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Scenario
Wells Fargo was the darling of the banking industry, with some of the highest returns on
equity in the sector and a soaring stock price. Top management touted the company’s
lead in “cross-selling”: the sale of additional products to existing customers. “Eight is
great,” as in eight Wells Fargo products for every customer, was CEO John Stumpf’s
mantra.
In September 2016, Wells Fargo announced that it was paying $185 million in fines for
the creation of over 2 million unauthorized customer accounts. It soon came to light that
the pressure on employees to hit sales quotas was immense: hourly tracking, pressure
from supervisors to engage in unethical behavior, and a compensation system based
heavily on bonuses.
Wells Fargo also confirmed that it had fired over 5,300 employees over the past few
years related to shady sales practices. CEO John Stumpf claimed that the scandal was
the result of a few bad apples who did not honor the company’s values and that there
were no incentives to commit unethical behavior. The board initially stood behind the
CEO, but soon after received his resignation and “clawed back” millions of dollars in his
compensation.
Further reporting found more troubling information. Many employees had quit under the
immense pressure to engage in unethical sales practices, and some were even fired for
reporting misconduct through the company’s ethics hotline. Senior leadership was aware
of these aggressive sales practices as far back as 2004, with incidents as far back as
2002 identified.
The Board of Directors commissioned an independent investigation that identified
cultural, structural, and leadership issues as root causes of the improper sales practices.
The report cites the wayward sales culture and performance management system; the
decentralized corporate structure that gave too much autonomy to the division’s leaders;
and the unwillingness of leadership to evaluate the sales model, given its longtime
success for the company. 1200-1500 words.
At the beginning of 2016, Wells Fargo & Co. was the darling of the banking industry, boasting some of the highest returns on equity in its sector and a soaring stock price. The company prided itself on cross-selling additional products to existing customers and CEO John Stumpf had made “eight is great”—the sale of eight Wells Fargo products for every customer—his mantra.
In September 2016, however, this success story quickly unraveled when news broke that Wells Fargo was paying $185 million in fines for creating over two million unauthorized customer accounts. It soon became apparent that employees had been under immense pressure to hit sales quotas: hourly tracking, pressure from supervisors to engage in unethical behavior, and compensation systems based heavily on bonuses led to more than 5300 firings related to shady sales practices
Stumpf initially claimed that these events were caused by a few bad apples who did not follow the values set by the company and therefore denied any incentive given towards committing such unethical behaviors; however further investigation revealed otherwise. Many employees had quit due to such intense pressure or even got fired for reporting misconduct through the ethics hotline which senior leadership had been aware of since 2004 with incidents as far back as 2002 being identified as well.
The Board commissioned an independent investigation into what exactly caused these improper sales practices which determined several root causes including cultural issues within their organization such as their performance management system incentivizing unethical selling methods; structural flaws like the lack of oversight due to decentralization allowing too much autonomy for division leaders; and finally leadership issues regarding their unwillingness five years prior to evaluate their model despite its longtime success.
The implications from this scandal have been far reaching both financially (Wells Fargo will now face additional scrutiny) but also socially (an increase in regulators calling out banks on overly aggressive sales goals). Despite increasing regulations meant to protect users it is impossible for one entity alone prevent all potential wrongdoings leading us question if we are actually going backwards with financial institutions concerning ethicality? There has certainly been a shift within Wells Fargo following this saga with many trying desperately fix what went wrong through examining culture within organizations while developing better systems designed around regulating rather than just punishing those caught violating policies making it clear how important ethical business practices are at all levels particularly amongst bigger corporations like banks so they can avoid reputation damaging scandals like this .