What Might Have Happened at Wells Fargo: A Lesson in Cognitive Bias

Leading is an inherently risky business. The very notion of it — prescribes that you must give up some measure of control, delegate tasks and strategically depend on other individuals. Leaders must rely on their inner team to sustain effective operations and keep a watchful eye for the elements that might begin to run amuck. Abraham Lincoln knew this group of individuals was critical — and as discussed here, strategically included his former opponents within his own cabinet. He understood that talent and debate were supreme, even if the posed perspectives might have run contrary to his own. Above all, the action of including these individuals might have served to protect the quality of his decisions.

Many have speculated that the events unfolding at Wells Fargo were the result of greed, or culture, or a deeply flawed compensation structure. However, what transpired at Wells Fargo may signal a deeper frailty — a human flaw that will always lurk and affect leaders. (Something that we could all fall prey to.) What grabbed my attention, was that the customer fraud had been on the radar since 2011. So, you might ask: Why didn't the alarm sound loudly? Why didn't Stumpf act decisively, much earlier? What led him to believe that fraud was in check?

Well, we could explain much of this — in very basic terms: bias. As human beings we often fail to see, what we wish not to see.

It is a pervasive cognitive error. Moreover, how we process the information that lies contrary to our preconceived beliefs has been a topic of research for many years. Here is one type of bias that appears particularly relevant to this situation:

Confirmation bias, also called confirmatory bias or myside bias, is the tendency to search for, interpret, favor, and recall information in a way that confirms one's preexisting beliefs or hypotheses, while giving disproportionately less consideration to alternative possibilities.

Confirmatory bias is a dynamic that is both common and potentially destructive. It states that once we form a view or an opinion, we might myopically support that view — even with ample evidence to the contrary. Stumpf may have held a strong belief that the culture of Wells Fargo was healthy. Over an extended period of time, it appears he ignored evidence to the contrary — and his inner circle may exacerbated the dynamic.

As we lead, how might we protect ourselves from confirmatory bias? A few ideas:

• Consider the "rival" criterion. Dissenters are important to ongoing discussions. If you have an absence of competing perspectives concerning attitudes, behaviors or results — the quality of your analysis lies perilously at risk.
• Protect debate We fear debate because it is often taken to a personal level. As a result, the value of the conversation can be diminished. (See an excellent post here about the various stages of an intellectual argument.)
• Hire for talent, not calm waters. As recounted here, Lincoln was asked why he included individuals within his inner circle with which he had openly disagreed with in the past. His response, was clear: "I had no right to deprive the country of their services.” Enough said.
• Develop fail-safe metrics. We can speak of big data and analytics endlessly. However, if our data doesn't provide information (and an expanded perspective) that might protect both people and organizations, its value is limited. What data could be collected and examined, that might offer a balanced view of an issue?

Insulating ourselves from other points of view (knowingly or unknowingly) is indeed risky business. As leaders, we have to be vigilant to save ourselves — from ourselves.

Dr. Marla Gottschalk is an Industrial/Organizational Psychologist. She is the Director of Organizational Development at Allied Talent. which brings the principles of The Alliance to organizations worldwide.