Assignment: Summary of Wells Fargo
Wells Fargo is one of the largest banks in the U.S. It has been around since 1852, where it was originally a bank and delivery company. In 1905, the banking portion of the business officially separated from the express portion. The bank was able to survive many difficult economic times, including WWI and WWII and the Great Depression. Many of the banking conveniences we have today, such as the drive through window, are the result of Wells Fargo's innovation (Wells Fargo, n.d.).
Wells Fargo's vision is that "We want to satisfy our customers' financial needs and help them succeed financially."(Wells Fargo, n.d.).
Wells Fargo has 5 primary values listed on their website based on their vision:
1. People as a competitive advantage.
2. Ethics.
3. What's right for customers.
4. Diversity and inclusion.
5. Leadership.
The Wells Fargo website quotes this: "We say "team members," not "employees," because our people are resources to be invested in, not expenses to be managed - and because teamwork is essential to our success in helping customers." This is quite interesting considering the incident we will discuss shortly.
Wells Fargo has roughly 8,700 locations with over 13,000 automated teller machines. The CEO and President of Wells Fargo is Timothy Sloan, who has been in position since November 2015, but has been with the company for 29 years. Under the leadership and governance section of their website, Wells Fargo has a Code of Ethics PDF for download and has this to say about it:
"Wells Fargo's reputation as one of the world's great companies for integrity and principled performance depends on our doing the right thing, in the right way, and complying with the laws, rules and regulations that govern our business. We earn trust by behaving ethically and holding all team members and directors accountable for the decisions we make and the actions we take."(Wells Fargo, n.d.)
Currently, Wells Fargo has over 40 million customers.
The Incident
According to The New York Times, Wells Fargo employees secretly issued credit cards and accounts without customers' consent for years. Fake emails and PINs were created along with the accounts, and it was only when customers started accumulating fees that customers found out about them. Wells Fargo claims to have fired over 5300 employees over the last few years for this behavior(Corkery, 2016). The big lawsuit from Los Angeles was filed in September, 2016.
According to CNN, over 1.5 million accounts were opened without authorization. These fake accounts helped boost sales figures so employees would hit sales targets and receive bonuses (motivation!)(Egan, 2016). After the accounts were opened, customers' money was transferred multiple times among their "new" accounts. As a result, many customers were hit with overdraft fees and insufficient funds, because there was not enough money in their original account.
To add to this, over 500,000 credit card applications were submitted without customers' knowledge, and accumulated over $400,000 in fees. As a result of all of this, Wells Fargo was fined for $185 million, along with $5 million to be paid to customers. The incident did in fact occur nationally, however it was Los Angeles that launched the lawsuit against them first. Because of this, a large portion (roughly $50 million) will be paid to the city of L.A. (Egan, 2016).
It is known that Wells Fargo hired a consulting firm to investigate the allegations against it, but declined to comment when. An inside source claims it was after the lawsuit was opened. As another part of the settlement for Wells Fargo, they must "make changes to its sales practices and internal oversight." (Egan, 2016)
One concern to many is that despite the scandal, the head of the retail banking unit responsible for creating the fake accounts Carrie Tolstedt, "is scheduled to walk away with nearly $125 million in stock and options when she retires later this year." (McCallister, 2016).
What caused such behavior from employees? How did it go unchecked?
Some believe it stemmed from the previous CEO's (John Stumpf) mantra: "Eight is Great." Side note: John Stumpf claims to have known about the account fraud since 2013, and after defending himself from the lawsuit, promptly retired in 2016 from his position (McCallister, 2016).
The expression "Eight is Great" was to enforce the idea that employees should attempt to cross sell to customers until they had 8 Wells Fargo products. This would include mortgages, car loans, savings accounts, and more. It is believed there was a lot of pressure on employees to reach unrealistic sales targets based on this expression, which could explain some of the behavior that resulted.
To make matters worse, early this year Wells Fargo attempted to force customers to settle their issues quietly due to arbitration agreements, which were stated in small print in the agreement. Luckily, public pressure changed their minds (Egan, CNN, 2017). It is also worth noting that the CEO's bonus is being suspended, and the closing of roughly 400 branches will be taking place due to this incident. Wells Fargo also fell behind JP Morgan Chase for the first time, due to a loss of customer trust and many customers leaving the bank.
