Wells Fargo, Crisis and Scandal
The recent widespread scandal at Wells Fargo jolted and shocked the corporate world. How could such internal corrupt and outrageously illegal and unethical activities by professionals have occurred? Wells Fargo is “an American multinational financial services company headquartered in San Francisco, California” with offices nationwide and “the world’s second-largest bank by market capitalization and the third largest bank in the U.S. by total assets.” In September 2016 it was discovered that the company was continuing to create fake customer accounts to show positive financial activity and gains. 5,000 salespeople had created 2 million fake customer accounts to meet high-pressure internal sales goals, including a monthly report called the “Motivator.”
The out-of-control sales leadership pressured sales employees to meet unrealistic, outrageous sales targets. Dramatically unrealistic sales goals propelled by continuous pressure from management coerced employees to open accounts for customers who didn't want or need them. “Some Wells Fargo bankers impersonated their customers and used false email addresses like noname@wellsfargo.com, according to a 2015 lawsuit filed by the city of Los Angeles.”
The “abusive sales practices claimed in a lawsuit that Wells Fargo employees probably created 3.5 million bogus accounts” starting in May 2002. Wells Fargo is awaiting final approval to settle that case for $142 million. However, regulators and investigations found that the misconduct was far more “pervasive and persistent” than had been realized. “The bank’s culture of misconduct extended well beyond the original revelations.” For example, regulators found that the company was (1) “overcharging small businesses for credit card transactions by using a ‘deceptive’ 63-page contract to confuse them.” (2) The company also charged at least 570,000 customers for auto insurance they did not need. (3)The firm admitted that it found 20,000 customers who could have defaulted on their car loans from these bogus actions; (4) The company also had created over 3.5 million fake accounts attributed to customers who had no knowledge of such accounts.
Wells Fargo has had to testify before Congress over these charges, which have amounted to $185 million dollars, and more recently the company has been ordered by regulators to return $3.4 million to brokerage customers who were defrauded. The CEO and management team have been fired and had millions of dollars withheld from their pay.
In the aftermath of the scandal, even though Wells Fargo executives were not imprisoned for the extensive consumer abuses committed by the company, the CFPB (Consumer Financial Protection Bureau) and Office of the Comptroller of the Currency (OCC) imposed a $1 billion fine on Wells Fargo for consumer-related abuses regarding auto loan and mortgage products. The OCC also forced the company to allow regulators the authority to enforce several actions to prevent future abuses, such as and including “imposing business restrictions and making changes to executive officers or members of the bank’s board of directors.” The new president of the company, Tim Sloan, stated, “What we’re trying to do, as we make change in the company and make improvements, is not just fix a problem, but build a better bank, transform the bank for the future.”
Critical Thinking Questions
- What happened at Wells Fargo with regard to past activities that led to this major scandal?
- What internal dimensions of the company were part of the problems that occurred?
- How might the organizational structure of the company have been part of the problems that occurred?
- . Identify and use relevant concepts from this chapter as well as your own thoughts and analysis to diagnose the scandal at Wells Fargo. How could such a scandal have occurred in the first place? Who and what was at fault?
- Suggest some solution paths the company might consider, using knowledge from this chapter and your own thoughts/research, to avoid such a scandal from reoccurring.
Sources: https://en.wikipedia.org/wiki/Wells_Fargo; Pasick, Adam, “Warren Buffett Explains the Wells Fargo Scandal,” Quartz, May 6, 2017. https://qz.com/977778/warren-buffett-explains-the-wells-fargo-scandal/https://qz.com/977778/warren-buffett-explains-the-wells-fargo-scandal/; Bloomberg, “The Wells Fargo Fake Accounts Scandal Just Got a Lot Worse,” Fortune, August 21, 2017. http://fortune.com/2017/08/31/wells-fargo-increases-fake-account-estimate/; Horowitz, Julia, “‘huge, huge, huge error’ in Wells Fargo Handling of Ethics Line Calls, CNN, May, 6, 2017. https://money.cnn.com/2017/05/06/investing/buffett-wells-fargo-berkshire-annual-meeting/index.html; http://money.cnn.com/2018/02/05/news/companies/wells-fargo-timeline/index.html; Wattles, Jackie, Grier, Ben, and Egan, Matt, “Wells Fargo’s 17 Month Nightmare,” CNN Business, February 5, 2018. https://money.cnn.com/2018/02/05/news/companies/wells-fargo-timeline/index.html. Hudson, Caroline, “Wells Fargo Stocks Still Struggling in Wake of Scandal,” Charlotte Business Journal, April 2, 2018. https://www.bizjournals.com/charlotte/news/2018/04...
