Great drama, from Sophocles to Shakespeare, often has as its theme the tragic fall of the mighty – usually because of some moral failure, such as hubris or an overweening pride. That’s one reason why the ouster of Ken Thompson as CEO of Wachovia has captured the imagination of both the financial and the mainstream media.
Surely the mythic size of the bank’s first quarter loss — $700-million — is adding to the drama. Surely, too, there are technical reasons for the problems at Wachovia. The mainstream media have been blaming the troubles at Wachovia on the economy and the sub-prime meltdown, and there is some truth in this analysis. The economy has been tough. But this hardly seems to tell the whole story. After all, there are some 16,000 commercial banks in the United States. Even in the best of times, 50 or 60 of them that will be officially classified as “troubled.” Today, only about 100 of them are considered troubled. So while macro-economic issues undoubtedly have some effect on a bank as “macro” in size as Wachovia, you can’t blame their troubles on the same economy that other banks are experiencing not as a roadblock, but as a speed bump.
And even the sub-prime problems are not affecting all banks equally. Some had the good sense to stay away from the dubious financial schemes of this marketplace, or at least to limit their exposure, and the impact on these institutions has so far been minimal.
And that gets us to the real problems at Wachovia, which are problems of focus and judgment. Said another way: why did Wachovia’s decision-making compass fail when so many others’ did not? One way to answer this question may be to look at the differences between the culture and philosophy at Wachovia and another North Carolina-based bank, BB&T.
BB&T may not be as well known as Wachovia, but it has quietly become one of the nation’s 10 largest banks, and its president, John Allison, with his bookish, professorial demeanor and disdain for the limelight, is becoming something of a cult figure among financial executives.
One of the major differences between these banks is that Allison has kept BB&T relentlessly focused on its core financial businesses. Wachovia, on the other hand, got into the financial engineering business, completing complicated mergers it couldn’t digest, creating complex financial instruments whose risks it couldn’t assess, and – worse yet – getting involved in liberal social causes that alienated employees and customers, creating morale problems and “corporate culture” conflicts.
Wachovia, for example, has been an outspoken proponent of homosexual rights. Its “vendor diversity” program encouraged employees to do business with “gay-owned” businesses. Wachovia is one of the nation’s largest corporate contributors to the Human Rights Campaign (HRC), the largest gay-advocacy group in the nation. Ken Thompson and the bank’s senior leaders have often meddled in local, state, and national politics, and not just as a part of the normal lobbying for the interests of the bank, but as major donors to liberal and Democratic candidates and causes.
BB&T’s Allison, on the other hand, is a strong advocate of free-markets who disdains using his shareholder’s money for anything that doesn’t relate to the business of the bank. Allison’s goal is not to spend profits on radical political causes, but to return those profits to shareholders, and if the shareholders want to support those causes – or any other – they will have more money with which to do so.
So did Wachovia’s ill-advised forays into liberal political causes and radical social engineering schemes ultimately lead to its troubles and the resignation of CEO Ken Thompson? It would be hard to draw a solid, straight line from one to the other. But there can be no doubt that a company the size of Wachovia runs on the integrity and enthusiasm of its employees – intangible qualities not easily measured or reported on in the financial media. One of the consequences of Wachovia’s ideological activism has been a quiet “brain drain” of key people whose conservative values were valued less and less as time went by. I’ve had scores of Wachovia employees tell me that they were discouraged and de-motivated by knowing that their talents and energies were being converted into donations to causes they found morally abhorrent.
Will Ken Thompson’s departure motivate the rest of Wachovia’s leadership to stick to business and leave social engineering behind? That’s hard to say. Thompson’s departure has led to speculation that Wachovia might be sold to JP Morgan/Chase Bank – perhaps the only bank in America that contributes more to liberal causes than did Wachovia. Birds of a feather, I guess.
But for the rest of us, there’s this issue to consider: Ideas have consequences. Bad ideas – and behaviors — have bad consequences. How close to a company such as Wachovia do you want to be when the inevitable consequences of their bad ideas start showing up on their P&L statements? A rational person should answer that question: Not very.
That’s why it’s a good thing that for every company like Wachovia that thinks it should use shareholder money to further liberal social engineering schemes, there are two or three or more companies like BB&T who think that providing a good product or service at a fair price is good enough. The moral good these companies create is in the integrity of the goods and services themselves, the jobs they create, and in the profits that their shareholders – not a cabal of corporate executives — are then able to deploy to charity or to further investment as their own consciences dictate. Those are the companies we should be supporting, when possible, both as customers, and as investors.
So I do not rejoice in Ken Thompson’s – or anyone else’s – misfortune. But that’s the way free markets work: good behavior is rewarded, and bad behavior is punished. Here’s hoping that the new boss at Wachovia will take a cue from leaders like John Allison, and pay more attention to the core competencies of the business, and less attention to seeing how to promote radical and ideologically motivated causes that have nothing to do with Wachovia’s fundamental reason for being.
Warren Smith is the publisher of the Evangelical Press News Service. He can be contacted at firstname.lastname@example.org