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Opinion: A case study of Wells Fargo’s mighty fall

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In his book, “How the Mighty Fall” in 2009, Jim Collins discusses the demise of companies that once were great and are great no more.

Extensive research that began with 60 corporations representing over 30 industry sectors identified five steps of decline: 1. Hubris Born of Success. 2. Undisciplined Pursuit of More. 3. Denial of Risk and Peril. 4. Grasping for Salvation. 5. Capitulation to Irrelevance or Death.

San Francisco-based Wells Fargo (NYSE: WFC) was one of the 11 companies identified as moving from good to great in previous research by Collins in “Good to Great” published in 2001. Our team of six senior business majors at Evangel University recently studied Wells Fargo to determine its current status.

We looked at its history over time along with a more intensive research into the past five years.

As a result, we assert Wells Fargo has been in decline since at least 2007 and currently is in late stage 3, Denial of Risk and Peril.

Unfortunately, the first two stages and much of the third stage of decline are difficult to see because the organization continues to appear successful. We admit that we may not have reached this conclusion if it had not been for the recent revelations about unethical behaviors at Wells Fargo and the initial defense of those behaviors by its leadership.

The Hubris Born of Success stage refers to pride that the company will succeed simply because it has succeeded in the past.

After 20 years of unbroken financial success, management and employees alike began to expect greatness for nothing from Wells Fargo.

The initial response from CEO John Stumpf, who has since resigned, demonstrated the arrogance of Wells Fargo leadership by blaming the impropriety on a few of their many employees rather than to accept that the very culture of the company encouraged the activities.

Evidence of stage 2, the Undisciplined Pursuit of More, was also clear. The high expectation of success led Wells Fargo to overreach without considering the potential consequences of its actions. In Stumpf’s first two years at the top, 2007-08, Wells Fargo engaged in six mergers. While the Wachovia merger set Wells Fargo up to become a national bank again, six mergers could be considered frivolous spending, particularly during a time of economic uncertainty. Somewhere, it appears Wells Fargo began setting their goals more from bravado than from an understanding of how best to add value for their customers.

We also see evidence that Wells Fargo has been moving through stage 3, Denial of Risk and Peril, for at least two years. Collins predicts companies in denial will see a plateau in financial indicators followed by a sudden drop at the end of the stage. Stumpf refused to confront the obvious problems in multiple arenas, including the financial plateau of 2014 and 2015 and the ineffectiveness of the current accounts per customer goals and compensation structure.

Throughout stages 1 and 2, 2007-13, Wells Fargo’s stock price and financials continued to rise at previous rates.

As Wells Fargo entered stage 3 in 2014, financials began to plateau and then decline throughout the 2015 fiscal year. In recent months, Wells Fargo’s stock price has been slipping, as Collins predicts in this stage.

Based on the evidence compiled above, we strongly assert Wells Fargo no longer is a great company by the standards in “Good to Great.”

Wells Fargo previously has gone through periods of decline followed by renewed greatness, so perhaps current events will be a wake-up call to management.

Research and contributions by Evangel University strategic management students Briana Collins, Sarah Elam, Erica McGuire, Taylor Harner, Josh Lachnit and Billy Thompson. Business professor Bernie Dana provided oversight of the work. He can be reached at danab@evangel.edu.

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