In the wake of the Wells Fargo scandal whereby bank employees opened as many as 2 million bank and credit card accounts that may not have been authorized by customers, plenty of observers have zeroed in on whether CEO John Stumpf and other executives should step down.
While it’s crucial to discuss the aftermath of the scandal, it’s equally important to take a step back and evaluate what caused it in the first place: how did the company’s internal culture get to such a breaking point, and is it possible that Wells Fargo could have avoided the scandal altogether?
Wells Fargo’s managers are blaming employees — 5,300 of whom have been fired so far —while holding themselves essentially blameless. The bank’s board agreed to rescind the pay of Stumpf and former community-banking executive Carrie Tolstedt. Executives could do more, but rather than resigning, they are spinning the situation, claiming that they are customer-focused without adequate plans to get employees on board in the mission.
This is unlike ethical transgressions at other banks that have struggled to turn their cultures around following scandals that involve ethical transgressions.
According to Reuters, “[Wells Fargo] workers have described a pressure-cooker atmosphere where they risked losing their jobs if they did not hit unrealistic sales targets. They say this pressure defined working for Wells Fargo and directly led to widespread fraud in the opening of bogus accounts.”
In other words, the bank’s goals were unrealistic. And as a result, the company’s business strategy became vulnerable to corruption. The other problem is that executives at the top largely set these goals when they should involve many other employees so they feel like their goals are more meaningful. Google Ventures’ partner Rick Klau suggests more than half of goals should originate from employees.
Additionally, companies need to ensure that their employees’ goals are actually helping drive the company’s mission. In a paper published by Harvard Business School, they outline the extremely negative side effects of setting the wrong kinds of goals, citing employee compensation expert Solange Charas:
“Enron executives were meeting their goals, but they were the wrong goals,” Charas says. “By focusing on revenue rather than profit, Enron executives drove the company into the ground.”
If Wells Fargo is truly committed to the best interests of its customers, then employees should have goals that reflect that mission, instead of a plethora of unrealistic sales numbers. And closely tying goals to pay or job security is another mistake, given that today’s employees value culture and career growth at almost twice the rate at which they value compensation and benefits, according to research by Deloitte.
Employees at Wells Fargo—and the company as a whole—could have benefitted from frequently reviewing their own goals to ensure they kept up with the company’s mission, since studies show that companies that allow employees to revise or review their goals every month are 50% more likely to score in the top quartile of business performance.
In order for employees to understand their company’s strategies and expectations, including changes made throughout the year, managers and their reports need to have frequent, ongoing conversations about their goals. For Wells Fargo, it’s likely that these conversations happened five years too late — when employees were being laid off.
Companies should be using data surrounding employees’ goals, including goal achievement, social recognition and who they’re working with, as inputs for performance conversations and focus on reviewing and providing real-time feedback on the goals their employees set. If frequent conversations existed within Wells Fargo, it would have allowed managers to provide feedback to their employees and adjust expectations as they saw fit.
If today’s banks truly want to change their cultures and increase employee engagement, it starts with setting the right goals and having the right performance conversations.
Kris Duggan is CEO of BetterWorks, an enterprise software company based in Redwood City, California.
FAQs
10 Restructuring Incentive Systems The company's incentive system also fueled the Wells Fargo case scandal. Such scenarios can be avoided if organizations develop incentive systems that balance financial goals and ethical values.
What are the solutions to the Wells Fargo scandal? ›
Wells Fargo implemented several measures to repair its reputation and rebuild trust with customers and investors. These included improving its customer service and communication practices, increasing transparency and accountability within the company, and strengthening its compliance and ethics programs.
How did Wells Fargo recover from the scandal? ›
Since the scandal broke, Wells Fargo overhauled its board of directors and management, paid more than a billion dollars in fines and penalties, and has spent eight years trying to show the public that the bad practices are a thing of the past.
What is the Wells Fargo fake accounts scandal? ›
Wells Fargo's fake accounts scandal surfaced in September 2016, revealing that employees at the San Francisco-based bank had opened millions of fraudulent accounts, often to meet sales goals.
