WELLS-FARGO FAKE ACCOUNTS SCANDAL
Instructions:-
Single-spaced, 12-point font,footnoted, must have a cover page, index (hyperlinked), body, conclusion, header, and numbered pages. This paper is about the Wells Fargo-fake accounts scandal. Please use the below Index for the paper!
Use and hyperlink the following Index:
Who is Wells Fargo?
What is the “going for gr-eight” initiative?
Why were the employees pushed to start the scandal?
How did the scandal come to light?
Who was really at fault? The company culture or the employee?
What happened in the end?
What is the current situation?
Summary – Team Opinion
Solution
WELLS-FARGO FAKE ACCOUNTS SCANDAL
Table of contents
Who is Wells Fargo? 3
What is the “going for gr-eight” initiative? 3
Why were the employees pushed to start the scandal? 3
How did the scandal come to light? 5
Who was really at fault? The company culture or the employee? 5
What happened in the end? 6
What is the current situation? 7
Bibliography 8
Who is Wells Fargo?
Wells Fargo is one of the largest banking and financial services companies in the world. Headquartered in San Francisco, California, United States it’s the second largest bank by market capitalization and the third by asset base in the United States. It was ranked the 7th largest public company in the world by Forbes Magazine Global, 2016.
The company has its origin in the merger between Wells Fargo San Francisco and Norwest Corporation of Minneapolis and the subsequent acquisition of Wachovia in 2008.As of 31st December 2015, the bank had at least 8,700 retail branches and 13000 ATM’s. It operates in more than 35 countries and serves well over 70 million customers across the globe.
In 2013 and 2014, Wells Fargo was named as the world’s most valuable banking brand by The Banker and the Brand Finance study of the best brands. This run of great results, however, was dampened by the a fake account scandal that emerged in 2016 involving the creation of fake accounts and unauthorized cross-selling that made the bank to lose its accreditation with the Better Business Bureau and was subsequently placed under investigation for identity theft and creation of millions of customer accounts without their consent.
What is the “going for gr-eight”
initiative?
When John Stumpf joined Wells Fargo after the Merger with Norwest Corporation, he brought with him the strategy of cross selling, which enabled a bank to sell many services to one client. In this initiative, a customer would be encouraged to have as many services with the bank as possible from having an account, a credit card, a mortgage, money transfer, etc. This system was well lauded within the bank’s hierarchy for its ability to bring in lots of revenues from the many charges by the bank for various services. At the height of the initiative, the bank had an internal goal of ensuring that staff sells at least eight services or financial products to customers. Wells Fargo fondly referred to this as the ‘”Gr-eight initiative. So entrenched was this initiative that at the present, the bank boasts of ‘‘an average of about six products per customer’’[1].
Wells-Fargo cross-selling model of business emphasized on training employees to push customers to open as many accounts as possible with the bank, or even to acquire as many products as possible. This strategy was well known by the investors, with the annual report indicating that at least 6 products were sold to customers. What the investors did not know, however, was the extent to which the company had gone to attain this goal. Through the ‘Gr-eight’ initiative.”, the company was determined to increase this number to an average of eight products per customer.
Why were the employees pushed to start the scandal?
According to CNNMoney coverage of the scandal, former Wells Fargo employees described their former employer culture as characterized by ‘Relentless pressure, unrealistic and wild sales targets, and employees forced to lean on their family and friends to open unnecessary bank accounts and acquire unutilized products just to stay employed[2].
In order to attain the above goal of selling at least 8 products per customer, employees were forced to engage in all manner of unethical practices. One of these practices was what was internally known as ‘pinning’ which involved issuing of ATM cards and assignment of PIN numbers without the customer’s knowledge or authorization.
Employees felt told CNN Money that the management not only made unrealistic sales demands but also turned a blind eye even when these unethical practices were happening. During the class suits that followed, former employees said that they had managers yelling at their faces, demanding opening up of dual or even triple checking accounts for customers who were even unable to manage their original accounts. They described the pressure from the higher management as ‘unbearable’
In another suit filed in Los Angeles, former employees indicate the company’s district managers discussed the sales achievements of each branch and employee in two-hour intervals at between 11 am and 5 pm[3]. This, according to some former employees is an indicator that the management ‘was fully aware’ but just chose to ignore the happenings as they were also under pressing to implement the unrealistic ‘Gr-eight initiative’ goals. Such unethical behavior, as pointed out by these former employees was ingrained ‘in the culture of the organization’ for a long time.
