Wells Fargo company was founded on the American frontier in 1852 as a transporting agency to connects consumers and markets in a fast and secure way across long distances (Wells Fargo,2018). Today, the company is a diversified financial services provider. The community finance operations of the institution serve at least 11 million clients and have at least 3,000 branches commonly referred to as stores. Wells Fargo is the leading mortgage lender serving the entire USA. The entity is also one of the leading financial services ‘cross sellers’ in the country offering wealth management services, personal loans, insurance, and credit cards services. The business services offered by the company include investment banking, equipment leasing, venture capital, lending, and commercial banking. In the organization's history, there have been more than 1,500 mergers to form the current day ‘wells Fargo’ (Wells Fargo, 2018). Several years ago, the company decided to boost its cross-selling function and developed a strategy to involve its employees to market the product in return for incentives an approach that raised ethical issues.
Cross-Selling Scandal
Wells Fargo sought to distinguish itself in the increasingly competitive sector particularly in cross-selling (Lynch, 2016). According to the then CEO Mr. john Stumpf, the goal of the company was to have a deep connection with the households as possible and viewed cross-selling as an opportunity to encourage business trust. The firm’s workers were motivated to enroll customers for the “eight is great” program that aimed at signing up customers to as many as eight financial products (Schlein, N.d.). The strategy was initiated in good faith because more accounts could have stimulated a more enhanced relationship between the firm and its customers and more fees for the bank (Lynch, 2016). In the effort to motivate employees to commit to the program, the organization based a part of the compensation on accounts sales which was the eventual genesis of the scandal.
Approximately 1.5 million accounts were opened between January 2011 and September 2016 without the knowledge or authority of the customers; debit cards were issued without customers consent or knowledge and customers were signed up to online banking behind their back. At least 565,000 unsanctioned credit cards were also applied by the employees. Workers would use email like [email protected] to open falsified accounts and even create debit card PINs without the customer’s knowledge (Ashley, 2016). Fake PINs such as "0000" were also used to enroll customers to online banking (Mims, 2017). Sandbagging was another common practice applied by employees where official account opening would be postponed so that they could fall under certain sales reporting periods for workers. In some cases, employees could deceitfully inform clients that certain products had to be acquired in bundles. All along, the company continued to monetary reward and promoted the employees.
In addition to opening fraudulent accounts, employees also engaged in the prohibited exercise of stimulated funding (Tayan, 2016). Since accounts needed to be funded shortly after opening, the employees involved themselves in stimulated financing to continue enjoying commissions of the accounts. The workers, therefore, resulted to secretly withdrawing customer's money from legitimate accounts which saw some customers be charged insufficient or overdraft funds fee. Customers with fake accounts also suffered various charges. Customers therefore unknowingly incurred expenses on service payment for unsanctioned accounts they never knew existed threatening their credit scores. Research suggests that the firm’s workers took advantage of vulnerable people including college students, Mexicans, Native Americans and the elderly (Ashley, 2016).
The Most Important Ethical Issue
Wells Fargo made some mistakes one of them being the concealment of the scandal by not publicly admitting to the existence of the problem soon enough and lacking adequate control measures to detect the fake accounts. The uniqueness of the problem was that it involved too many employees. In many corporate scandals, only a few rogue executives are concerned, but the Wells Fargo case was different. Analysts suggest that the outrage was fuelled performance pressure and overly aggressive goals. The overrated objectives like "Great-eight” campaign made employees more likely to become morally disengaged and engage in cheating to meet the target. There are some alleged cases of fraudulent behavior that raise ethical concerns in Wells Fargo including poor control, inadequate auditing, improper incentives, poor leadership human behavior traits and questionable organizational practices.
Among the ethical issues facing the company, improper incentives stand out as the most significant moral issue. Before the introduction of the strategy of compensating employees based on the number of accounts opened, the company operated flawlessly and even gained popularity in America as one of the best financial entities. However, competition and innovation prompted the management to devise strategies to ensure survival through the turbulence of the economic depression. Incentives were meant to be a token of appreciation for employees to adopt the organizational policy that if adequately implemented had the potential of transforming the organization into one of the highly efficient financial institutions in the US. Typically, when employees are motivated, they realize higher performance levels leading o organizational goals and objectives. The compensation strategy exerted high pressure to the line employees who were forced to perform or be fired. According to Kouchaki, 2016, employees rely on survival instinct in the face of pressure and exhibit less concern for ethics. If the organization management had bestowed extra responsibilities to the employees without additional compensation, there was the likelihood that the employees would resist thereby interfering with the organization's processes.
Key Stakeholders
Management
The managers in various levels at Wells Fargo had the responsibility of ensuring that the loopholes of possible fraudulent behavior were covered. Instead, the managers were an accomplice rather than watchdogs and continued receiving benefits out of the unethical behavior. For instance, the CEO took home $19.3 million; COO earned $11 million while CFO received $9.05 million in compensation in 2015 alone. The management also had the responsibility of strengthening the various organizational control agencies like the internal audit through the provision of necessary resources to ensure that fraudulent behavior was discovered before it exploded. The senior management were the main perpetrators of the unethical behavior as they created the unacceptable culture at Wells Fargo.
