How Wells Fargo Could Have Saved Its Hard-Earned Reputation

The bank should have looked to Johnson & Johnson and GM for inspiration.

With Wells Fargo’s flagrant mishandling of its fraudulent account crisis—and the ensuing “retirement” of CEO John Stumpf—we can add one more name to the list of major companies that have severely damaged their reputations by mishandling crisis situations. Wells Fargo joins Samsung, Volkswagen, Mylan, Valeant, and Toyota as once-great companies that failed to step up at the moment of truth.

Wells Fargo (WFC-1.39%) is a great organization that no doubt will learn from this experience and overcome these problems, as has Toyota, but the damage to its reputation will last for a long time. These companies spent decades building reputations for integrity and customer service and billions on corporate advertising, public relations, and customer and employee surveys. Yet when confronted with crises that tested their integrity and character, their leaders turned to partial truths.

Everyone instinctively recognizes this kind of corporate dissembling. CEOs speak, but they don’t disclose substantive facts. They testify before Congress, but the words are carefully crafted by outside lawyers and public relations specialists. Worst of all, these leaders retreat from openly discussing the challenges with their employees. The self-confident CEOs, who once “seemed everywhere” when they were touting their companies’ success, seemed to disappear just when the public insists they step forward.

In behaving this way, CEOs such as Stumpf, Samsung’s Lee Jae-Yong, Volkswagen’s Martin Winterkorn, Mylan’s Heather Bresch, Valeant’s Mike Pearson, and Toyota’s Akio Toyoda destroyed their credibility with all the constituents who once believed in them.

Indeed, in facing the revelation of Wells Fargo’s creation of 2 million phony customer accounts, Stumpf completely mishandled the situation. Just two months before the bank agreed to pay a $185 million fine, Stumpf praised consumer banking chief Carrie Tolstedt as “a standard-bearer of our culture” and “a champion for our customers.” At the time, Tolstedt was retiring, walking away with a $124 million payout.

When the fine was announced, Stumpf turned him blame not on Tolstedt, but instead on 5,300 terminated employees, saying, “If they’re not going to do the thing that we ask them to do—put customers first, honor our vision and values—I don’t want them here.”

Does anyone really believe that more than 5,000 low level bank employees schemed to destroy Wells’ culture without any direction from the head of the consumer banking unit? Similarly, should the public believe Volkswagen USA CEO Martin Horn’s assertion that Volkswagen’s fraudulent emissions tests were the work of “two rogue engineers?” Or that Mylan wasn’t making an enormous profit on sales of its EpiPens?

Responding to growing pressure from Wall Street to increase their stock prices, these leaders created high-pressure environments focused on short-term performance. The CEOs enjoyed the largest fruits of these rewards with millions in bonuses and stock options. Often employees have no choice but to comply or lose their jobs.

There is a well-proven path to crisis response, one that was demonstrated by Johnson & Johnson CEO James Burke in the wake of the Tylenol drug tampering disaster: Step up to the crisis with full public disclosure, identify the root cause, and implement disciplined plans to fix the problems permanently. In so doing, Burke put his company on the successful road it has navigated the past 30 years.

Had these other CEOs followed Burke’s example, their companies would have fared far better. Burke’s approach is the route that General Motors’ CEO Mary Barra has taken in response to GM’s ignition switch problem. She is using that crisis to effect permanent changes that make GM’s closed culture more transparent, while at the same time improving the design and quality of its vehicles.

Successful leaders demonstrate courage to own the problems created under their leadership, and take personal responsibility to fix the problems. Here is what leaders should do when confronted by crises:

—When the first sign of a crisis appears, CEOs and their top teams should go to the site of the problems, witness the extent of the damage first-hand, and apologize to the victims. In the first 48 hours of a crisis, it is critical to be present and to take action, not wait for reports from lower-level teams.

—An action team of technically competent leaders must work diligently to solve the problems permanently. Only when they are confident that they fully understand the issues can they announce a fix to their customers and take full financial responsibility for its impact.

—While the people closest to the problem are searching for solutions, their CEO needs to be fully visible, holding daily or weekly press conferences to brief the media and all interested parties, and ensuring full transparency about what the company knows (and doesn’t know). In addition, top executives should hold regular town hall forums for employees, recognizing that whatever is said there becomes public information.

—Next, they need to create customer and public response teams, composed of top people, not just lawyers and PR specialists, that can respond to all inquiries and provide specific advice about what to do.

—Finally, they should appoint a senior-level team to reexamine the entire business and its culture, and recommend permanent fixes.

Leading through a crisis is never easy, yet CEOs who take immediate action and follow a clear, transparent process can use the crisis to transform their institutions for the better, and gain public respect through the process.

Bill George is Senior Fellow at Harvard Business School, former Chair & CEO of Medtronic and author of Discover Your True North.

This article was originally published on Fortune.com on 10/13/16.