What was Wells Fargo initial response to the scandal? ›
Initial response from Wells Fargo and management
However, the bank rejected the notion that its sales culture led to the actions of employees, stating "... [the fraud] was not part of an intentional strategy". Stumpf also expressed that he would be willing to accept some personal blame for the problems.
What were the sources and causes to the Wells Fargo scandal? ›
Employees found the sales targets too demanding to meet. As a result, employees began opening fake accounts in the names of existing customers. These phony accounts enabled the employees to give the impression that they were making enough cross-sales to meet their goals.
How much did Wells Fargo fine for fake accounts? ›
Wells Fargo agrees to pay $3 billion in global civil and criminal settlement tied to fake accounts scandal. Federal investigators and regulators say the bank pushed employees to meet unrealistic sales goals – and when they complained, top execs turned a blind eye.
Who was to blame for the Wells Fargo scandal? ›
After previously denying any wrongdoing, Tolstedt becomes the first Wells Fargo executive to be held criminally culpable for a scandal that resulted in the firing of 5,300 employees for falsifying bank records and other ethics violations.
Did anyone go to jail for the Wells Fargo scandal? ›
Tolstedt is also the rare top executive at a major U.S. bank to have faced potential time behind bars. None went to prison as a result of the 2008 global financial crisis. Prosecutors had sought a one-year prison term.
Was Wells Fargo found guilty? ›
Wells Fargo & Company and its subsidiary, Wells Fargo Bank, N.A., have agreed to pay $3 billion to resolve their potential criminal and civil liability stemming from a practice between 2002 and 2016 of pressuring employees to meet unrealistic sales goals that led thousands of employees to provide millions of accounts ...
Over a long-term period, Wells Fargo issued credit cards without customers' authorization, misusing the concept of assumed consent. Assumed consent occurs when customers imply consent through their actions or lack of actions, even if they do not consent verbally. There was no such consent in this case.
What happened at Wells Fargo with regard to past activities that led to this major scandal? ›
The major scandal at Wells Fargo involved the creation of fake customer accounts to meet high-pressure sales goals. Salespeople within the company created around 2 million fraudulent accounts without the knowledge or consent of customers.
How many fake accounts were made at Wells Fargo? ›
In the 2016 scandal, bank employees opened 1.5 million bank accounts and 565,000 credit card accounts that customers did not request. Wells Fargo says it serves one in three U.S. households.
What is the Wells Fargo Legal scandal? ›
February 2020Perhaps the company's most notorious scandal, Wells Fargo employees were caught creating millions of savings and checking accounts for customers without their knowledge or approval after being pushed by their superiors to cross-sell products and meet quotas, ultimately culminating in a $3 billion ...
How much money did Wells Fargo lose after the scandal? ›
' Following Wells Fargo's $3 billion penalty over a financial scandal, the bank reported a 50% loss in profit for the fourth quarter. News of the profit drop affected Wells Fargo's remarket stock, which fell by 4% Friday morning. The bank's quarterly earnings report indicated a 67-cent per-share profit for Dec.
What could Wells Fargo have done differently to avert this cultural meltdown? ›
If frequent conversations existed within Wells Fargo, it would have allowed managers to provide feedback to their employees and adjust expectations as they saw fit.
How can Wells Fargo going forward prevent unethical subcultures from damaging its brand and reputation? ›
To prevent unethical subcultures from damaging its brand and reputation going forward, Wells Fargo should implement stronger ethical standards and codes of conduct, provide comprehensive training on ethical behavior, foster a culture of openness and transparency, and establish robust mechanisms for reporting and ...
What did Wells Fargo do that encouraged unethical actions? ›
( Consumer Financial Protection Bureau Fines Wells Fargo $100 Million for Widespread Illegal Practice of Secretly Opening Unauthorized Accounts | Consumer Financial Protection Bureau , 2016) The event had a profound influence on Wells Fargo's rules and operations: Incentive Structure : The bank altered its reward ...
What should business leaders take away from the Wells Fargo scandal? ›
Employees in Well Fargo were pressured to make sales, and this led to the creation of fake accounts. Leaders should focus on of setting goals that are achievable and will not encourage unethical methods of making sales. Also, leaders should apply ethical considerations in business.
