Success in the business world is less about brains and more about developing people, Richard Kovacevich, MBA ’67, chairman of Wells Fargo, told a Stanford Business School audience.
STANFORD GRADUATE SCHOOL OF BUSINESS — Wells Fargo Chairman Richard Kovacevich recalls that one of the most crucial business lessons he learned at Stanford came on the baseball field, not because he was a star pitcher, but because of the interpersonal dynamics involved with being part of a team.
“Success in the business world, especially in the world of financial services or other service companies, is less about brains at the 99 percent level and more about people development, motivation, coaching, leadership, teamwork, integrity, culture, community involvement, vision, values and a broad understanding of a variety of business disciplines, especially interpersonal relations,” Kovacevich said November 5 as part of the student-sponsored View From the Top speaker series.
“Management by culture” is one of the key reasons Wells Fargo’s revenue has grown at a double-digit compound rate for 20 years, and helped the company avoid most of the pitfalls in the current financial crisis, said Kovacevich, MBA ’67, the CEO at Wells from 1998 to 2007.
He explained that Wells Fargo has a vision and values booklet, updated every couple of years, and acquires only those companies with similar values. When other large banks were buying investment banks in the late 1990s, Wells passed — they had different cultures, such as trying to reward a few stars who might be looking out for themselves rather than the company.
“We predicted that six out of 10 of these investment bank acquisitions by commercial banks would not work. We were wrong. Nine out of 10 did not work.”
Kovacevich made it clear that teamwork, delegating authority and sticking to its values helped Wells Fargo resist the temptation to offer many subprime mortgages and lower its lending standards. “We lost 4 percent market share in our mortgage business for three years between 2005 and 2007 — $160 billion in originations in 2006 alone. In hindsight, we were glad we did.”
He said a command-and-control leadership style wouldn’t have served nearly as well. “Great leaders give power to their teams. They do not monopolize it. You cannot share a vision unless you share the power to achieve it. Leaders don’t point fingers, they point direction; they show the way by personal example.”
Leaders need to believe in the talent and listen to the opinions of people at all levels, so that those who enter the business full of energy don’t wind up feeling bored and ignored in a few years, Kovacevich said, adding that it is crucial to make the workplace fun and offer motivation, praising workers publicly when they do well.
“People at the top should, above all, be leaders. Quite often, they act like managers. Managers administer; leaders innovate. Managers rely on systems; leaders rely on people. Managers need control; leaders rely on trust. Managers work on getting things right; leaders work on the right things.
“A good leader inspires a team to have confidence in him or her; a great leader inspires a team to have confidence in themselves.”
Kovacevich said the key to growing profit is finding ways to increase revenue, not cut costs. “If customers are giving you more of their business, as evidenced by organic revenue growth, you know you must be doing a lot of things right,” he said. “You must have competitive products, you must have good service, you must have good people who understand customers’ needs. You must be priced about right. Your technology must be competitive.”
That helps explain why Wells bases most acquisitions on projected revenue growth rather than cost savings. “Cost savings are usually a one-time profit gain; revenue growth is the gift that keeps on giving.”
Kovacevich also said that when positions do need to be eliminated in an acquisition, Wells Fargo tries to offer displaced workers jobs in different areas. “We call it retain and retrain.”
Even if bank branches might have to close, for example, people might be reassigned into some other part of financial services; less than half of Wells Fargo’s revenue comes from traditional banking.
“What I try to get people to understand is that Wells Fargo is first and foremost a distributor,” Kovacevich said. “It’s a distributor of commodity financial products. Most all financial products are similar. Thus we have much more in common with other distributors of commodity products, like Wal-Mart and Lowe’s, than we did with Goldman Sachs or Countrywide. Just like Wal-Mart and Lowe’s, our uniqueness is the way we distribute those products, not the products themselves.”
He said a good leader must not overreact to projected trends. Kovacevich said that a decade or two ago, some competitors closed many branches because online banking was seen as the wave of the future. That is gradually happening, and Wells has a well-respected online service, but he said many customers still want brick-and-mortar branches.
“It is important to listen to the futurists, the pundits, the media and Wall Street because there is usually some rationale to their positions. But in my opinion, don’t do anything until you actually see signs that customers are voting with their feet. Look for the earliest possible signs of radical change. If you don’t see any, stay away from the bleeding edge.”
When it does acquire businesses, Wells often looks for “fixer-uppers,” Kovacevich said. He said a company like Wachovia, which Wells Fargo acquired in 2008 for $12.5 billion, had good businesses and talented employees, but some obvious problems that Wells believed it could fix.
The acquisition also helped his company move into investment banking, which now fits Wells’ vision and values because so many changes have been made during the economic crisis, Kovacevich said. “I believe this will turn out to be the best and most profitable acquisition in banking history, and among the best in all of corporate history.”
The View From the Top speaker series brings leaders from across the world to talk to student audiences about leadership and strategies for success. It is organized by the Center for Leadership Development and Research.
— Dave Murphy
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