As I have written before, it is my belief that the CEO of an organization defines the culture of his or her organization and everything he or she does should be to promote and back up that culture.
When the culture goes awry, it is the CEO's responsibility, especially if the culture that results lasts for a decade or more.
Wells Fargo (NYSE: WFC) has just presented the world with a prime example of how this principle works.
Wells Fargo's former Chairman and CEO John Stumpf is now a case study of how a chairman and CEO should not lead his or her organization.
Mr. Stumpf has stepped down from his position late Wednesday afternoon and turned over the reigns of the bank to Timothy Sloan, the bank's president and chief operating officer.
The bank has released reports over the past few days indicating that the leadership of the bank had been restructured with Mr. Sloan moving into a position to become the next CEO.
Mr. Sloan's elevation was not expected this soon.
But, in my mind, it had to happen.
I can't stress enough how important it is to have someone in an organization held responsible for the culture of the organization.
A real leader, in my mind, whether in business, the military, or in politics, the religious community or whatever, must be in charge of the culture.
And, when the culture breaks apart…and, breaks apart for an extended period of time…there must be a change in leadership. Otherwise confidence is lost in the organization and business cannot go on as usual.
What happened within Wells Fargo may seem to many to be a minor thing. But, it seemed to represent the culture…at least as it was forthcoming in one sector of the bank. How this imploded into other areas is not really known at this time.
Up until this scandal broke, Wells Fargo was looked upon as a well-run bank.
But, this practice has been present since 2005 according to recent reports about how long complaints have been registered in the area.
This behavior took place in the retail area. It must have spread elsewhere within the retail business. And, it would be highly unusual if it did not spread on outside of the retail business.
The new guy, Mr. Sloan is going to have to get a handle on this because until he does and until he can again regain customer confidence, Wells Fargo will be hurting.
However, this raises another issue.
One of the arguments against the "too big to fail" banks is that these organizations cannot be controlled. The argument is that the institution in so complex and the tools and instruments used are so sophisticated that they cannot be controlled within these "too big to fail" organizations.
And the sophistication and complexity especially apply to the financial instruments that are a major part of these modern financial institutions. That is, no one can know what it going on in these organizations and, hence, no one can manage the risk of theses banks.
I have two points to say here. First, if these organizations are in fact unable to be controlled, if their assets and liabilities are so complex and sophisticated that risk cannot be understood or managed, then they must be broken up. They must be reduced to a size where each CEO of the resulting institutions can oversee the executive management team and implement and control a culture so that these banks can be maintained and sustained.
It is not a question of "too big to fail." It is a question of too big to control.
Institutions that can become out-of-control need to be broken up and re-assembled in a way so that they can be managed, and managed within the appropriate executive leadership.
The second point has to do with being too big to oversee the sophisticated and complex things that leaders are dealing with. If the "too big to fail" banks in the United States cannot be controlled then that, to me, raises questions about the US military and its ability to control and maintain our military services with all the sophisticated and complex equipment and weapons that have to be dealt with.
My belief is that these large institutions can be overseen and controlled and managed. I don't believe that any bank does business in areas where things are too sophisticated and complex to manage well. The question here deals with the business model the organization is using and the training and experience the leaders are given before they are place in the highest levels of responsibility.
One of the problems we face is that we are going through a transition period where more and more information is available at every level in an organization and where the technology available to deal with this information is so advanced that our management models and leadership capabilities are just playing catch up.
In other words, the advancements are going to take place in these institutions and markets, one way or another, and business models and leadership skills are going to have to advance with them to run the institutions of the twenty-first century.
If you read some of my other posts on what's going on in FinTech, you see that I believe that what is going to happen to the banking industry…the financial industry…over the next five- to seven-years is going to be incredible.
But, we cannot, either in the institutions themselves, or in the regulatory agencies, pretend that we can get along returning to a world that existed before the Great Recession and subsequent recovery.
In one sense, Wells Fargo is very lucky.
The area where their breakdown occurred does not directly impact a lot of other areas and was not interconnected with the rest of the bank or the financial markets through technology and innovation.
Mr. Sloan, however, needs to come in and take charge of the culture of Wells Fargo and learn and move with the age and the technology to build something more solid and trustworthy.
After all, the culture of Wells Fargo is not Mr. Sloan's.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.