Reference no: EM132809491
In what ways does this case study demonstrate an ethical conflict of interest? Explain.
- What factors or organizational pressures played the most important role in leading so many Wells Fargo employees to participate in cheating the bank's customers? Explain
- Although Wells Fargo attempted to curb fraudulent activity with an "ethics workshop", the company continued to find fraudulent accounts being opened by employees. Why do you think this continued to occur? What do you think Wells Fargo could have done to better curb fraudulent activity?
- Are the low-level employees more to blame, or the managers? Explain.
- Many employees admitted that they knew what they were doing was wrong but continued to open fraudulent accounts. What rationalizations did employees use to justify cheating their own customers?
- If you were in their position, what would you have done?
- How can you ethically justify the senior managers involved in the scandal getting large bonuses in the millions of dollars while the lower level employees involved in the scandal got fired?
Wells Fargo Ethics Scandal
Case Study
Wells Fargo Banking Fraud
Wells Fargo Bank is the third-largest bank by assets in the United States.
During the financial crisis in 2008 the bank was trying to beat the odds in a bad economy. Even during the crisis Wells Fargo's 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 were authorized.
Under pressure to meet steep sales goals and incentives, Wells Fargo employees created over a million fraudulent accounts in their customers' names.
Pressure to Meet the Sales Goals
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 reported, "If you don't meet your sales targets, 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."
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."
Result
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 lower level employees were fired for fraudulent sales practices. Sales quotas were eliminated effective January 1, 2017.
However, the managers were treated differently. Let's just look at one manager. Carrie Tolstedt was the Senior Manager in charge of the group that opened the fake accounts. She conveniently resigned two months before the scandal came to light. She was told by her bosses to "run it like you own it." Tolstedt made $9 million in total pay the year she left. And upon leaving got a bonus of $124 million through a mix of shares, options and restricted stock, according to calculations of company filings based on the current stock price. CEO John Stumpf opted for early retirement amid the scandal, but walked away with a bonus of around $130 million.
Both Stumpf and Tolstedt made a fortune presiding over Wells Fargo's unethical and potentially illegal efforts to aggressively sell multiple accounts to each of its millions of customers. Others senior managers also knew of the unethical practices but said nothing.