Dick Kovacevich came to Asia

In the month of April 2012, I had the opportunity to host Dick Kovacevich, the highly regarded chairman emeritus and former CEO of Wells Fargo, and his wife, Mary Jo on a three week tour of Asia. It was something I had been trying to accomplish several times before, given the considerable regard the industry had for what he achieved at Wells Fargo.

He had said “no” twice before. Then he came back with a very conditional “yes,” if we organized something that would give him and Mary Jo the chance to revisit the Asia he had known before. As a young Citibank star from New York in the 1970s, he had replicated the model and put in place the building blocks for the bank’s blazing accomplishment as a pioneer of retail banking in Asia. He worked with the likes of Rana Talwar and others who eventually came to be known as the face of Citibank’s retail strategy in the region.

I held Dick in high regard because to me his was the story that it was possible to build a globally significant institution by keeping focus on a simple and sustainable formula. Also his was the story of how long it takes to build that formula. I found it curious that his achievements were not much more recognized outside of the industry. This was one bank that was not tarred for mis-selling toxic financial instruments or for over-leveraging customers to take on mortgages they could not repay, nor for getting into the kind of trouble that that many of its peers in the US have.

Post-crisis, there are few US banks left that Asian banks could or would look up to as icons of best practice or global leadership in anything – from retail banking to capital markets, from branch re-engineering to balance sheet management. Many so-called “emerging market” banks today have retail banking businesses that surpass the lead that Citibank enjoyed many years ago. There are Chinese banks that are now larger in size, in distribution and customer and product sophistication than Bank of America and JP Morgan combined.

Lehman, Bear Sterns, Washington Mutual, Wachovia and a string of others are either history or have been acquired. The American story today is not a pretty one. So, to have so-called American consultants and retired bankers still come to Asia they can “teach” something to the people “out there,” is such an embarrassing misnomer. Even in a country like Mongolia, the CEO of Savings Bank there told me just last month how she asked the CEO of her previous employer, a USAID funded American, to fire her so that she could walk over to her current bank and spark what was to become the retail banking revolution in that country, without any foreign help whatsoever. The American CEO was clueless about how even this country was changing on him.

So many Asian banks have achieved great strides in all the tactical areas of the business, from mobile banking to customer relationship management and product innovation, that it is bizarre watching the American banking industry vilifying itself in the land where many of these technologies originated from.

It is in this context that it was very heartening for me to run into bankers from different parts of the world who had visited Wells Fargo only recently and still refreshingly acknowledged that the systems and processes this bank has in place remains among the best in the world.

Wells Fargo has the reputation of having arguably the most developed customer centric system of any business, hardwiring a one-view-of-the-customer to staff incentive systems to ensure that as an organization, all its employees are mobilized with the same goals. The ratio of products per customer for this bank, depending on how it is defined, is among the highest for financial institutions anywhere in the world.

This organic model of keeping close to the customer was fundamental in ensuring that it grew in almost all matrices over the past 20 years. The bank’s market capitalization grew from $800 million in 1986, when it first introduced its customer-centric model to over $140 billion or at a 25% compounded rate, much higher than the S&P100 in that time.

This was driven by pure organic growth, driven by its revenue and net income growth at 12 percent and 17 percent respectively compounded annually in the same time. Its total stockholder’s return had increased at 21 percent annual compounded rate or about twice that of S&P. Even today, despite the crisis, the bank had become one of the highest capitalized financial institutions in the world at over $170 billion.

If there was one lesson, and it is a very powerful one, that Wells Fargo presents as the last American word on the future of finance, is that there is still organic growth to be found, and finding this organic growth is the validation that any business needs to seek, simply by giving customers what they want to buy.

What I wanted to do in interacting with Dick was to reconstruct the elements required to build such a franchise backwards. To deconstruct the elements of the leadership and processes that brought this institution to where it is today. So, you can imagine how happy I was when both Dick and Mary Jo finally accepted my invitation and got on that plane from San Francisco to Singapore. The itinerary itself was the easy part.

The programme we conceived included organizing a series of small closed door dialogues with CEOs and senior management of leading banks in Singapore, Kuala Lumpur, Jakarta, Shanghai and Hong Kong as well as speaking engagements in Beijing and Bangkok at our Summit. Then we built in some holiday and sightseeing experiences built in along the way. We even managed to put them in Tibet and at the Everest Base Camp. So it worked very well. The trip was interspersed with opportunities for Dick to meet clients of Wells Fargo along the way.

