Last week, Timothy Sloan abruptly retired as the CEO of Wells Fargo (NYSE:WFC). The scandal-plagued bank is in the midst of replacing him with its third permanent CEO in as many years. That's in sharp contrast to the other "Big Four" American banks, each of which has had a leader in place for at least six years.
A high turnover rate at the top of any company, let alone one so deeply embedded in the American economy, is cause for deep concern. But in Wells Fargo's case, I'm not all that worried about it. In fact, I think the situation provides a solid opportunity for the company.
This three-in-three years CEO scenario doesn't make Wells Fargo look good, particularly when compared to its peers. After all, Bank of America (NYSE:BAC) CEO Brian Moynihan acceded to his throne in 2010, JPMorgan Chase (NYSE:JPM) head Jamie Dimon is practically an institution by now, and John Corbat has been an effective (if low-profile) CEO at Citigroup (NYSE:C) since 2012.
But once we get past the eye-rolling, here-we-go-again reaction to the Sloan news, we see a very large bright spot. In its press release announcing the departure, Wells Fargo quoted board chair Betsy Duke as saying that "the board has concluded that seeking someone from the outside is the most effective way to complete the transformation at Wells Fargo."
Sloan was an insider; he joined the bank in 1987 and thus was a company man steeped in Wells Fargo's culture and hierarchy. That culture had obviously turned sour; the 2016 "fake accounts" scandal was followed by a string of new controversies. At the risk of understatement, this indicated that the bank had a general problem in the way it approached customer relations. The fake accounts scandal wasn't a one-off or fluke.
We can't, of course, lay much of this at Sloan's feet considering he was only calling the shots for less than two and a half years. Still, it seems obvious that what's needed at Wells Fargo these days is not a steady hand and loyalty but rather fresh thinking and proven talent for making a buck in a more honest way.
I think it's likely Wells Fargo's board is thinking along the same lines. That would explain Duke taking pains to emphasize that hiring a stranger would "complete the transition" (i.e., to a more trustful institution that can once again grow its assets).
Another reason an outsider might be best is that there's plenty of executive talent in big American banking just now. Most lenders in this country have enjoyed long stretches of success, and not only because they're floating atop an economy that has been on the rise for years.
Banks that aren't Wells Fargo have learned from their mistakes and generally seem to be avoiding the scary investments that lit the financial crisis. Even Wells Fargo's big rivals are humming along like growth companies -- the recent results posted by Bank of America are a good example. JPMorgan Chase continues to be ambitious and dominant, while crisis-era basket case Citigroup is reliably profitable these days.
All three of these companies, to say nothing of the many smaller lenders that have performed well lately, house executive teams that know how to maintain good customer relations while booking a profit. So Wells Fargo shouldn't have a big problem finding a suitable and qualified outsider.
To begin with, the ranks of JPMorgan Chase, Bank of America, and Citigroup are large and deep. Why not poach someone there willing to make the big jump to the top job?
As far as corporate culture and good business practices are concerned, the buck stops with the CEO. Wells Fargo has a solid chance at getting a leader untouched by the mud of its scandals; beginning the CEO search outside its employee rolls is a fine start to this process.