Professionalism/John Stumpf, Wells Fargo, and Salesmanship

Overview

From 2011 to 2016, Wells Fargo incentivized its employees to create over 2 million unauthorized bank accounts and credit cards under the names of existing customers through the use of forged signatures, fake email addresses, and fabricated PINS. The phony accounts caused customers to pay millions in unwarranted fees and allowed Well Fargo employees to both boost their sales and earn higher bonuses. The scandal broke on September 8, 2016 when Wells Fargo announced that it would be paying $185 million in fines to the City of Los Angeles and federal regulators to settle allegations.

Sales Culture

Numerous employees of Wells Fargo have recounted the "toxic high-pressure" sales culture that existed in the company at the time of the scandal and long before . The sales goals set by upper management were so far-reaching, that many employees felt the only way to keep their jobs would be to pad their sales numbers by creating fake accounts. Apparently that was not enough because Well Fargo still fired approximately 5,300 workers for not meeting sales goals during the period of the scandal . One former employee, in an interview with NPR, stated that "the whole foundation of Wells Fargo is cross-sell, cross-sell, cross-sell" beyond reason . Some employees were expected to sell up to 15 products (a new account or credit card) a day and were under constant threat of being fired by branch managers. The stress from high expectations to meet impossible sales goals eventually caused over 700 employees to issue complaints through ethical hotlines in an attempt to alert bank executives of the growing problem .

Sales Scrutiny

Many branch managers routinely monitored employees' progress toward meeting sales goals, sometimes even hourly. Managers reported sales numbers at the branch level to higher-ranking managers as many as seven times a day. Tensions commonly rose about how to meet the sales targets.

According to a former credit manager in Palmdale, CA, managers retaliated at employees that challenged them on sales goals with condescending phrases like "No, you can do it," "You’re negative," or "You’re not a team player." Management would even ignore the fact that most customers insisted that they did not need another credit card, creating unrealistic expectations of their employees.

Employees at a Wells Fargo branch in Lincoln, NE, had a daily goal of opening two new checking accounts and making eight other product sales. If any employee fell short of the targets, managers asked if employees could open accounts for their relatives or friends. In a lot of the cases, bonuses were dependent on whether or not these sales targets were hit. This created an unethical motivation for employees and managers to hit their targets one way or another.

Unethical Practices

Responding to upper-level management, branch managers enforced this culture on its employees. In some cases, these managers would suggest for employees to go so far as to hunt for sales prospects at bus stops and retirement homes. In Tucson, AZ, some employees met sales goals by using a list of existing customers who were preselected for credit cards. The customers were told that if they did not want the card, they could simply cut it upon arrival. However, Wells Fargo employees omitted the fact that issuing each new card required a credit check on these customers, which could potentially lower their credit score.

If all else failed, employees would create phony PIN numbers and fake email addresses to enroll customers in online banking services. Employees would also move funds from customers' existing accounts into newly-created ones without their knowledge or consent. Customers were being charged for insufficient funds or overdraft fees, since there was not enough money in their original accounts.

Wells Fargo's high-pressured sales culture was a violation of its own company ethics, defying the bank’s official policy. A 2007 internal document titled “Sales Quality Manual” required customer consent for each specific solution or service, including individual products in a package. The document also considered the acts of splitting a customer deposit and opening multiple accounts for the purpose of increasing potential incentive compensation a sales integrity violation.

Impact on Employees

Many employees were fed up with sales pressure and unethical practices. To them, missing targets meant either working extra hours or adding targets to tomorrow's goals. District managers were more concerned with numbers than helping the customers. As a result, the unbearable pressure often cost several managers and employees who refused to support such account creating methods or failed to reach the astronomical sales goals their jobs due to severe depression. Some employees raised concerns about these practices with CEO John Stumpf; these were ignored.

Ethical Considerations

Groupthink

Former CEO John Stumpf

Groupthink is when a group of people acts irrationally and uses poor decision-making skills to create harmony or conform to the group's ideas (or, in some cases, to the highest level member in the group's ideas). This is usually done to avoid confrontation and to avoid having to think through decisions critically.

The unrealistic sales goals created by former CEO John Stumpf (i.e. "Eight is Great") quickly trickled down to bank branch management. This created a culture of groupthink that emphasized sales over ethics.