The three weeks passed by very quickly, but very intensely. I had many opportunities to ask Dick and Mary Jo almost any question I wanted, and they were very open to sharing as much as they could. But strangely enough, it occurred to me over that time that I spent with them that I was “absorbing” them, understanding the essence of who they were as people, rather than “learning” anything about a “how-to”.

I also “absorbed” from the way the many people we put them in front of interacted with them. The questions that the chairmen, the CEOs, the regulators, the heads of businesses, the staff, and the people along the way asked them and the way in which their answers either delighted or disappointed them. Some conversations were exhilarating and others fell flat, if only because some of those attending ran into the error of looking for a “how-to” or two, rather than just absorbing the essence of the man.

Then I had to wait several months before writing this piece because although the experiences came to me from many different angles, my understanding of what makes this man tick has been distilled to something so prosaic, that I now wonder if anyone would understand why it is so important.

I came to the conclusion that, notwithstanding its size and complexity today, Wells Fargo, owes more of its identity and “DNA” to the personality and personal disposition of Dick Kovacevich. Some people may object and say that a business as complex as Wells Fargo is much larger than any one person. Business publications like to discover the so-called “strategy” of an organization, the cleverness that exists within or the successes of its products.

They like to call leaders as innovative or visionary, and put them beyond the organization. But this bank has a very prosaic origin, from which everything else about it can be understood, and that origin is very clearly the very powerful ordinariness of Dick Kovacevich.

One of the first things I realized about Dick, if only because I was asking him to travel thousands of miles for us, is my suspicion that he is probably the most homebody of the leaders of any Fortune 500 companies. He is not your classic jet-setter, one to get on a plane and travel to the other side of the country, let alone the world, unless he really needed to. Sure, he did his time with Citibank traveling to Asia in the 1970s, but he only came once a year, two if they were lucky. He gave that up soon enough to keep to a formula he was more comfortable with, homebody in a mid-Western state.

I thought this point important because the customer centric systems at Wells Fargo are so well developed that it could only have been built by a team led by someone who did not travel very much. At least not in the early years.

Strangely enough, my conversations with Dick did not go anywhere near topics like the Customer Information File (CIF) or the CRM system or the staff KPIs the bank has in place. He was, in a sense, beyond these topics. But quite clearly he did spend his time on them, especially in the early years until they took on a life of their own and he could move on to the next level of his own skills – and that was the mechanics of mergers integration.

Dick made various allusions to this point about how hard and long Norwest and then Wells Fargo worked on its customer centric business model. “The bad news is,” he loved to say, “it’s hard to do”. He would then continue, “the good news is,” then pause, look around the room for effect, and finish by saying “is it’s hard to do.” The Wells Fargo infrastructure is so well developed that he pointed out that “if I left the blue print on a seat in a plane, I wouldn’t worry about it” because it was very nearly impossible for a competitor to copy it.

Also embedded into his personality is this desire to work with what he has, or what is given to him, rather than to go out and create something out of nothing. This trait must surely come from somewhere inside his own family, growing up as he did in a lumber town outside Tacoma, Seattle. It’s the lumber people’s way, to take the wood that is given to them, and then decide what best to make of it.

So when he was given the problem at Citibank in New York, which had 30 percent of all checking accounts in the city, but less than six percent of deposits, he just worked on increasing the wallet share of the same checking accounts, instead of looking for some other magic number.

He repeated the same formula in Norwest. Luckily for him, Norwest was in an under-populated part of the country, where Iowa and Minnesota combined did not have any more bankable customers for all banks in these states to procure. So he had to maximize the number of products each existing customer had. Who would have thought, that keeping to this simple formula, 28 years later this was to result in Norwest becoming one of the largest banks in the world?

This association of a business to the personality of its leaders is so important. When Bob Diamond, on his way out for the LIBOR scandal, told his staff “this is not who we are”, who was he kidding? It sounded so empty, because this was exactly what they had become under the leadership of a trader. The exact wrong may not even have been Diamond’s own doing, but he had put in place the culture that made the trader more important than anyone else in the organization. By the time the crime got done, it did not matter who actually did it, the culture was already set in stone.

Rupert Murdoch said roughly the same thing about News Corporation while frying the journalist who was indicted for illegally phone-tapping and bribing the police to get the news. We needed to look no further than Mr Murdoch himself to see where that culture came from.

It took 20 years in the lead up to the US banking crisis of 2008, for the culture to be set enough to become mature. Instead of expanding mortgage lending in the 2000s, Wells Fargo kept its focus on ensuring it grew on a diversified product base when every other institution in the West Coast of the US was expanding their mortgage book dramatically.