In order to attain these incredible targets, employees were also forced to open ‘up to five checking accounts for friends’ just so as to be able to meet these targets. So ingrained was this culture that those employees that were unable to meet their daily targets were promptly reprimanded and warned that they had to ‘do whatever it takes to meet individual sales quotas’ alleges one of the Californian lawsuits. In fact, the management even encouraged employees to meet their targets ‘through family members’. So serious were these demands that some former employees claimed to have reached out to every family member and friend to beg them to open accounts, with others spending ‘holiday dinners trying to convince friends and relatives to open accounts.
The above discussion depicts a workforce that is trapped in the demands of a purely capitalistic banking institution with strict demands to increase revenues through the many unethical means. The demand for the sale of eight products, while well intentioned, led to unrealistic targets which led the employees to engage in many of the aforementioned unethical practices. The need to protect their jobs in the face of looming unemployment as the United States economy still reeled from the impact of the global financial crisis drove the bank’s employees to do all that at their disposal to protect their jobs.
To achieve the desired numbers, employees were forced to engage in unethical practices such as ‘pinning’ and bundling, which involved lying to clients that certain banking services were only available in batches/bundles. For instance, some former employees confessed to lying to customers that issuing of credit cards was only possible if one signed up for mobile or internet banking. These practices meant that customers paid so much in bank charges and other fees which formed a huge chunk of the bank’s revenues over the years, enabling bank employees to earn a lot in performance bonuses.
How did the scandal come to light?
While most of the information about the scandal came to light in 2016, the LA times had already reported the scandal in October 2013. In this article, it was alleged that the bank had laid off at least 30 branch managers for what it called ‘opening bank accounts that were never used, with intention of manipulating customers transactions’. In December of 2013, the LA Times followed with another article noting the impact of the company’s aggressive cross selling strategy that had resulted in ‘battered employee morale and labor law suits and ethical breaches’. In 2015, the CNN posted an article highlighting the challenges that Wells Fargo employees faced as they worked under pressure to meet what it called ‘unrealistic sales demands’[4]. Employees, the article reported, went on to open unauthorized bank accounts for unsuspecting customers and transferred money from the customer’s main accounts to pay for bank fees for these ghost accounts.
While the bank was put under investigation by the relevant authorities where it attempted to settle some suits through arbitration, the scandal was finally blown out.
On September 8, 2016, these alleged malpractices were finally brought to light when the Consumer Financial Protection Bureau(CFPB), the office of controller of currency and the LA city Attorney fined the bank to the tune of $185 million for the misconduct, alleging that the bank had fraudulently opened more than 2 million bank accounts, or even credit card applications between 2011-2015, a figure that is likely to be revised upwards after further investigations. Official reports indicate that at least 5300 employees have been dismissed in relation to these allegations and that bank followed this with a statement expressing remorse and also taking responsibility for these actions by its employees.
Who was really at fault? The company
culture or the employee?
As noted above, the genesis of this scandal was the Gr-eight initiative which was a company-wide strategy spearheaded by the CEO. It’s therefore difficult to clearly determine who was at fault in this scandal, between the company employees and its culture. In the previous discussion, it was highlighted that employees worked in very demanding environments where managers demanded numbers in order to meet the Gr-eight initiative. This means that while employees were the propagators of the scandal, its origin is entrenched deeply in the organizational culture that encouraged employees to achieve their targets ‘no matter what!’
In a lawsuit filed in California, employees clearly stated that the practice was supported or encouraged from higher up in the organizational hierarchy. According to the suit, the company ‘knew about and had encouraged these practices for years’. In fact, the suit stated that the company had developed a virtual fee generating machine through which customers got harmed; employees took the blame while the company reaped the profits.
According to the industry commentators, the culprit in this scandal was not just the people that were involved, but rather the corporate culture of the company. Some employees admitted that they were ‘told to open unauthorized accounts and, when customers called, to apologize and say it was a mistake’’[5] which admittedly is not a reflection of an employee interested in saving their job, rather the reflection of managerial threats.
The above discussion, therefore, identifies an organizational culture where everything goes, just to bring in the numbers. The intense pressure from the management to deliver, coupled with the managements reluctance to reprimand unethical behavior, which was in their knowledge, sometimes encouraging such behavior, indicates that the organizational culture was responsible for this scandal.
What happened in the end?
From the onset, it’s important to note that the Wells Fargo scandal is still ongoing. On September 8, 2016, the company was fined a cumulative amount of $185 million ($100 million going to the CFPB’s penalty fund, $35 million to the Controller of currency while $50 million went to County and City of Los Angeles[6]. On 13th of the same month, the bank announced that it would officially end its employee sales goals program which was at the center of the scandal. Stumpf who was the CEO of the company also rebuffed suggestions of his resignation, offering that the right thing to do was to lead the company from its turmoil. On 14th September 2016, news reports indicated that the FBI and other federal prosecutors in both California and New York had opened investigations into the possibility of criminal charges against the company’s management. This was followed by the financial services committee house of representatives opening investigations into the role of financial regulators in the scandal. On the same day, three Utah residents filed the first class action lawsuit against Wells Fargo in the US district court.