Employees
Workers are expected to carry out their duties with due diligence and professionalism. However, in the wells forgo case, they were engaged in deceit and fraud that saw the organization's customer suffer huge losses. As organizational employees, they had a moral obligation of protecting the interests of the customers. According to a lawsuit filed by California State against the company in 2015, it is evident that wells Fargo imposed sales quotes that were unrealistic on the employees where the suit claims that the employees engaged in the fraudulent and unlawful conduct. The employees also accessed and shared confidential information about the employees thereby contravening the ethical principle of secrecy and confidentiality.
Impact of Decision to Address the Dilemma on the Business
Immediately the scandal came to light; the management ought to have released a public statement explaining things to the Americans to avoid speculations of what might have happened. The act would have served as a show of good faith on the part of the management to solve the crisis. Effective control programs should also have instituted to ensure that such problems would be solved. The process of coming up with a business plan demand that possible challenges and remedies be mapped out to mitigate against future uncertainties. (Schwartz, 2017). The audit programs should also have been intensifying for early detection of the problem. In ordinary cases, incidences of abnormal profits and losses should be investigated an exercise that was not carried out at Wells Fargo. According to McGregor’s theory X, employees should be supervised closely. Monitoring the activities of employees by management would have solved the dilemma. Organizations should have employees code of conduct guidelines to guide the moral behavior of employees. Every employee must protect the interests of the employer, and therefore, the action of the employees was not excusable. Healthy ethical behavior by the employees would also have saved Wells Fargo the crisis because the events were the results of a morally corrupt workforce.
The Impact of the Decision
Issuance of a public statement would have cautioned the perpetrators to cease their unethical behavior. The bank account holders would also get to know from the “horses” mouth that something was wrong and prompted them to check out their status. However, some customers would have closed their accounts leading to reduced business to the company. The audit and supervision would have been the most strategic approaches to respond to the crisis at an early stage because it could have discovered the ways and means through which the fraudulent behaviors perpetrated and investigations launched to punish culprits with immediate effect. Setting a good example by management would have cultivated an ethical culture in the organization where employees would have followed in line preventing the occurrence of the unethical behavior.
Conclusion
Business ethics is a fundamental aspect of business dealings, and all stakeholders should uphold high levels of moral standing (Oliver, G. R. (2012). Sometimes in business, the employees and the management engage in collaborative activities to defraud vulnerable customers for personal gain. For the long run success of an organization, organizations should have appropriate control strategies to prevent or solve incidences of gross misconduct in business. The personnel involved in acts that cause damages to an organization, company or any other third party whether management or employees should bear the responsibility of their actions. Prevention is better than cure, and thus, unethical behavior should be avoided through the establishment of appropriate systems and organizational structures that would aid in the development of an ethical culture (Enciso, Milikin, " O’Rourke, 2017).
References
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Enciso, S., Milikin, C., " O’Rourke, J. S. (2017). Corporate culture and ethics: from words to actions. Journal of Business Strategy, 38(6), 69-79.
Kouchaki, M. (2016). How Wells Fargo’s fake accounts scandal go so bad. Retrieved from: http://fortune.com/2016/09/15/wells-fargo-scandal/.
Lynch, L. J., (2016). What the wells Fargo cross-selling mess means for banks. Retrieved from: https://www.wsj.com/articles/what-the-wells-fargo-cross-selling-mess-means-for-banks-1473965166.
Mims, J. H. (2017). The Wells Fargo Scandal and Efforts to Reform Incentive-Based Compensation in Financial Institutions. NC Banking Inst., 21, 429.
Oliver, G. R. (2012). Foundations of the assumed business operations and strategy body of knowledge (BOSBOK): An outline of shareable knowledge. Sydney: Sydney University Press.
Schlein, D.A. (N.d.). Wells Fargo scandal: the bank's fake accounts come to light. New York: Lumsden McCormick.
Schwartz, M. S. (2017). Teaching Behavioral Ethics: Overcoming the Key Impediments to Ethical Behavior. Journal of Management Education, 41(4), 497-513.
Tayan, B. (2016). The wells Fargo cross-selling scandal. Stamford closer look series. Retrieved from: https://www.gsb.stanford.edu/sites/gsb/files/publication-pdf/cgri-closer-look-62-wells-fargo-cross-selling-scandal.pdf.
Verschoor, C. C. (2016). Lessons from the Wells Fargo scandal. Strategic Finance, 98(5), 19-20.
Wells Fargo (2018). History of Wells Fargo. Retrieved from: https://www.wellsfargo.com/about/corporate/history/.
Wells Fargo, (2018). Wells Fargo " Company - Company Profile, Information, Business Description, History, Background Information on Wells Fargo " Company. Retrieved from: https://www.referenceforbusiness.com/history2/69/Wells-Fargo-Company.html#ixzz5Vq1mzGhK
