Introduction
These days, corporate culture and ethics determine the company’s perception in society and directly affect its economic performance. It helps the business attract investors and guarantees the quality of the provided services among stakeholders. Wells Fargo is the largest US bank by market capitalization, with approximately forty million retail customers and thousands of employees. In 2016, Wells Fargo faced a scandal when the company employees inflated performance indicators by providing services to customers without their knowledge. Wells Fargo’s corporate culture emphasized quarterly or annual financial performance. Therefore, it is necessary to investigate how pressure on employees affects the company’s reputation, forcing them to make concessions, violate ethics, and make other controversial decisions to achieve the goals.
Background
The scandal escalated in 2016 when the US Consumer Financial Protection Bureau (CFPB) reported widespread illegal practices in the company. Wells Fargo employees opened approximately 1.5 million accounts and about 500,000 credit cards without customer consent (Srinivasan et al., 2017). Bank employees set up accounts and credit cards and transferred funds from other customer statements (Srinivasan et al., 2017). Wells Fargo introduced an incentive program that allowed bank workers to engage in unethical sales. Service fees were charged on established reports and credit cards.
Employees also created fake email accounts and attached online banking services to simulate sales higher than predicted values. They opened millions of unauthorized accounts and credit cards without customers’ consent (Witman, 2018). Due to sandbagging and bundling, the bank fired 5.3 thousand employees who participated in these schemes. The bank had to pay a $185 million fine and $5 million in compensation to customers, the largest penalty settled by the CFPB (Witman, 2018). Afterwards, the company faced adverse outcomes, such as reputational damage, economic failure, and corporate leadership changes.
Pertinent Course Topics
Corporate culture consists of principles that have a regulative impact on relationships within the organization. Based on values, it determines employees’ attitude to work, increases job satisfaction, improves relationships with partners and customers, and affects the company’s success (Srinivasan et al., 2017). Despite internal complaints, the Wells Fargo’s administration was focused on how employees would perform their assigned duties (Witman, 2018). The bank’s success could be considered elusive because it was based on a system that put employees in an unfavorable position. They could only meet sales quotas by resorting to unethical, dishonest, and illegal methods.
Without a corporate culture based on ethical principles, systemic problems will inevitably lead to risky actions, unethical behavior, loss of employees and clients’ trust, and reduced corporate motivation. For instance, some companies have pulled their business from Wells Fargo’s corporate banking division (Witman, 2018). The bank’s values and ethics, leadership style and decision-making process, management skills and transparency, goal setting and employee motivation are the key factors that should be considered in rehabilitation.
Evaluation and Detailed Discussion
Organizational Structure, Culture and Values
At the scandal’s initial stage, Wells Fargo was severely criticized by public representatives. The most significant contributor to the scandal was the bank’s corporate culture. It was accompanied by the loss of an employee value proposition (Srinivasan et al., 2017). Wells Fargo’s organizational structure permitted such risky and dishonest practices. The bank created a reward and incentive program that allowed employees to engage in fraudulent selling systems, while the corporate leadership did not closely monitor this plan but encouraged it.
Customer and Employee Trust
Wells Fargo has already expressed regret to its customers about aggressive sales of its personnel. Well-above five thousand employees were placed under formal investigation as suspects and fired (Witman, 2018). Meanwhile, this action has not benefited the reputation restoring and employees’ trust. The bank also took responsibility for cases where customers could receive products that they did not demand. Wells Fargo Bank has already allocated $ 5 million in compensation to affected customers (Veetikazhi & Krishnan, 2019). Payments will average $ 25 for each open account (Veetikazhi & Krishnan, 2019). Since this scandal undermined customers’ and workers’ trust, the bank should have taken more accurate and considered measures.
Leadership Style and Decision-Making
The case caused a drastic reshuffle in the company’s corporate governance. CEO John Stumpf’s retirement has become a surprise because no less serious issues usually were reconciled without leadership change (Veetikazhi & Krishnan, 2019). There were three intentions in replacing Stumpf such as speed, reputation, and competence. The bank needed to take measures as soon as possible and find a familiar figure within the business, so it was decided to hire a Wells Fargo employee. Nevertheless, the new CEO appointment, Timothy Sloan, could not resolve the crisis as his name was already associated with the subsequent scandals and lawsuits (Veetikazhi & Krishnan, 2019). It was necessary to choose a person with an impeccable reputation, but, in this case, the search might be prolonged.
