On April 18, 2014, the day Umpqua Holdings closed a $2 billion deal to acquire Sterling Financial in Spokane, Washington, Ray Davis, Umpqua's longtime chief executive, called a meeting for all Sterling employees. He announced that the sales quotas on which the newly acquired company had prided itself would be ending, effective immediately.
A collective sigh went up from the assembled staff, Davis recalled.
Throughout his 22 years as Umpqua's CEO, Davis has forbidden sales quotas. "I'm more interested in how the customer feels," he said. "If they feel really good about us, they're going to tell everybody. If they don't feel good about us, then we need to figure out what the hell we're doing wrong."
His approach has special resonance at a time when the industry is questioning its use of performance metrics.
In September, Wells Fargo had to pay $185 million in fines for setting up a few million unauthorized customer accounts — actions taken by 5,300 salespeople to meet or exceed sales quotas and earn bonuses. Under fire from Congress and with Wells' stock price suffering, its then-chairman and CEO, John Stumpf, resigned a month later.
At the same time, leaders inside and outside the financial industry have expressed concern over what they see
In July, a group of CEOs that included JPMorgan Chase's Jamie Dimon and Berkshire Hathaway's Warren Buffett put out
Buffett argues that guidance can lead to corporate malpractice. "If the CEO goes out and says, 'We're going to earn $1.06 next quarter,' I think that if they're going to come in at $1.04, there's a lot of attempts to find a couple extra pennies some places," he told CNBC this past summer.
Just as quotas pressure employees to produce numbers that look good — even to the detriment of customer satisfaction — so all kinds of metrics can have unintended consequences.
Then the numbers stop being meaningful and instead just warp reality. Relying on them can turn a once-healthy company into a "cargo cult," a term originating in anthropology that refers to mimicking something's outward form while having none of its function.
"If you pay someone to produce numbers, then they will produce those numbers," said Peter Conti-Brown, a professor of legal studies and business ethics at the University of Pennsylvania's Wharton School. "And they may produce those numbers in a way that is fraudulent or in a way you don't like."
With metrics, a healthy dose of skepticism is required.
"Never forget that the metrics are proxies," Conti-Brown said. "They are not the underlying reality. The underlying economic reality is very slippery."
Banks need "the belt and the suspenders," as Conti-Brown puts it. When drilling down on a single metric, they should use as many different means to evaluate it as possible.
At Umpqua, Davis doesn't eschew metrics altogether. Since the mid-'90s, the bank has been running a program designed to measure the performance of its branches — called "stores" — using several weighted criteria, including the results of customer surveys and churn ratios.
"What I want to measure is how well we do in delivering a customer experience they can't get anywhere else," said
Jason Goldberg, an analyst at Barclays, recommends employing outside consultants as "mystery shoppers" who can report back about their experience in the branches. Another good idea, he said, is to set up an independent quality-assurance department that follows up with customers to make sure they are having their needs met.
"You can't become over-reliant on numbers," Goldberg said. "You have to look not only at the performance metrics but at how they're achieved."
He quotes an old saying: "You get what you inspect, not what you expect."
Davis, for his part, has found mystery shoppers insufficient. "Hiring someone from the outside is hard," he said, "because your people are damn smart. They figure it out real fast."
So he came up with a creative — and some might say crazy — way to keep his finger directly on the pulse of customer sentiment. "This sounds really corny, but it works," he said. "In all of our locations — 300-plus — we have a phone in the lobby that's available to our customers, and if they pick up that phone and hit the number 8, that phone rings on my desk. And I pick it up. I take those calls."
Davis said he receives two or three such calls a day. Half of the callers hang up; they just want to see whether he will really answer. The other half are useful calls — either thank-you's for good service or complaints.
"Sometimes there's a problem," Davis admits. "And I like to hear about it."
