Opinion

The Death And Redemption Of Corporate Culture

REUTERS/Jim Young/File Photo

Frederic Sautet Economist, The Catholic University of America
Font Size:

Adam Smith is famous for having described the private and social benefits of a “nation of shopkeepers”: the pursuit of personal self-interest while profiting the individual, unintentionally makes society better off. Many critics of capitalism don’t see it that way. Capitalism, they say, has no regard for morality since it promotes vices such as greed and deceit. Looking at the scandal Wells Fargo is currently embroiled in, it seems those critics may have a point.

Wells Fargo’s now former CEO, John Stumpf, resigned after testifying on Capitol Hill in an attempt to rescue the bank from a massive trust deficit. Lambasted for years of illegal banking practices such as the opening of millions of fraudulent deposit and credit card accounts under his watch, Stumpf defended himself: employees failed to honor the bank’s culture.

Stumpf once knew something about culture. Wells Fargo was recognized precisely for taking the actions that would send its employees the right message: culture matters. Stumpf called himself “the keeper of the culture,” an idea inherited from Carl Reichardt and Paul Hazen, whose leadership and prudent management of Wells Fargo convinced Warren Buffett to invest in the late 1980s. Reichardt’s frugal culture permeated the bank; for example, he wouldn’t pay for a Christmas tree in the executive suite or for office renovations for new top executives. Stumpf followed the same path by occupying a rather “shabby” (as he liked to point out) office using the same armchair since the day he began the job. When asked if he would ever upgrade the old Wells Fargo building in San Francisco, Stumpf replied in the negative. When named Banker of the Year in 2013, his frugality and prudence were noted: the qualities of a good banker make the qualities of a good bank.

By all accounts Wells Fargo didn’t just talk the talk, but also walked the walk. Today customers and the public at large feel betrayed. What happened? As Lou Gerstner recently commented, “People do not do what you expect but what you inspect.” If clerks could establish fake accounts and then close them later without efficient oversight, management failed in one of its most basic tasks: control. But what explains such activity on the part of what was perceived as one of the cleanest banks? In many cases employees were implicitly given carte blanche to engage in aggressive, and sometimes downright unethical, sales tactics — and were rewarded for it. Incentives, however, can be a double-edged sword. Extrinsic incentives can motivate individuals up to a certain point, but beyond that they can switch the employee’s focus from the task to the reward. Unfortunately, when performance incentives run counter to the cultural ethos, incentives generally win — especially when employees who fail to comply are heavily penalized or fired, as it happened in some cases at Wells Fargo. Culture became an issue of compliance.

Yet, culture is a common language of interpretation that gives each employee a set of glasses through which to view the world and achieve a common purpose. The most successful organizational cultures create a positive environment conducive to spontaneous cooperation: Catholic Social Teaching calls it “human ecology.” This culture respects the natural laws at work in the organization, which include the dignity of the individual, the idea of service (to one’s customers and to all employees), a mentality of stakeholder, and a respect for the common good. The organization becomes an ecological system made of explicit and tacit rules dedicated to the development of the individual and the team: it is lived, not imposed. When such culture exists, agency costs are naturally reduced and the common purpose of the organization is better achieved.

And the results speak for themselves. Studies show that companies that create a positive-contributive-service culture outclass others in several dimensions, including net income, in the long run. Companies named in Glassdoor’s “Best Places to Work” list (many of which have cultures broadly consistent with human ecology) mostly outperformed the S&P 500 over the last ten years.

By misaligning incentives and culture, Wells Fargo set itself on a wrong path. We can learn much from this experience. Economics tells us how the lower elements of human nature will react under different sets of rules, but human blossoming requires also attention to the transcendent aspect of human life: the human person finds meaning in work when she is positively transformed by it. Culture is more than the cumulative effects of corporate processes: it is the key element that helps employees find their deepest motivation to work and to belong. This is the answer to the critics of Smith’s nation of shopkeepers: self-interest rightly understood. This is achieved when incentives (i.e. economics) and culture (i.e. transcendence) are well aligned, thereby creating a virtuous cycle of personal and organizational flourishing.