On 20th September 2016, the banks CEO Stumpf appeared before the senate committee on banking where calls for his resignation were amplified. He was also encouraged to recover all the money paid to executives during this period. The banks use of forced arbitration was also a point of discussion at the Senate, where it was pointed out that this practice encouraged fraud as affected people were limited from publicizing issues that would have been for the benefit of the majority. On September 26 the same year, two former employees filed a lawsuit in which they sought to enjoin all the employees of the bank for the past 10 years who had been adversely affected by the company’s business strategies. On the 27th September, the company’s board of directors announced that the Stumpf would forgo about $41million in anticipated compensations as investigations into the scandal got underway. After concerted pressure from the senate committees as well as the public, the company CEO Stumpf called it a day on October 12th, 2016, and was effectively replaced by Tim Sloan, whose main priority was to ‘rebuilt the banks trust by its customers’.
On 19th October, the California attorney opened criminal investigations on Wells Fargo employees, with regard to identity theft and impersonation. The bank was reported to have pledged to cooperate and provide any information that would be necessary to identify those involved either directly or indirectly. The impact of the scandal continued to be felt in the stock market, with the bank’s shares tumbling below $45, the lowest since 2014.
What is the current situation?
Well, a lot has transpired since the scandal was discovered. The number of checking accounts went down by 40% in December, while credit card applications fell by 43% highlighting the extent of the entrenched fraud. Revenues and profits sank by approximately 15%. Aside from the slump in financial and operational performance, the company continues to face additional investigations and litigation. In November 2016, the bank announced that it was still the subject of an investigation by the US Security and Exchange Commission, US Department of Justice, State prosecutors, the Attorney General and Congressional committees[7].
Tim Sloan took over as the CEO and has worked tirelessly to steer the bank from the effects of the scandal which had threatened to erode the customer’s confidence in the bank. The company has invested in television advertisements besides other media campaigns to try and restore trust it’s its brand and a promise to address all customer concerns. The company has also invested heavily in training of staff on ethical business practice to try and eliminate the culture that led to the scandal. The company’s stock price has since gained ground, retailing at $54.71 as at 18th July 2017.
Egan Matt ‘‘Workers tell Wells Fargo horror stories’’. CNN Money September 9, 2016. http://money.cnn.com/2016/09/09/investing/wells-fargo-phony-accounts-culture/index.html
Wells Fargo annual report, 2016. https://www.wellsfargo.com/assets/pdf/about/investor-relations/annual-reports/2016-annual-report.pdf
Brian Tayan ‘‘The wells Fargo cross-selling scandal’’. Stanford Closer LOOK series. (2016) accessed 17 July,2017, https://www.gsb.stanford.edu/sites/gsb/files/publication-pdf/cgri-closer-look-62-wells-fargo-cross-selling-scandal.pdf
Colvin Geoff. ‘‘The Wells Fargo Scandal Is Now Reaching VW Proportions’’.
Accessed July 17, 2017, from fortune.com, http://fortune.com/2017/01/25/the-wells-
fargo-scandal-is-now-reaching-vw-proportions
[1] Wells Fargo annual report, 2016. https://www.wellsfargo.com/assets/pdf/about/investor-relations/annual-reports/2016-annual-report.pdf
[2] Matt Egan ‘‘Workers tell Wells Fargo horror stories’’. CNN Money September 9, 2016.
[3] Geoff Colvin. ‘‘The Wells Fargo Scandal Is Now Reaching VW Proportions’’.
Accessed July 17, 2017, from fortune.com, http://fortune.com/2017/01/25/the-wells-
fargo-scandal-is-now-reaching-vw-proportions
[4] Matt ,Egan ‘‘Workers tell Wells Fargo horror stories’’. CNN Money September 9, 2016. http://money.cnn.com/2016/09/09/investing/wells-fargo-phony-accounts-culture/index.html
[5] Tayan Bryan ‘‘The wells Fargo cross-selling scandal’’. Stanford Closer LOOK series. (2016) accessed 17 July,2017, https://www.gsb.stanford.edu/sites/gsb/files/publication-pdf/cgri-closer-look-62-wells-fargo-cross-selling-scandal.pdf
[6] Geoff, Colvin. ‘‘The Wells Fargo Scandal Is Now Reaching VW Proportions’’.
Accessed July 17, 2017, from fortune.com, http://fortune.com/2017/01/25/the-wells-
fargo-scandal-is-now-reaching-vw-proportions
[7] Wells Fargo annual report, 2016. https://www.wellsfargo.com/assets/pdf/about/investor-relations/annual-reports/2016-annual-report.pdf