The Board of Directors is the steward of the organization. This involves protecting the tangible and intangible assets of the organization. This also requires the Board to gain assurance through enquiry from management and other advisors and with reference to reliable information that the integrity of the organization is kept intact and in keeping with the stated values of the organization. The number one intangible asset of all organizations is its reputation. We have seen the reputations of industry leaders take a severe beating on revelation of practices which are directly contrary to the organization’s stated goals – think Volkswagen and its approach to “clean emissions.”

So what happened at TD Bank? Loss of reputation is not an unknown risk in banking. Wells Fargo only last year paid a fine of $185 million as a result of the scandal whereby employees were placing customers in products and services which they did not need and/or were not even aware they were being signed up for. In 2016 Wells Fargo fired 5,300 workers for improper sales practices which had taken place between May 2011 and July 2015 – add that cost to the $185 million fine. The CEO John Stumpf “retired.” And in February 2017 the bank fired four mid-level executives including the Chief Risk Officer. Interestingly in October 2016 Wells Fargo began running television advertisements in an effort to restore trust in its brand. The ads focused on its long history of service by featuring its signature stage coach and pledged to address customer concerns.

The comments from a Wells Fargo executive published in the media at the start of the scandal stated that ethical conduct by employees was a priority and the focus was on serving customers properly. Was this situation the “canary in the coal mine” for the other banks? Did the Boards of Directors of other banks ask if this situation could be present in their organizations? Did the Boards probe sufficiently? What action did the Boards take to “trust but verify,” like directing the Internal Auditors to do some digging? Are the Boards certain that employee’s concerns will be treated with respect and integrity and given a fair hearing?

The Board has five major responsibilities – overseeing fulfillment of strategic and business plans; executive talent management; risk governance; integrity of the organization and the operations; and establishing sound governance practices. Did the Board consider the risk potential for a similar situation to occur under its watch – with the outcome being severe damage to reputation? Did the Board consider if the practices within the bank were consistent with the organization’s values?

In all the risk workshops that I have facilitated one risk that is common to all is “Risk of unethical actions by employees and officers.”  Everyone is quick to assure that with the risk responses that are in place to mitigate this – code of conduct, supervision of staff actions, review of customer complaints, questions on employee engagement surveys to collect views on behaviours – that the risk is not of concern as it is well mitigated.

The stated mission of TD Bank is “We will be the best run, customer-focused, integrated financial institution, with a unique and inclusive employee culture.” Its vision is “To be the Better Bank.” Its strategy is: “To produce long-term, profitable growth by building great franchises and delivering value to our customers, shareholders and communities.” The sales tactics which the TD employees are sharing suggests that the internal practices are not honouring the mission, vision and strategy. There was a hit to the TD Bank stock price. The employees of TD are wondering what the fall out will mean to them. And customers are asking if they were prey to the tactics. Looks like the Board was not fulfilling its stewardship role to meet the mission, vision and strategy.

The Board has a responsibility to gain assurance that the internal and external practices of the organization are in keeping with the corporate values. TD Bank states on its website: We are a customer-focused financial institution – these Guiding Principles represent our most important values. They are “the way we do things around here.” And then cites the following as the values: “Deliver legendary customer experiences; Be an extraordinary place to work; Operate with excellence; Understand our business; Take only risks we understand and can manage; Enhance our brand; Increase shareholder value.” When you put out such laudable values, then all your actions need to be evaluated in that context.  And the Board has a responsibility to supervise the executive and organizational actions within that context.

I remember when “whistle blower” lines had to be implemented following the introduction of the Sarbanes Oxley Act post the Enron and Worldcomm failures. We said at the time that organizations need to have processes to allow employees to voice concern about company practices so that the practices could be investigated and dealt with internally and not require employees to have to reach outside the organization to get a fair hearing into their concerns. Employee surveys and protected reporting processes need to have integrity and comments provided need to be carefully considered for warning signs or cautionary tales and the comment must be treated with respect. Was there a clear employee engagement survey that asked the employees if the bank’s actions met its corporate values? Did the Board ask and observe? Remember the Board needs to work with the perspective of “trust but verify.”

This is just another situation where we ask – where was the Board in holding management accountable and where was the Board in protecting the most valuable asset – the reputation of the organization?

 

Fay Booker is principal of Booker & Associates, a firm focused on promoting good governance, enterprise risk management and operational effectiveness – www.bookerandassociates.com

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