Class Concepts that Coincide
Several concepts that relate to this subject include:
Reward Power
Group-think-rationalization and
Distributive Justice
Goal-setting Theory of Motivation
-Poorly-conceived Goals
-motivational blindness
-overvaluing performance
Reward Power
In class we learned about 5 different forms of power. In the case of Wells Fargo, reward power, or having control over resources or rewards, was exercised in an attempt to motivate employees to reach large goals. Employees were promised bonuses by those in charge for reaching sales goals.
Goal-setting Theory of Motivation
The goal-setting theory states that in order to motivate employees, goals must have two characteristics:
1. They must be specific: gives employees a "measuring stick" regarding how hard to work, and for how long.
2. They must be difficult: stretches employees to perform at their max, within the bounds of their ability.
While it appears Wells Fargo gave employees a specific AND difficult goal, they failed to understand what would be considered within the bounds of their employees ability in a legal sense. Employees as a result took it upon themselves to fall victim to several causes of unethical behavior discussed in class:
Poorly-conceived goals: the setting of ambitious and sometimes unfeasible goals without considering how these goals will be carried out. The goals are meant to be positive but promote negative behaviors. It is safe to say that Wells Fargo's previous CEO John Stumpf did not intend for his employees to create fraudulent accounts when he set a company goal of 8 services for each customer.
Motivational blindness:when conflict of interest exists and unethical behavior is ignored when it is in our best interest to remain ignorant. It raised great question as to why Wells Fargo knew for years that this unethical behavior was occurring, and why it wasn't stopped sooner. It appears that individuals in the company chose to ignore the ethical issues behind what was happening because it was helping their numbers and earning them bonuses.
Overvaluing performance: when the outcome is more important than the means to get there. This is similar to the explanation given with motivational blindness, where it seems ethics were ignored because of the extremely high goals employees and branches were given. The company put a lot of pressure on performance and hitting their "eight is great" goal, and employees chose to do whatever it took to get there.
Group-think Rationalization
The idea of group-think is that when working with others, individuals may choose to go against their own volitions in favor of seeking favor with the group and avoiding conflict. Rather than stick to their argument or gut instinct, they rationalize their choice as being what is best for the group. In the case of Wells Fargo, it is quite safe to believe that the scandal occurred with some group-think involved. Undoubtedly there was at least one employee involved who felt it was a bad idea, but whether they were involved or not, chose to keep quiet from pressure about the decision as to not arouse conflict.
Distributive Justice
This concept refers to one of the three types of justice we were taught in class. Distributive justice in particular refers to the fairness of outcomes that employees perceive when an organization takes action. In Wells Fargo's case, this concept ties in with the fact that Carrie Tolstedt, mentioned earlier who was in charge of the retail banking unit primarily responsible for the creating of fake accounts, will be retiring with a comfortable $125 million. In the meantime, over 5300 employees were fired with no compensation due to the investigation. Employees and even customers may find this outcome unfair, as many believe she should have been individually punished for letting something like this incident slip, and possibly even knowing about it and letting it happen.
How Can Wells Fargo Change?
As part of their settlement, Wells Fargo is being forced to change their sales practices and internal oversight. Listed are some of the ideas for them to follow:
1. Use inspirational appeal rather than relying directly on reward power. Inspirational appeal is arousing enthusiasm by appealing to one's values and beliefs. Wells Fargo already has a lengthy code of ethics. They should attempt to focus on those values and beliefs and to set goals that will create intrinsic values to employees.
2. Use consultation. Consultation is asking for participation in decision making or planning a change. Wells Fargo should take the opportunity to ask employees what motivates them, and get them involved in the creation of the new sales practices and internal oversight.
3. Create a clan-collaborative culture with structure. Wells Fargo is a very big business, but that does not mean it can't nurture a culture of trust, collaboration, and support. This culture is more employee-based rather than customer based. If your employees are happy, they will be more inclined to work with customers in opening more services. They will also be more confident and less likely to deal in unethical behavior.
4. Develop a stronger internal auditing accountability program. How did so many accounts continue to be opened for so long without anyone noticing? A stronger accountability program needs to be developed, and regular audits of opened accounts to prevent fraud.
5. Develop a stronger system of equity. When employees feel they are more on level with their superiors, or that people are being treated equally based on their work, the likelihood of deviant behavior drops drastically. An employee who feels goals were unfairly set may not care that fraudulent accounts could hurt the company's reputation.
6. Encourage a culture of mindfulnessand positive organizational behavior, which will increase focus, listening skills, stress management, memory, creativity, and emotional intelligence. Prosocial behavior will better the organization as a whole.