Cool Hand KOUACEUICH - Richard Kovacevich, Wells Fargo and Co - Interview - Statistical Data Included

Chief Executive, The, May, 2001 by C.J. Prince

Sometimes, when you're a CEO, there's only one thing to do when everybody's telling you you're destined to fail if you don't play by their rules: Do it your own way--and prove them wrong.

t's not every CEO who freely admits to swiping other people's ideas--although, truth be told, the vast majority of successful chief executives have probably taken the liberty. But ask Richard Kovacevich whether he prefers inventing ideas or stealing them and he's quick with his response. "Oh, I'd much rather steal an idea," the 57-year-old CEO says matter-of-factly. "Quite frankly, it's much easier mentally. I have no pride about that."

It's just the kind of blunt common sense that those who know him have come to expect from Wells Fargo's congenitally rational CEO--and the kind of honesty that's earned respect for his company. "That may be true," says Robert Sterling, senior analyst at Jupiter Media Metrix, of Kovacevich's self-professed thievery. "But, at the same time, Wells has known which ideas to steal very early on-and they've had good ones of their own."

Kovacevich's indifference about where ideas come from--and who gets the credit for them--seemed one of the key contributors to the success of Norwest's acquisition of Wells Fargo in the 1998 $31 billion deal. Immediately, Kovacevich called it a merger of equals, and said every company policy, from both Norwest and Wells, would be up on the block for re-evaluation. Ideas from Norwest folks, he said, weren't going to be weighed any more heavily just because the new CEO happened to hail from the acquiring bank. Kovace-vich managed to end up with a fairly even blend of both ideas and top executives from Norwest and the former Wells. "By merger of equals, we meant we weren't going to start off with Wells culture or Norwest culture," he says.

True, it's just the sort of thing a CEO might be inclined to say to satisfy the minions, but talking to Dick Kovacevich, one gets the impression he really means it. "Someone from the old Wells Fargo said to Dick at a meeting, 'Why don't you just admit that Norwest bought Wells?"' recalls COO Les Biller. "And Dick said, 'When I talk to Wells Fargo people, they say that to me, and when I talk to Norwest people, I hear just the opposite.' If that's not a merger of equals, I don't know what is."

From the outset, it seemed clear both to investors and insiders that Kovacevich planned to hold the reins his own way--particularly when he refused to make the kind of pie-in-the-sky costsavings projections that make analysts' mouths water. Facing the scrutiny of a board, half of which was new to him, and pressured by various sources to promise completed systems integration and hundreds of millions in savings within a year, Kovacevich summarily dismissed the notion. Instead, in characteristically realistic fashion, he predicted only moderate cost savings--roughly 17 percent of combined expenses--and said systems integration would take up to three years, as would the final decisions about which employees would fill which spots.

"I just don't know how to do a merger like this and integrate systems in a year and think you're going to save 30 percent. And if that's what's required, I don't think you should do the merger," he says. "We said all along that this wasn't about expense reduction, but about revenue growth. Skill--not scale. You can't save your way to prosperity."

That down-to-earth thinking hardly dazzled Wall Street at the time--most predicted gloom and doom for the merger--but the results of Kovacevich's methodical efforts seem to be finding favor there today. The new Wells Fargo, headquartered in San Francisco, is ranked 7th in the nation, with some 6,000 stores--don't call them branches in front of the CEO--and a commanding presence in 35 states. The bank boasts a highly advanced online banking product (a la the original Wells) and one of the largest mortgage banking businesses in the U.S. Annual revenue increased to $27.5 billion, 26 percent over 1999; diluted earnings-per-share were up as well, from $2.23 to $2.33. At press time, shares were trading at $48, which, even in a downmarket, was comfortably above a 52-week low of $37. And because Kovacevich never cut the bank's investments in technology and other developments, analysts like Merrill Lynch's Sandra Flannigan think Wells--while "not immune" to an economic downturn--is uniquely positioned to reduce expen ses if revenues suffer in 2001.

Of course, Kovacevich has no intention of letting that happen, if at all possible, and he's now keenly focused on ramping up his investment and insurance businesses to ensure growth. He estimates that about 50 percent of revenues in the financial services industry now come from those two areas, while 20 percent come from traditional banking. In an effort to get Wells' numbers into that general ballpark, the bank has been gobbling up investment and insurance firms of a range of sizes. With ACO/Acordia, Wells' insurance business became No. 4 in the country and the largest bank-owned insurance brokerage, according to Gartner Group estimates. The April 2000 acquisition of Utah-based First Security gave the bank the Van Kesper investment firm, which was intended to boost its brokerage sales force by 15 percent. In late 1999, Kovacevich scooped up Seattle-based full-service brokerage firm Ragen Mackenzie, which gave Wells more than $11 billion in assets under management.