Citizens’ Turn Under the Incentives Microscope

The compliance community has a fresh example of a large misusing performance incentives and souring corporate conduct along the way. This time the company is Citizens Financial Group.

Last week the Wall Street Journal had a fascinating feature story about Citizens, citing 11 current and former employees who said they faked data about calls placed to Citizens customers, supposedly inviting those customers to visit their local branch for a talk about their financial situation. The program was called “Citizens Checkup.”

Few of those calls ever happened, these employees said. Most of the time they fabricated bogus records of calls and visits that never happened, just to please upper management. (I especially admired one employee, who said he put stars and exclamation points on his false records to make them appear more genuine.) Upper management then cited those inflated statistics in reports to investors, to show investors that Citizens had a plan for growth.

How widespread was this behavior? That’s hard to say. Citizens launched its appointment program on a small scale in 2015, and expanded it last year. By last summer, Citizens’ head of consumer banking, Brad Conner, told attendees at an investor conference that the bank had called 300,000 customers and scheduled 80,000 appointments. By this year, the number was approaching 400,000 calls.

How many of those calls were false? How many employees engaged in these practices? How long have these practices been going on, and in how many nooks and crannies if Citizens? (The bank has $149 billion in assets, and more than 1,200 branches across 11 states.) We don’t know.

Citizens says the allegations from these employees are news to the bank, which has no evidence to support their claims. Conner told the Wall Street Journal that Citizens’ chief conduct officer (whoever that is; I couldn’t identify the person on LinkedIn) will investigate. Citizens shares fell 2 percent after this news and were down 7 percent in March.

Not Really Another Wells

The temptation is to compare Citizens’ misconduct to that of Wells Fargo. That’s not quite right. In one sense what happened at Wells Fargo—employees opening false accounts for customers to hit sales quotas, and then quickly closing them—was worse. Wells defrauded both investors and customers. Little surprise, then, that when the scam unraveled last year, Wells ended up with $185 million in fines and its CEO on the curb.

If the allegations against Citizens are true (and let’s not forget, they are only allegations so far), then investors were misled. I’m sure the plaintiff lawyers are already drafting their shareholder lawsuits, and will open fire on the bank soon enough.

What’s more, pumping false data up the bank’s chain of command raises questions about senior management’s grasp of what was really happening at the bank, and whether Citizens’ internal controls were effective. So I wonder whether the Securities & Exchange Commission will be squinting at Citizens more than the Consumer Financial Protection Bureau, which was the lead agency against Wells Fargo.

Citizens customers weren’t really harmed, either. Employees sold them nothing under false pretense. No fees were assessed to their accounts. Employees just added their names to a list of cold calls they supposedly made, and then marked the customers as no-shows at the time of their supposed visits for a Citizens Checkup. That’s not to the level of Wells Fargo’s offenses at all.

Another possible parallel here for banking misconduct may be Credit Suisse. Last year the SEC fined Credit Suisse $90 million because employees were improperly classifying some customer accounts as assets under management, when the assets were simply in custody. That distinction played an important role in employees’ performance bonuses, so they misrepresented the truth to get more money. Again, were customers misled? Not really. Just investors.

Regardless, we can all see the common thread here: a pressure to hit performance goals that drives employees to commit misconduct. It’s a pernicious problem that deserves a full unpacking, if ethics & compliance officers ever hope to tame it.

Incentives and Culture

Citizens’ incentive problem is so interesting from a compliance officers’ perspective, because it involves a more subtle harm. The victims were clear at Wells Fargo (customers, assuming more credit risk without consent) and Credit Suisse (the company, paying compensation it didn’t need to pay). The misconduct was plainly visible. The incentives created a pressure to break the law.

If this whacky misconduct at Citizens is true, then the real victim is Citizens itself: its corporate culture, afflicted with a “just tell management what they want to hear so they go away” attitude. The misconduct is not nearly as serious or clear-cut as what happened at Wells Fargo or Credit Suisse, but it suggests a culture that strikes me as more troubling: a culture where nobody cares whether the plan is working, so long as they personally suffer no risk of job loss or demotion.

If your culture runs along those lines, it opens the company to many different types of misconduct. Whatever else you might say about a “sell or die!” culture that drives people to violate anti-bribery laws, at least they’re still closing sales. In a culture where nobody cares whether what’s said is actually true, bribery is only one among many ways the company can meet its downfall.

What can a business flirting with this predicament do to get out of it? I harken back to a post I wrote last month about the difference between high-pressure and high-performance cultures:

Any culture that tells employees  you must not fail  is high pressure. It puts the emphasis on delivery of results, not quality of effort… A high-performance culture, in contrast, sends the message that  you must try. Perhaps the results will not emerge, but not trying is the unacceptable part—rather than not delivering.

The allegations against Citizens are even worse: a culture of “you must not tell us you failed.” And if you did fail, just fake a call sheet and nobody will care.

The solution really gets back to a strong tone at the top and a solid sense of what the bank’s core values are. At this point, compliance officers might feel that those answers are clichéd. (Lord knows, I’m tired of writing them.) But ask yourself: if your tone at the top and core values are disinterested, will any employee surveillance ever be foolproof? And conversely, if the CEO’s tone is great and the core values are clear, will you really need all those measures?