The unfolding scandal at US bank Wells Fargo, one of the most historic organizations in the USA, is an interesting illustration of the perils of managerial target-setting (see p. 30 of book). What seems to have happened is that sales staff were under such pressure to meet sales targets that they simply invented new bank and credit card accounts – and not just here and there: as many as two million bogus accounts were created.
story is also interesting in showing that such perverse incentives are not just
an arcane matter of organizational theory. The scandal led to the company
pay out on a $185 million lawsuit, and the resignation this week of its Chairman
and CEO, John Stumpf. And it shows the
weakness of corporate whistle blower legislation.
lies at the heart of many organizational failures and scandals in recent years,
whether that be the British
NHS or mortgage lenders’ payment
protection policies. There is little sign that the lessons of these have
been learned. A huge scandal
in waiting is the UK deregulation of pensions, which allows people to draw
down and spend or invest their pension pot on the advice of salespeople
working, of course, to sales targets. Watch this space for what will undoubtedly result in the coming years: pensioners in poverty because they have blown their savings under the paradoxical dogma of 'choice'.
encapsulate the core issue of formal and substantive rationality in
organizations (pp. 21-25) because they prioritise the former over the latter.
Formal rationality valorises target setting as a means of control; substantive
rationality valorises ethical conduct. The irony is that the former is seen as hard-headed
business logic whilst the latter is seen as fluffy ethical stuff but, as Wells
Fargo shows, that is a false logic. Had Wells Fargo been more substantively
rational, it would not face its current problems.