Wells Fargo judgement and Tailings risks

Wells Fargo judgement and Tailings risks

Feb 1st, 2023

We thought of Wells Fargo judgement and Tailings risks in follow-up to the recent judgement against a number of bank’s officers. The judgement cites widespread failure to:

  • “identify the root cause of …misconduct”,
  • “provide credible challenges to risk controls managers”,
  • “timely evaluate the effectiveness of risk controls” and finally,
  • “timely identify, address and escalate the risk management controls failures that threatened the safety, soundness and reputation…”.

At first sight one may be tempted to dismiss this “banking-legal” stuff as not relevant for Tailings Risk Management. However, let’s Thedig a bit deeper and carefully think about these issues.

Wells Fargo judgement and Tailings risks

Who was hit by the judgment

The Chief Risk Officer (CRO) and two Chief Audit Execs (CAEs) were fined large sums (1.5M$-10M$) and personally sanctioned. Of course, they claim they are scapegoats and their defence uses “codes” and common practices as shields. The Bank’s board counters stating they were kept in the dark.  Thus, the story is not finished, but the pain is already and acutely here. At this point we start seeing striking similarities with some tailings stories.

The takeaway from the judgement is that corporate officers may be personally liable by corporate statements creating false impression with regulators and stakeholders with respect to what they can/should expect.

What about tailings management?

Transposing this in the tailings world, we are thinking about self proclaimed ALARP “well thought” arguments, with no proof beside “trust my/our experience”. In addition, we think about many corporate brochures with “rosy scenarios” descriptions of risks, and finally TCFD and TNFD sheets. Any of these may be enough to bring acute pain, based on the Wells Fargo judgement. And it does not matter if the text was wonderfully crafted by a professional editor.

Ten years ago we brought similar considerations to the attention of the public with:

The reality is actually showing a broader reach than we thought then, and that is a good thing. ICMM GISTM goes in the good direction, but unfortunately, likely not enough.

The point is that the purpose of the board and risk functions/audits should be clearly stated, including ESG values. We hardly see how this could be defensively achieved without an explicit expression of risk tolerance.

Communication is key

We see from the judgement a gaping hole insofar the communication between officers and the board goes. The likely culprit is lack of clarity in the mutual expectations, but there are other plausible motivations one can think about.

Examples of “excuses” we have heard recently:

  • “The Board is not ready to hear potential consequences of such magnitude”. NB: That is because up to date they have only looked at “one dimension” of the potential consequences. The officer quickly added that “we cannot shock them”.
  • “The probability seems to high”. The officer did not bring any justification or proof, and added: “perhaps we should revert to factor of safety, which is comforting, because “they” (the board) understand it“.
  • “We are not sending monitoring results to management because they would not understand. Thus we “summarize” them”. There was a big silence when we pointed out they had censored data, thus leading to normalization of deviance.

Can GISTM solve the issue and avoid Wells Fargo judgement and Tailings risks

We salute the publication of the GISTM, the enhanced role of EoR, and the good faith of those men and women that serve transparency and push for more realistic approaches to risks.

However, an old proverb says: “made the law, found the deception”. We do not know the country it originated from, but we think it may apply world-wide, to any business and human endeavor.

Human nature will remain a significant hazard in any activity.

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Category: Consequences, Hazard, Probabilities, Risk analysis, Risk management, Tolerance/Acceptability

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