The bad news keeps coming for Wells Fargo. A nearly $150 million settlement is pending for the fake-account scandal that roiled the bank last year, and a new scandal has emerged: Recently it has been alleged that thousands of customers were signed up for insurance without their knowledge. A bevy of lawsuits is in the pipeline, and regulatory scrutiny is intensifying. Meanwhile, one of Well Fargo’s chief competitors, Bank of America, has been relatively scandal free, with impressive revenue and profit results for the first half of 2017. What explains the divergence in the fortunes of two of the U.S.’s largest banks?
Do Lawyers Make Better CEOs Than MBAs?
Firms run by CEOs who trained as lawyers are associated with much less corporate litigation than firms run by CEOs with MBAs or other advanced degrees, according to a new study. Researchers looked at data from 1992 to 2012 to gather information on 70,000 lawsuits involving 3,500 CEOs, about 9% of whom have law degrees. Compared with the average company, lawyer-run firms experienced 16% to 74% less litigation, depending on the litigation type. Moreover, companies run by lawyers, if sued, spent less on litigation and did better — they settled less often when sued and lost less often when cases went to court. The study also found that CEOs with legal training were associated with higher firm value, but only in a subset of firms — specifically, in high-growth firms and firms with large amounts of litigation. Outside of this setting, the effect of CEOs with legal training on firm value was negative. That may be because legal training focuses on the downside of particular actions, while business training may emphasize the upsides for shareholder value from risk taking.