FAQs
These issues were high employee turn-over rates, sales pressure, unattainable sales goals, unethical practices, and lack of communication between managers and employees.
Which unethical behaviors were said to have happened at Wells Fargo? ›
The Wells Fargo fake accounts scandal had a major impact on the bank's reputation among customers and investors. The revelation that the bank had been creating fake accounts in the names of its customers without their knowledge or consent was a major blow to its reputation for honesty and integrity.
What did the organization do wrong under the circ*mstance Wells Fargo? ›
The government's investigation into Wells Fargo's sales tactics revealed a pressure on employees to meet aggressive and unrealistically high sales goals that centered largely around a company-wide practice of encouraging cross-sales – for example, convincing a credit card customer to also open a savings account.
How did the incentive structure at Wells Fargo encourage unethical behavior? ›
Explain. Wells Fargo employee's incentive structure had unrealistic goals for sales reps this led to many employees creating fraudulent accounts without customers' knowledge to game the system to get the incentives the company was offering. 3.
How did company culture push Wells Fargo into scandal? ›
If the news reports are true, it appears that Wells Fargo had unrealistic and unreasonable expectations of employee performance which contributed to employees secretly selling services to unsuspecting customers.
What was management's role in the Wells Fargo scandal? ›
But the bank's management set unrealistically high sales goals for its employees, encouraging many employees to game the system. If a customer bought one service, employees were urged to “cross-sell” several more.
Who is 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.
What laws were broken in the Wells Fargo scandal? ›
The Commission found that Wells Fargo violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and ordered it to pay a $500 million civil money penalty to the Commission.
What happened to the Wells Fargo employee whistleblower who called the company ethics hotline? ›
Nearly half a dozen workers told CNNMoney in 2016 that they were fired by Wells Fargo after calling the hotline to try to stop the bank's fake-account problem. Last year, Wells Fargo was ordered to re-hire and pay $5.4 million to a whistleblower who was fired after calling the ethics hotline to report suspected fraud.
What unethical things has Wells Fargo done? ›
Wells Fargo's entanglements with the CFPB began in September 2016, when the bank admitted that employees had created about 2.1 million fake accounts for existing customers without their consent between 2011 and 2015 to meet sky-high sales goals. Wells Fargo paid $185 million in fines and penalties in 2016.
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 could have prevented the Wells Fargo scandal? ›
A decision-making process informed by input from line employees, while not foolproof, would likely have avoided the far-reaching negative effects of the 2016 scandal. Illegal/Criminal Acts vs. Negligence, Lack of Information Sharing, Poor Decision-Making, etc.
What can be learned from the Wells Fargo scandal? ›
Incentive systems must be carefully crafted to avoid the possibility that employees will be motivated to act in their own best interest rather than that of their employer. An important part of the effort to prevent wrongdoing is the presence of an ethical culture permeating the company at all levels.
What organizational structure does Wells Fargo use? ›
Wells Fargo is organized into three main divisions: Community Banking, Wholesale Banking, and Wealth, Brokerage, and Retirement. Each division is responsible for different areas of the business. Community Banking includes retail banking, small business banking, and mortgage banking.
What happened at Wells Fargo with regard to past activities that led to this major scandal? ›
Explanation: The Wells Fargo scandal involved fraudulent activities, such as creating fake accounts and enrolling customers in unwanted insurance programs. High-pressure sales goals and a monthly report called the "Motivator" drove 5,000 salespeople to create over 2 million fake customer accounts.
What was the problem with Wells Fargo? ›
Employees — who worked at “stores” not bank branches — were forced to open millions of unauthorized accounts. Customers had their identities stolen and their credit scores impacted. Of the millions of customers effected, a disproportionate number were non-English speaking Americans.
What is organizational Behaviour issues? ›
Organizational behavior is the study of how people interact in group settings. This field of study includes areas of research dedicated to improving job performance, increasing job satisfaction, promoting innovation, and encouraging leadership.
