The bank’s previous management could have averted a crisis by simply admitting they were wrong, according to the famed investor.
Everyone makes mistakes. Even the best CEOs, according to Warren Buffet.
But there’s one, he says, that stands above all others: a failure to admit you’ve made one—and do something about it.
Many criticisms can be leveled at Wells Fargo’s previous management. They presided over an aggressive cross-selling culture that placed an out-sized emphasis on making money.
But that’s not a terrible oversight, as far as Buffett is concerned. “There’s nothing wrong with incentive systems,” he told the company’s shareholder meeting in Omaha over the weekend “But you’ve got to be very careful what you incentivize. And you can’t incentivize bad behavior.”
“at some point, if there’s a major problem, the CEO will get wind of it. And at that moment, that’s the key to everything because the CEO has to acT”.
In a frank admission, Buffett admitted he’s made similar mistakes himself at Berkshire Hathaway. “Any company’s going to make some mistakes designing a system,” he said.
Buffett said a second mistake made by Wells Fargo management, including ousted CEO John Stumpf, came down to misjudging proportions. They figured, he said, that since the size of the $185 million fine they paid was smaller than billion-dollar-plus fines paid by banks in the wake of the financial crisis, the problem was accordingly smaller.
Current Wells Fargo CEO Tim Sloan has a different take on what caused the whole fiasco. Management, he said, simply shouldn’t have put shareholders first. “I hope Warren Buffett isn’t listening by the way—but when you put them first, then you’re going to make mistakes because you’re going to make short-term decisions that aren’t focused on creating a long-term, successful company,” Sloan told a conference last week.
Berkshire Hathaway remains one of Wells Fargo’s biggest shareholders. And, while Buffett may agree that shareholders like himself aren’t everything, he has a different opinion on what Stumpf ultimately got wrong.
“The biggest mistake was—and I don’t obviously know all the facts as to how the information got passed up the line at Wells Fargo—but at some point, if there’s a major problem, the CEO will get wind of it. And at that moment, that’s the key to everything because the CEO has to act.”
The lesson for CEOs here may sound simple. But just try and succeed in business without conviction. The art is striking the balance between confidence and hubris—a capability that Apple CEO Tim Cook says is worth working on.
“So many people, particularly, I think, CEOs and top executives, they get so planted in their old ideas, and they refuse or don’t have the courage to admit that they’re now wrong,” Cook told Businessweek back in 2012.
His criticism came with respect: admitting you’re wrong is no mean feat, Cook said, while referencing his predecessor Steve Jobs.
“Maybe the most under-appreciated thing about Steve was that he had the courage to change his mind. And you know—it’s a talent. It’s a talent,” Cook said.