Reference no: EM132841688
Wells Fargo Fraud
Under pressure to meet steep sales goals and incentives, Wells Fargo employees created over a million fraudulent accounts in their customers' names.
Case Study
American financial institution Wells Fargo was beating the odds in a bad economy. During the financial crisis in 2008, the bank acquired Wachovia to become the third-largest bank by assets in the United States. A few years later, its growing revenue and soaring stock brought the company's value to nearly $300 billion. But behind this success was a company culture that drove employees to open fraudulent accounts in attempt to reach lofty sales goals. Between 2011 and 2015, company employees opened more than 1.5 million bank accounts and applied for over 565,000 credit cards in customers' names that may not have been authorized.
Many former employees reported that company sales goals were impossible to meet, and incentives for compensation and ongoing employment encouraged gaming the system. Wells Fargo pressured employees to cross-sell, offering customers with one type of product, such as checking or savings accounts, to also buy other types of products, such as credit cards and loans. One former employee described it as a "grind-house," with co-workers "cracking under pressure." Another former employee reported, "If you don't meet your solutions you're not a team player. If you're bringing down the team then you will be fired and it will be on your permanent record."
In mid-2014, Well Fargo attempted to curb fraudulent activity with an ethics workshop that warned employees not to create fake accounts in customers' names. Wells Fargo also modified its compensation structure to place less emphasis on sales goals. But in the following years these efforts were not enough. The company continued to fire employees over fraudulent accounts. Wells Fargo spokesperson Mary Eshet stated, "The steps we have been taking have been effective...[and] we are continuing to do more." Their own analysis showed a decline in fake accounts by 2015, but many were still being created.
One former employee described his brief time at Wells Fargo as "the lowest point of my life." He encouraged an elderly woman to sign up for a credit card she did not want by telling her "it was confirmation that she stopped by to update her address." This made him sick to his stomach. He reported, "But it was a tough economy, and I was worried, if I lost this job, I would be in a tough financial situation." Deceptive practices such as this were widespread across the company, and many former employees reported that their managers knew about them. Jonathan Delshad, a lawyer working on behalf of former employees, said, "The better they did at sales, the more they advanced, so it got spread across the company. An entire generation of managers thrived in the culture, got rewarded for it, and are now in positions of power." One former employee said she could not meet sales goals in any ethical way and called the Wells Fargo's ethics hotline. She was eventually fired.
In 2016, Well Fargo was fined a combined total $185 million for fraudulent activity, and CEO John Stumpf resigned. Between 2011 and 2016, approximately 5,300 employees were fired for fraudulent sales practices. Sales quotas were eliminated effective January 1, 2017.
Ethical Insight
Wells Fargo has a fiduciary duty to treat its customers fairly. The bank offered many different services to its customers. 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. "Eight is great" was the company mantra. The only way that Wells Fargo employees could meet their unrealistic sales targets, and thereby keep their jobs, was to make up accounts that customers had not requested and often didn't even know they were being charged for. Employees fabricated millions of fraudulent accounts in order to keep their bosses happy and remain employed. It was a classic conflict of interest.
White's Biblical Principles First, there is the guideline of a "just weight" as found in Deuteronomy 25:13-15. The principle of a just weight is to give a full amount in exchange for a fair payment. Another way to look at it is to give full quality for what is paid for and according to what is advertised. You must accept responsibility for both the quality and the amount of your product or service. As a business owner, do you fairly represent your product or service? As an employee, do you give a full day's work for a full day's pay? Remember, as it says in Colossians 3:23, you are working for the Lord and not for men. Second, the Lord demands our "total honesty." Ephesians 4:25 calls upon you to speak the truth. Jerry White reminds you that "Although you will frequently fail, our intent must be total honesty with our employer, our co-worker, our employees, and our customers" (p. 65). This is a difficult principle to adhere to. James 3:2 says this is where you often fail, but if you can control your tongue, you will be able to control the rest of your body as well. The Living Bible sums it up best in Romans 12:17, which says, "Do things in such a way that everyone can see you are honest clear through." You must ask yourself: Are you totally honest in reporting your use of time, money, and accomplishments? The third principle is "being a servant." Someone has said Christians like to be called servants, but don't appreciate being treated like servants. To serve God sounds glorious, but to serve others is another matter. As usual, Jesus Christ is our example. Matthew 20:28 says that Christ did not come to be served, but to serve others - in fact, to give up his life for others. The value of a business is its service. How well it serves the needs of its customers will determine its success. The business, in turn, is composed of people who must do the serving. The value of the employees is in how well they serve the customer's needs. This is putting the needs of others before your own and then trusting God to meet your needs in the process. The fourth guideline is "personal responsibility." You must take full responsibility for your own actions and decisions. You should not try to excuse your actions based on pressure from within your business or organization to do what you know is not right. We all fail at times to do what we know we should do. You must then accept the responsibility for what you have said or done and not try to pass that responsibility on to someone else or try to blame it on some set of circumstances. Romans 12:2 warns us about the danger of allowing the world to shape us into its mold. Finally, there is the issue of "reasonable profits." This principle is quite a bit harder to get a handle on, but it is still vital to look for guidelines. What is a "reasonable" profit? This is something each person has to deal with on his own. Luke 6:31 is a great help on this. It says that you should treat others the same way you would want to be treated. Put yourself in the other person's shoes and ask yourself how you would want to be treated in a particular situation. To the business person, this is the price of the service or product above cost. To employees, it is the amount of their wages for service to the organization. Luke 3:14 says to be content with our wages, but the Bible also reminds the employer in 1 Timothy 5:18 that the laborer is worthy of his wages. It is all too easy to rationalize your way around many of these principles, but God will hold us accountable in the end. Ultimately it is God whom you serve and to whom you must give an account. White, J. (1978). Honesty, morality & conscience. Colorado Springs, CO: Nav Press.
https://www.whistleblowers.gov/about-us
https://www.scu.edu/government-ethics/resources/what-is-government-ethics/whistle-blowing-in-the-public-sector/
Briefly summarize facts of the case.
Identify the types of ethical and/or legal challenges discussed in the article.
Was the ethical challenge brought to light by a whistleblower? If so, was whistleblowing the appropriate ethical action?