Management Skills and Transparency
Considering management skills, the scandal reveals administrators’ failure to create an ethical corporate culture to avoid these outcomes. They were mostly focused on the final targets performing plans. For instance, the main feature of Wells Fargo was the successful conduct of cross-selling when the client was suggested to purchase additional bank products. Such offers and the commission for them are set by default, so it is almost impossible to punish the bank for imposing a service (Witman, 2018). Wells Fargo representatives admitted that management pressure forced employees to strive to achieve their goals by any means (Witman, 2018). They engaged in fraud by forging signatures and providing such services.
Goal Setting and Employee Motivation
Due to the scandal and revealed fraud, Wells Fargo had to reconsider its goal setting. The principal employees’ motivation was to fulfill the sales targets and receive bonuses. As it has resulted in a severe crisis, the main objective is to make an effort to minimize the scandal outcomes (Van Rooij & Fine, 2018). Since the bank has already lost more than $ 400 million due to restrictions, the company is trying to reduce the damage caused by regulations (Van Rooij & Fine, 2018). It aims to diminish less profitable operations, for instance, accepting deposits from corporate clients (Van Rooij & Fine, 2018). These actions might allow the bank to expand more profitable business types, such as issuing credit cards, without violating the Federal Reserve System (FED)’s restrictions.
Alternatives
Corporate culture issues can damage a company’s reputation, negatively impact financial performance, and make employment challenging to manage. Employees’ motivation is crucial as they form the customer opinion. Managers should measure not only the achieved results but also the process of how they were obtained. For instance, if the management had formed a control system to increase the bank’s reliability and reduce reputation risk, this would have significantly improved customer service quality and prevented economic failure.
Proposed Solutions
Wells Fargo workers frequently misused confidential customer information by opening accounts without authorization and charging fees for unnecessary services. Considering measures to solve the corporate culture’s problem, one of the possible changes that can be made is the cancellation of incentive payments to employees as this approach caused this scandal. Hotline issues and risk assessment in reward schemes should also be considered and included in a worker’s key performance indicator.
Recommendation
It is reasonable to conduct regular assessments of values and ethics. It can be performed by assessing the CEO’s effectiveness and the senior managers being responsible for risk management. Besides, it is necessary to prioritize activities that would strengthen the organization’s image and business reputation. For example, analyzing competitors might be beneficial in terms of other models of assistance delivery. Customer service quality should be checked periodically, and staff should be encouraged.
Personal conclusion
Overall, bank employees opened accounts without customers’ consent and imposed services that they did not require. In particular, changes in corporate culture, such as abandoning sales targets, can help convince customers that the organization serves their interests (Van Rooij & Fine, 2018). However, it may become challenging to reach the planned financial indicators. The bank management remains confident that this solution would benefit both customers and businesses (Van Rooij & Fine, 2018). Reputation restoration is possible only by considering long-term relationships with stakeholders and their value.
Case Conclusion
In 2016, there was a high-profile scandal over the largest American bank’s sales management practices. The staff used certain strategies to exaggerate the results and receive more bonuses instead of real and ethical performance (Witman, 2018). To avoid being penalized by a manager, employees opened fictitious accounts (Van Rooij & Fine, 2018). They misrepresented the phone numbers of disgruntled customers not to be contacted for a customer service survey (Van Rooij & Fine, 2018). It has resulted in penalties and large losses in the company’s value and reputation.
To sum up, it is important to prevent underestimating the risks and possible reputation damage. As long as the scandal was associated with customer information misuse and trust violation, this case can be the most prominent example of how organizational culture could affect employees’ behavior in the banking sphere. Thus, if the company intends to prosper and achieve long-term goals, appropriate ethical corporate culture should be promoted. It is recommended to stimulate employees to support the company’s values by providing them with favorable working conditions.
References
Srinivasan, S., Campbell, D., Gallani, S., & Migdal, A. (2017). Sales misconduct at Wells Fargo community bank. Harvard Business School Publishing.
Van Rooij, B., & Fine, A. (2018). Toxic corporate culture: Assessing organizational processes of deviancy. Administrative Sciences, 8(3), 1-38. Web.
Veetikazhi, R., & Krishnan, G. (2019). Wells Fargo: Fall from great to miserable: A case study on corporate governance failures. South Asian Journal of Business and Management Cases, 8(1), 88-99. Web.
Witman, P. D. (2018). What gets measured, gets managed: The Wells Fargo account opening scandal. Journal of Information Systems Education, 29(3), 131-138. Web.