Stress tests are a funny thing – they just confirm or deny the organization’s own appetite for fear, whatever that fear may be, cultivated over years. The Wells Fargo stress tests told them that the market was no longer sustainable, while other banks went right ahead. It’s market share of the mortgage origination business dropped to 11 percent from 15 percent from 2006-2008, or $160 billion, because it chose not to grow its mortgage book by luring high risk customers and forcing them to leverage themselves.

Maintaining this position despite being dismissed by the media and equities analysts required character, honed through years of reading the numbers correctly. Its market share today? More than 33 percent, as a result of the fallout of the rest of the competition, and by acquiring the assets of Wachovia and others.

This part of the story, on how Wells Fargo swoops in only during a crisis to build market share is another Dick Kovacevich special.

It does not go after acquisition targets in good times, only after assets are obliterated. Wells Fargo purchased Wachovia’s $800billion assets for $13billion when it was worth $100billion just two years before. Dick said somewhere in his speeches that only in bad times can any good business capture that kind of asset size or market share, and Wells Fargo’s acquisition strategy was based simply on that. They acquire nothing in good times.

Notwithstanding that Wells Fargo is probably the only major success story left in the US banking industry, neither the bank nor Dick are as celebrated in the US as they should be. Time magazine did shortlist Dick for the 2009 Person of the Year, in the year when the huge automobile manufacturers were going bust and AIG had all but lost its way after its huge investments in subprime assets. But they could not figure out the narrative for “why Dick Kovacevich”.

Dick Kovacevich is not seen as a sexy and glitzy solution to America’s problems today. He should be. Wells Fargo and its antecedent organizations grew faster and stronger than the American economy every single day for the past 25 years. But partially because he is an engineer trained to focus on working with what you have, he never called it a strategy or gave it a name. Jack Welch wasalso an engineer, but the ideas kind. He knew how to sell his strategy as something sexy. He wrote books, he promoted himself.

The Jack Welch strategy was also successful because it spoke to its time. It was about generating revenue from squeezing costs out of stone. It sounds almost silly today that Welch was celebrated for creating a culture for moving costs to India and China and hollowing out America’s very own job creating machinery, and paying executives more than they are worth. But it made sense in the 1990s, because the American corporate growth engine was already in a decline after a heady 1980s, and the focus shifted steadily from the investor to the super-manager.

The corporate sentiment in the US gave up on generating top-line growth, and was focusing on cutting bottom-line costs as the driver for profitability. Only the cheap credit of the Greenspan years kept the country in denial for a long enough time that this was what America had become, until the revenue generating capacity was truly and fully broken.

Relative to the Jack Welch model, the Dick Kovacevich model was always about generating continued and sustained revenue by ensuring great diversity of products to the customer that will serve them in any economic cycle. In fact, Dick said something during his trip that another retailer I admire considerably said to me at about the same time, that I will remember for a long time to come.

Tessie Sy of the family that owns the giant Shoemart stores and Banco De Oro in the Philippines, told me just the month before Dick's trip that as a retailer, “I focus on the top-line, and the bottomline will take care of itself.” When Dick said something similar in one of his speeches, I almost leapt out of my chair. There is an instinct that the true retailers understand that the rest of the corporate world does not. This is where the corporate revenue generating machinery in America became broken.

When I asked Dick why he did not start writing his books, he gave me a look that said either he was already working on it or too afraid to do so. There is very little about the Wells Fargo story anywhere. Even top-notch American universities offer only the occasional article. The Dick Kovacevich narrative is not mainstream, at least not today.

The American media on the other hand sees him more of a geek. The one liners that Dick uses to rally the energies of very ordinary mid-western folk around his processes, like “mind share plus heart share equals market share," are phrases the mainstream media could not use as “strategy”. Even his own staff worry.

One nervous staff tried managing my expectations by telling me that “Dick may not be a great public speaker". "But he is great one-on-one,” he offered as a consolation. Dick prepared the speeches he was going to make on this trip (which were all very good, by the way, and available on The Asian Banker website) months in advance. I read them again and saw more clearly the timeliness of his proposition. If only America would listen.

Fortune magazine might prefer Jamie Dimon as the pin-up boy to represent the banking industry. But anyone who has ever dealt with both would realise that Jamie Dimon does have a lot of a Dick Kovacevich in him. Both are very focused on the customer. Both are happy for market discipline and not the regulator to vindicate them. Both maintain a very detailed feel of the ground, right down to switching of the lights before leaving the room. Both are also self-effacing, if not shy inside, public persona notwithstanding.

Both see public accolades and recognition as imposters, which translates into making them want to make their work speak for them. Both don't suffer fools, although in the case of Dick, the fool will never know. One comes across as an in-your-face New Yorker that the media came to like, and the other guy is from way out there in San Francisco, where CEOs walk their guests to the elevator door.

