I'm watching (mostly listening to, actually, since my back is to the TV) an interview with former President Bill Clinton on TV (CNBC). He makes an interesting point that I think is critical to reforming our economy in a progressive direction yet maintaining free enterprise. He says corporations have to take more of a stakeholder view of governance rather than a shareholder based governance model.
President Clinton was speaking in the context of international trade, more or less defending the NAFTA trade deal he implemented in the 1990s (he noted that the US economy added more than 20 million jobs during his administration and that even manufacturing jobs in the US increased during his two terms in office). The benefits of free trade deals are debatable (I prefer "fair trade" negotiations that ensure that worker rights and environmental standards are part of the equation), but the growing push to have corporate governance include the best interests of all stakeholders (employees, customers, society at large) rather than primarily shareholders is a goal I strongly support. Today, corporate governance is incredibly hierarchical, which helps to explain why employees at or near the bottom of the pyramid feel threatened, insecure and underpaid, while those at the top seem to be protected from retribution and even rewarded (remember those golden parachutes?) for failure or malfeasance.
Which brings to mind the sales scandal at Wells Fargo. Heretofore, I considered Wells Fargo to be one of the banking industry's better stewards of sound banking practices, given how well they weathered the Great Recession compared to their peers. But when 5,000 lower ranking sales employees have to be fired because they illicitly opened unauthorized accounts for customers in order to generate additional fee income, you know something fishy is going on higher up the corporate ladder. You don't have thousands of junior employees doing something bad unless there are incentives for unethical or illegal behavior – and supervisors willing to look the other way. Nobody got fired for the bad behavior until Wells Fargo came under fire for the illicit activity. As long as it went unnoticed in the media, Wells Fargo didn't notice any problem.
My suspicion is that Wells Fargo is not alone. I think many financial institutions – and frankly corporations in other sectors as well – essentially create incentives for employees to bend rules and take advantage of customers. This is particularly dangerous in cases where consumers really on a someone who may be serving fully or partly as a sales person for advice about complicated transactions, like home loans or pharmaceuticals. Unfortunately, we live in a sort of Glengarry Glenn Ross society, where sales persons are under an "eat what you kill" pressure to meet targets in order to keep their jobs. It's time the corporate higher ups took responsibility to make sure sales incentives do not encourage unethical behavior.
