Jeffrey Kupfer and Stephen Scott

Seated at the witness table of the Senate Banking Committee, Wells Fargo CEO John Stumpf found himself in a place no bank CEO ever wants to be. The leader of one of the nation/s largest banks was grilled for more than two hours by Senators united in rare bipartisan unity by outrage over revelations that Wells Fargo employees improperly opened accounts without their customers’ knowledge. Today, other CEOs are likely asking themselves how to avoid the same fate.

As Stumpf would no doubt agree, corporate culture is a bottom-line issue. When culture breaks down within an organization, the consequences can be dire. It is estimated that Wells Fargo has seen some $20 billion in its market value vanish since the scandal that brought Stumpf to Capitol Hill was publicized widely in the press. But fines and lost shareholder value are only the beginning. The bank’s broken trust with customers will take years to repair.

Banking Committee Chairman Richard Shelby (R-Ala.) observed in his opening remarks that “Banking is based on trust and that trust was broken at Wells Fargo.” The key question, then, for Wells Fargo is how restore it. But the banking sector as a whole must learn how to avoid losing trust in the first place.

In his opening statement, Stumpf stressed that bank management “never directed our team members to provide products or services that our customers did not want,” and claimed that the sales practices in question are contrary to the firm’s core principles, ethics and culture. “It is not representative of Wells Fargo,” he said.

This disconnect, between the culture that Stumpf’s leadership team sought to cultivate and the behavior of its employees, was the fundamental problem at Wells Fargo. What the bank’s leaders believed the company was about, and what its employees understood to be important, turned out to be very two very different things.

Core values set at the top are not worth much unless the whole organization buys into them.

It may very well be true that there were no formally sanctioned incentives to open fraudulent accounts at Wells Fargo, but it is abundantly clear that there were at least informal incentives at play, shaping employee behavior towards that unfortunate outcome.

Ethical standards, no matter how emphatically stated, are meaningless if company culture does not reflect them in practice. Informal incentives, imposed by shared behavioral norms, frequently override the most well-intentioned corporate value statements and compliance programs to result in unethical behavior. A culture permissive of bending rules will eventually see them broken.

Company leaders must therefore look beyond broad value statements to assess whether those values actually translate into the broader culture of the organization and drive employee behavior. Just as executives sweat over sales and other performance metrics, so should they be concerned with reliable measures of culture. In this direction, it is the “tone from the middle” that counts for far more than the tone from the top. It is there that attention must be focused.

The issue of culture is a growing area of interest for regulators, many of whom are actively seeking new ways to evaluate culture and to build such evaluation into their supervision activities.

In a speech earlier this year, Richard Ketchum, then-CEO of the Financial Industry Regulatory Association (FINRA), set culture as a top regulatory priority. “I can say unequivocally that firm culture has a profound influence on how a securities firm conducts its business,” he told industry leaders gathered for FINRA’s annual conference. Of particular interest, he said, is “how a firm measures compliance with its cultural values; what metrics, if any, it uses; and how it monitors for implementation and consistent application of those values throughout its organization.”

FINRA is not alone. William Dudley, of New York’s Federal Reserve Bank, has been outspoken on the need for greater focus on culture. “Context drives conduct,” he contends. And Christine Legarde, managing director of the International Monetary Fund, has argued that financial leaders should take “values as seriously as valuation, culture as seriously as capital.”

In the wake of the Wells Fargo case, regulators and lawmakers will certainly be focused on making sure that they do.

Scott, a former congressional investigator and operational risk consultant, is the founder of Starling Trust Sciences, a startup that is focused on technology solutions related to corporate culture. Kupfer, a former U.S. Treasury official, is a co-founder of Starling.

Starling opinion piece published in The Hill.