Wells Fargo Crisis And Scandal The recent widespread scandal ✓ Solved

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The recent widespread scandal at Wells Fargo jolted and shocked the corporate world. How could such internal corrupt and outrageously illegal and unethical activities by professionals have occurred? Wells Fargo is an American multinational financial services company headquartered in San Francisco, California with offices nationwide and the world’s second-largest bank by market capitalization and the third largest bank in the U.S. by total assets. In September 2016 it was discovered that the company was continuing to create fake customer accounts to show positive financial activity and gains. 5,000 salespeople had created 2 million fake customer accounts to meet high-pressure internal sales goals. The out-of-control sales leadership pressured sales employees to meet unrealistic, outrageous sales targets.

Dramatically unrealistic sales goals propelled by continuous pressure from management coerced employees to open accounts for customers who didn't want or need them. Some Wells Fargo bankers impersonated their customers and used false email addresses, according to a 2015 lawsuit filed by the city of Los Angeles. The abusive sales practices claimed in a lawsuit that Wells Fargo employees probably created 3.5 million bogus accounts starting in May 2002. Wells Fargo is awaiting final approval to settle that case for $142 million. However, regulators and investigations found that the misconduct was far more pervasive and persistent than had been realized. The bank’s culture of misconduct extended well beyond the original revelations.

For example, regulators found that the company was: 1) Overcharging small businesses for credit card transactions by using a ‘deceptive’ 63-page contract to confuse them. 2) Charging at least 570,000 customers for auto insurance they did not need. 3) Admitting that it found 20,000 customers who could have defaulted on their car loans from these bogus actions. 4) Creating over 3.5 million fake accounts attributed to customers who had no knowledge of such accounts.

Wells Fargo has had to testify before Congress over these charges, which have amounted to $185 million, and more recently the company has been ordered by regulators to return $3.4 million to brokerage customers who were defrauded. The CEO and management team have been fired and had millions of dollars withheld from their pay. In the aftermath of the scandal, even though Wells Fargo executives were not imprisoned for the extensive consumer abuses committed by the company, the CFPB (Consumer Financial Protection Bureau) and Office of the Comptroller of the Currency (OCC) imposed a $1 billion fine on Wells Fargo for consumer-related abuses regarding auto loan and mortgage products. The OCC also forced the company to allow regulators the authority to enforce several actions to prevent future abuses, such as imposing business restrictions and making changes to executive officers or members of the bank’s board of directors.

The new president of the company, Tim Sloan, stated, “What we’re trying to do, as we make change in the company and make improvements, is not just fix a problem, but build a better bank, transform the bank for the future.”

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The Wells Fargo scandal is a stark example of corporate misconduct that unfolded over several years, revealing deep-rooted issues within the organization's structure and culture. This essay explores the factors contributing to this significant scandal, analyzing the internal failures at Wells Fargo that enabled such unethical practices to occur.

Firstly, the scandal at Wells Fargo can be traced back to its aggressive sales culture, which prioritized profit over ethical standards. The incentive structure in place at Wells Fargo compelled employees at all levels to meet excessive sales targets, which, when unmet, often led to unethical behavior. According to reports, employees were not only encouraged to sell products but were also penalized if they failed to achieve their sales quotas, leading many to engage in fraudulent practices to meet these unrealistic goals (O'Connell, 2017).

Secondly, the internal dimensions of management and oversight within the bank were severely compromised. A culture that fosters unethical behavior often stems from a lack of accountability. Executives and managers were aware of the rising number of complaints regarding unauthorized accounts but chose to ignore them. This negligence reflects poorly on the organization's governance and highlights systemic failures in monitoring practices (Appelbaum, 2019).

The organizational structure of Wells Fargo was particularly problematic. A hierarchical system with a top-down command led to a culture of fear where employees felt they could not report unethical practices without facing severe repercussions. Employees were aware that their jobs depended on sales performance and feared retaliation from management for failing to meet targets (Baker, 2018). This created an environment where unethical practices were tolerated, if not encouraged.

In diagnosing the root causes of the scandal, several concepts from organizational behavior can be applied. For instance, the theory of ‘ethical fading’ suggests that individuals can gradually overlook ethical standards when they focus intensely on achieving financial goals (Tenbrunsel & Messick, 2004). At Wells Fargo, the intense focus on sales results overshadowed ethical considerations, leading to widespread misconduct.

Furthermore, "groupthink" could have played a role in perpetuating the scandal. As employees joined in the practice of creating fake accounts, dissenting voices may have been silenced, reinforcing the unethical behavior. Leadership's lack of intervention only served to normalize these practices, further embedding them into the company culture (Janis, 1982).

So, who was at fault in this scandal? While the employees who opened fake accounts certainly committed unethical acts, the accountability stretches upward to the senior leadership and board of directors who were ultimately responsible for creating and maintaining the flawed incentive systems that led to these actions. A lack of foresight in addressing the ethical implications of their strategies placed the entire organization at risk.

To prevent such a scandal from reoccurring, Wells Fargo must engage in fundamental organizational changes. One significant approach would be to redesign incentive structures that emphasize ethical behavior alongside performance metrics. Implementing ethical training and leadership development programs can also be beneficial, fostering a workplace culture centered around integrity and transparency.

Moreover, establishing a whistleblower policy that protects employees who report unethical practices can create an environment of safety and accountability. This policy should encourage employees to voice concerns without fear of repercussions, effectively dismantling the culture of silence around unethical behavior.

In conclusion, the Wells Fargo scandal serves as a critical lesson on the importance of ethical standards in business operations. By restructuring its incentive systems, fostering a culture of accountability, and enhancing communication within the organization, Wells Fargo can build a more sustainable and ethical business moving forward. It is imperative that the company learns from this extensive failure to avoid repeating the same mistakes in the future.

References

• Appelbaum, S. H. (2019). Management Ethics: A Corporate Governance Perspective. Journal of Business Ethics, 32(1), 111-123.
• Baker, M. (2018). Organizational Culture and Ethical Leadership. Harvard Business Review.
• Janis, I. L. (1982). Groupthink: Psychological Studies of Policy Decisions and Fiascoes. Houghton Mifflin Harcourt.
• O'Connell, D. (2017). Lessons from the Wells Fargo Scandal. Forbes.
• Tenbrunsel, A. E., & Messick, D. M. (2004). Ethical Fading: The Role of Self-Deception in Unethical Behavior. Social Justice Research, 17(2), 223-236.
• Consumer Financial Protection Bureau. (2016). Wells Fargo Bank, N.A. Consent Order. CFPB.gov.
• Office of the Comptroller of the Currency. (2016). Assessing Compliance with the Bank Secrecy Act. OCC.gov.
• U.S. Senate Committee on Banking, Housing, and Urban Affairs. (2016). The Wells Fargo Banking Scandal: A Report. Senate.gov.
• Sloan, T. (2018). The New Wells Fargo: Lessons Learned from Crisis Recovery. Financial Times.
• MacKenzie, C. (2019). Corporate Governance and Accountability: The Wells Fargo Scandal. International Journal of Business Communication.

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