According to Egan (2016), Anthony Try, a branch employee in San Francisco said, "there would be days where we would open five checking accounts for friends and family just to go home early" and "management was fully aware of this ... but deliberately turned a blind eye." Try later quit in 2013 because he did not believe in the company's ethical culture. Management did not care how employees were going about their work as long as they met the unrealistic sales goals.

Customers of Wells Fargo agree that the low-level employees are not to blame, as one customer in Kern County, CA comments, "I don’t necessarily blame the employees... At the end of the day, they’re doing what they’re told to do to keep their job." Wells Fargo employees suffered from groupthink because they were afraid of losing their jobs if they missed sales quotas.

Whistleblowing

A whistleblower is an individual that exposes information about an organization that commits illegal or unethical activities. This can be done internally (the employee brings information to direct management) or externally (the employee contacts a third party such as the media).

The groupthink culture was further ingrained in Wells Fargo's sales practices when whistleblowers were retaliated against. The retaliation took the form of disciplinary action up to and, sometimes including, termination. Branch employees were afraid of losing their jobs so they continued the unethical practices and avoided raising their concerns after colleagues were fired.

Heather Brock and Whistleblowing

According to Calvey (2016), Stumpf commented, "each team member, no matter where you are in the organization, is encouraged to raise their hands. We want to hear from them.

However, there have been multiple reports of retaliation from Human Resources at Wells Fargo that point to the contrary. One HR official told CNNMoney that "the bank had a method in place to retaliate against tipsters." They would find ways to fire employees for bringing up the sales issues. This would take the form of monitoring the employee very carefully to find any fault that could be used for termination, such as "showing up a few minutes late on several occasions." Heather Brock, for example, was a fired Wells Fargo banker from Texas. She told CNNMoney "I was bullied and retaliated against for reporting sales and integrity issues."

Aftermath

Consequences

As a result of the scandal, Wells Fargo faced a lot of backlash from the public that affected its reputation greatly. However, it also dealt with many other penalties and consequences that wreaked havoc on its performance during the scandal and continues to do so to this day.

Summary of Wells Fargo Paybacks by Management

Fines

In September 2016, Wells Fargo was found guilty of practicing "widespread illegal sales practices" and was issued a combined total of $185 million in fines for creating over 1.5 million checking and savings accounts and 500,000 credit cards that their customers never authorized. $100 million of the fines came from the Consumer Financial Protection Bureau, which was the largest fine the agency had authorized in its five-year history. $50 million was issued by the City and County of Los Angeles, and the remaining $35 million was issued by the Office of Comptroller of the Currency. In addition, $5 million was set aside separate from the total fines to refund to customers for fees on accounts the customers never wanted.

Company-Related

The scandal led to the firing of nearly 5,300 employees who were involved with creating the unwanted accounts to boost sales. On October 12, 2016, John Stumpf, the then Chairman and CEO, announced that he would be retiring amidst the controversies involving his company. As he retired, he received about $133 million in payouts. However, the bank's board was able to claw back $41 million from John Stumpf as punishment for widespread wrongdoing at the bank he ran for nearly a decade in late October 2016. In addition to the $41 million, the bank is currently trying to claw back another $28 million from the former CEO in April 2017, bringing the running total to about $70 million.

Credibility

In response to the event, the Better Business Bureau dropped accreditation of the bank, Standard & Poor's lowered its outlook on Wells Fargo from stable to negative, and Massachusetts suspended the bank as a bond underwriter for a year.

Sales

Following the scandal, applications for credit cards and checking accounts at the bank plummeted dramatically. The number of new consumer checking accounts dropped by 41% in November in comparison to what it was the same month in 2015. Applications for credit cards also dropped by 45%. As a result, Wells Fargo was estimated to lose as much as $212 billion in deposits and $8 billion in revenue throughout the end of 2016 and all of 2017, according to a study done by consulting firm cg42.

Moving Forward

After dismissing members of the executive board and shifting roles around, Wells Fargo had reorganized to create a new compensation system that they announced would be in effect starting January 2017. The plan includes having no product sales goals, performance evaluation based on customer service, usage and growth instead of simply on new accounts opened, incentives associated with direct customer feedback and product usage, higher percentage of employee compensation comprised of base salary rather than variable incentives, and employee performance metrics focused on the goals of a given bank branch instead of an individual worker.

Although Wells Fargo made major changes to its incentive system, the bank did not remove cross-selling from its sales practices.