PREMIUM ARTICLE: Subscribe To Keep Reading

Sign up

By subscribing you agree to our Terms of Use

You're signed up!

Sign up

By subscribing you agree to our Terms of Use

You're signed up!
Sign up

By subscribing you agree to our Terms of Use

You're signed up!

Sign up

By subscribing you agree to our Terms of Use

You're signed up!
Sign up

By subscribing you agree to our Terms of Use

You're signed up!

Sign Up

By subscribing you agree to our Terms of Use

You're signed up!
Sign up

By subscribing you agree to our Terms of Use

You're signed up!
Sign up

By subscribing you agree to our Terms of Use

You're signed up!
BENEFITS READERS PASS PATRIOTS FOUNDERS
Daily and Breaking Newsletters
Daily Caller Shows
Ad Free Experience
Exclusive Articles
Custom Newsletters
Editor Daily Rundown
Behind The Scenes Coverage
Award Winning Documentaries
Patriot War Room
Patriot Live Chat
Exclusive Events
Gold Membership Card
Tucker Mug

What does Founders Club include?

Tucker Mug and Membership Card
Founders

Readers,

Instead of sucking up to the political and corporate powers that dominate America, The Daily Caller is fighting for you — our readers. We humbly ask you to consider joining us in this fight.

Now that millions of readers are rejecting the increasingly biased and even corrupt corporate media and joining us daily, there are powerful forces lined up to stop us: the old guard of the news media hopes to marginalize us; the big corporate ad agencies want to deprive us of revenue and put us out of business; senators threaten to have our reporters arrested for asking simple questions; the big tech platforms want to limit our ability to communicate with you; and the political party establishments feel threatened by our independence.

We don't complain -- we can't stand complainers -- but we do call it how we see it. We have a fight on our hands, and it's intense. We need your help to smash through the big tech, big media and big government blockade.

We're the insurgent outsiders for a reason: our deep-dive investigations hold the powerful to account. Our original videos undermine their narratives on a daily basis. Even our insistence on having fun infuriates them -- because we won’t bend the knee to political correctness.

One reason we stand apart is because we are not afraid to say we love America. We love her with every fiber of our being, and we think she's worth saving from today’s craziness.

Help us save her.

A second reason we stand out is the sheer number of honest responsible reporters we have helped train. We have trained so many solid reporters that they now hold prominent positions at publications across the political spectrum. Hear a rare reasonable voice at a place like CNN? There’s a good chance they were trained at Daily Caller. Same goes for the numerous Daily Caller alumni dominating the news coverage at outlets such as Fox News, Newsmax, Daily Wire and many others.

Simply put, America needs solid reporters fighting to tell the truth or we will never have honest elections or a fair system. We are working tirelessly to make that happen and we are making a difference.

Since 2010, The Daily Caller has grown immensely. We're in the halls of Congress. We're in the Oval Office. And we're in up to 20 million homes every single month. That's 20 million Americans like you who are impossible to ignore.

We can overcome the forces lined up against all of us. This is an important mission but we can’t do it unless you — the everyday Americans forgotten by the establishment — have our back.

Please consider becoming a Daily Caller Patriot today, and help us keep doing work that holds politicians, corporations and other leaders accountable. Help us thumb our noses at political correctness. Help us train a new generation of news reporters who will actually tell the truth. And help us remind Americans everywhere that there are millions of us who remain clear-eyed about our country's greatness.

In return for membership, Daily Caller Patriots will be able to read The Daily Caller without any of the ads that we have long used to support our mission. We know the ads drive you crazy. They drive us crazy too. But we need revenue to keep the fight going. If you join us, we will cut out the ads for you and put every Lincoln-headed cent we earn into amplifying our voice, training even more solid reporters, and giving you the ad-free experience and lightning fast website you deserve.

Patriots will also be eligible for Patriots Only content, newsletters, chats and live events with our reporters and editors. It's simple: welcome us into your lives, and we'll welcome you into ours.

We can save America together.

Become a Daily Caller Patriot today.

Signature

Neil Patel