share what you heard in a respectful and thoughtful way, making sure you understand and to demonstrate that you wish to open the channel further. Sincere questions along the lines of “did I miss anything?” or “did I get it right?” are powerful if asked with sincerity and respect.

Listening to the room (one-to-many) is more challenging. There is more noise and many more messages coming at you. The room could be your small team, your colleagues and boss in a meeting, the audience for your presentation, or your C-suite team when you are CEO. The same basic principles apply, but there are more musicians and the music is harder to understand. Watch for patterns. Who speaks, who is paying attention, who is distracted or annoyed, where are the knowing glances among individuals? What does the emotional temperature or energy level feel like? These are all forms of listening. Be sure you know as much as possible about the biases, beliefs, alliances, history, and priorities of those with you. Only by listening to and understanding all these elements can you hope to be a full and effective actor in the dynamic of the group. As you grow in seniority, fight the tendency to dominate.  Respectfully ask people what they think and mean it. Avoid dumb close out comments like “so we all are agreed?” Talk about a stop listening move, but it is a more popular tactic than you might imagine. If someone is clearly not comfortable, seek them out after the meeting. The point is to understand the individuals, the alliances, and the group. Otherwise, you have not fully listened.

Let’s turn to the last and most complicated context, the ecosystem. Now we are in the major leagues. The ecosystem refers to the entire environment which includes your boss, the culture, opinion leaders, customers, competitors, the press, your team, the entire staff if you are CEO, shareholders, regulators, and the list goes on. We are talking about the totality of your environment. The first big idea is to recognize you need to listen and that no news is most definitely not good news. As you progress in your career, you will necessarily listen to a larger and larger portion of the ecosystem until as CEO you will need the widest possible scan. You will rely on others to keep you informed but, unfortunately, no system of reports, processes, or formal routinized steps will ever give you the full and timely picture. You need to know this and be alert and curious by having a sense for danger and knowing that small or isolated signs often foretell much bigger issues. Trust your instincts and follow up with a bias for action rather than complacency.

Knowing that any system is inadequate, you must design and operate the best set of processes you can.  Realize that the results will be summary level and retrospective in nature, so go out and hear for yourself. Test and supplement the output of the formal system. Know the top ten shareholders. Go on rides with your sales reps. Walk the factory floor with the first line supervisors. Know and understand what your critics are thinking. Ask penetrating questions in surveys and personally read the comments. The big idea here is to supplement and test the macro with your own recent, granular, and relevant micro. One last ecosystem listening thought:  make it easy for those that might be reticent to speak to be heard and listen to them! This group certainly includes people who have valuable information for you about you. Useful information can be quite uncomfortable, even humbling, but be confident enough and brave enough to encourage and welcome this gift of feedback and coaching. We also listen best to those we respect and trust, and my best advice is to empower a skilled HR leader for this most important source of unvarnished input.

Someone once said we learn by listening rather than talking, but they did not tell us listening was so demanding and vital. The reward is more than worth the effort. By the way, your life partner, children, and friends will really appreciate and respond to your growing skills as a listener.