The challenge of ethics: Focus on long-term goals, says Ilitch School professor

Companies seeking to steer clear of a Wells Fargo & Co.-style ethics breach need to put safeguards — not just performance targets — in place, Michigan business school experts say. The much-publicized banking scandal, where associates opened bogus customer accounts to satisfy management sales goals, resulted in 2,500 employee terminations and the downfall of CEO John Stumpf and community banking head Carrie Tolstedt. Wells Fargo, which agreed in September to pay $185 million in fines, has clawed back millions of dollars in compensation from those leaders. One way corporate leaders get themselves and their companies into trouble is by being hyper-focused on the short term, said Albert Spalding, associate professor in the Mike Ilitch School of Business at Wayne State University. "Stockholders want a long-term view from their manager," he said. "Don't look at, 'What can I do to maximize what's going on today?'" When incentivizing sales associates, for example, businesses should look at quality of sales, as well as sales totals, Spalding said. Customer satisfaction surveys and customer longevity could come into play. Boards of directors could use the same measuring stick for top executives, Spalding said. Incentives for things such as customer retention — versus unsustainable profit growth through cost-cutting — would create a more stable company. "Compensation that's mapped to a single factor, like stock price or sales, can tend to create a conflict," he said. "You sometimes have the entire executive suite focused on, 'What can we do to jack up the stock price?'"

Crain's Detroit Business