Here is the narrative that stands to be lost on the American business intellectuals. If every business kept its focus on the customer, all that cost of compliance and regulatory oversight would be unnecessary, because there would be no business that would do what is not in the best interest of their customer. But America is not in the mood to listen to this right now. It is veering so much to the right today, looking for the public official to save them from all corporations, both good and bad.

From some of the sessions we had together, I had an epiphany from observing just how regulation featured inside Dick’s head.

In one session with CEOs of very large banks, all they wanted to do was wallow in regulation and compliance. When he refused to step into the happy mudbath, they left the dinner really unhappy that he would not empathize with them. They thought he would, given all the regulation going on in America today.

Then there was this regulator who kept correcting Dick on his knowledge of US regulation, which left me bewildered. This was the man on the other side of the table when Hank Paulson forced TARP on his bank? Aren’t his views on Basel III and the use of capital, mark-to-market accounting practices, deposit insurance, stress-testing, Dodd-Frank and the Volcker Rules only too well publicised? So why could he not defend himself against the very logical points brought up by this regulator?

It was on reflection that I came to realise that Dick demonstrated one of the most important counter-intuitive survival instincts all bankers should cultivate today. My epiphany was that to be focused on regulation is to surely fail.

What regulation could a business not defend itself on if it is acting in the interest of the customer? What better vindication of a business then by the price that the market was willing to pay for its equity and long-term debt? It will be only a matter of time when the same sword that the regulators are wielding in this reign of terror on bankers will fall on them, when it becomes clear that they were themselves never equipped to protect anyone.

Having said that, I did notice that Dick was probably the most compliant of Wells Fargo staff, limiting himself to operate within the rules that he created for the organization. He kept waving this little Wells Fargo booklet called “Vision and Values,” that he introduced 20 years ago. A collection of guiding principles given to every staff around which everything was possible and some things not.

Where will the future leaders of the industry come from? What kind of people will they be? What sort of leadership does Dick emanate that we can all learn from?

It is not clear yet whether something more will be required for the Wells Fargo of the future. If Dick was a homebody, the acquisition of Wachovia has made Wells Fargo that much more of an international bank. Ex-Wachovia staff tell me that customer cross-sell ratio as a key performance indicator was the one weird thing that they had to get used to, and they have. Will other acqusitions think the same way?

John Stumpf, the current chairman and CEO is an interesting reflection of his own leader. Without ever having met Stumpf at all, my one word description of him would be "trooper". The result of Dick Kovacevich’s approach to build the plumbing in Wells Fargo is that he enabled troopers like John Stumpf to come up from the ranks to feel like the organization belongs to them. It could not have been otherwise.

He appears to be in the same mould as Dick. Just last week Stumpf was quoted saying, “this stage coach has many horses” (pulling it), which is Wells Fargo-speak for “product diversification.” Wire service newsmen rather die than rush into the telegraph pole with quotes like that. But Wells Fargo continues to post sterling results amidst the American gloom, and so it gets a global hearing.

Now the customer is not mid-western anymore. It’s West Coast, East Coast and International. The temptation to become even more local in different parts of the country and around the world would force the bank to add complexity on what it means by “customer”. Funding costs and customer retention plans are played differently in different markets, with different priorities.

But even a suave, smooth talking, globe-trotting CEO of a complex future institution would have to ask himself the same question Dick probably did when he saw the Citibank numbers in New York so long ago: “Can I work with what I have?” This I think in essence is the quality of leadership that Dick Kovacevich stood for. As I said at the start of this analysis, it sounds so prosaic. But it was the starting point of one of the best stories in banking today, and it is the essence of one of its best leaders.


  1. Emmanuel,
    Great blog. Thanks for doing this work and thanks for sharing with all of us!

  2. Pramukti Surjaudaja

    Dear Emmanuel, your article is outstanding! An excellent reminder on fundamental principles in banking as well as other industries.!  Thank you very much!

  3. Thank you very much for the hard work in sharing these events and insights. Having read it in full, I understand what you mean that Dick's principles seem so prosaic, it is almost embarrassing to hold it up as insight. But it is exactly his simplicity and focus that you have elegantly articulated that makes the article (without reducing its importance to the banking industry) applicable for every service industry. Any leader in services who is looking to find focus and grow their business can do a lot worse than to draw some inspiration from your article.

    • Looking at different banks might not be a bad idea, but all banks have crazy fees like this to take adnvatage of us, you just have to know how to deal with the banks to get your way

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