Wells Fargo Fraud Case Study: Ethics & Conflict of Interest

Based on the case study provided, analyse the case and respond to the following:

1. In what ways does this case study demonstrate conflict of interest? Explain.
2. What factors played the most important role in leading so many Wells Fargo employees to cheat the bank’s customers?
3. Was the problem at Wells Fargo: the corporate culture or a few thousand “bad apples?” Explain.
4. Although Wells Fargo attempted to curb fraudulent activity with an ethics workshop and change in compensation structure, the company continued to find fraudulent accounts being opened by employees. Why do you think this continued to occur? What do you think Wells Fargo could have done to better curb fraudulent activity?
5. Are the low-level employees more to blame, or the managers? Were both in a conflict of interest situation? Explain.
6. In response to the Wells Fargo case, U.S. Treasury Secretary Jacob Lew stated, “This ought to be a moment when people stop and remember how dangerous the system is when you don’t have the proper protections in place.” He added, “This is a wake-up call. It should remind all of us and firms that culture and compensation make a difference,” continuing, “How you reward people, how you motivate people and what values you hold people to matter.” Do you agree with Lew? Why or why not? How would you suggest companies protect against such “dangerous” systems?

Wells Fargo Fraud Case Study

American financial institution Wells Fargo was beating the odds in a bad economy. During the financial crisis in 2008, the bank acquired Wachovia to become the third-largest bank by assets in the United States. A few years later, its growing revenue and soaring stock brought the company’s value to nearly $300 billion. But behind this success was a company culture that drove employees to open fraudulent accounts in attempt to reach lofty sales goals. Between 2011 and 2015, company employees opened more than 1.5 million bank accounts and applied for over 565,000 credit cards in customers’ names that may not have been authorized.

Many former employees reported that company sales goals were impossible to meet, and incentives for compensation and ongoing employment encouraged gaming the system. Wells Fargo pressured employees to cross-sell, offering customers with one type of product, such as checking or savings accounts, to also buy other types of products, such as credit cards and loans. One former employee described it as a “grindhouse,” with co-workers “cracking under pressure.” Another former employee reported, “If you don’t meet your solutions, you’re not a team player. If you’re bringing down the team, then you will be fired and it will be on your permanent record.”

In mid-2014, Well Fargo attempted to curb fraudulent activity with an ethics workshop that warned employees not to create fake accounts in customers’ names. Wells Fargo also modified its compensation structure to place less emphasis on sales goals. But in the following years these efforts were not enough. The company continued to fire employees over fraudulent accounts. Wells Fargo spokesperson Mary Eshet stated, “The steps we have been taking have been effective…[and] we are continuing to do more.” Their own analysis showed a decline in fake accounts by 2015, but many were still being created.

One former employee described his brief time at Wells Fargo as “the lowest point of my life.” He encouraged an elderly woman to sign up for a credit card she did not want by telling her “It was confirmation that she stopped by to update her address.” This made him sick to his stomach. He reported, “But it was a tough economy, and I was worried, if I lost this job, I would be in a tough financial situation.” Deceptive practices such as this were widespread across the company, and many former employees reported that their managers knew about them. Jonathan Delshad, a lawyer working on behalf of former employees, said, “The better they did at sales, the more they advanced, so it got spread across the company. An entire generation of managers thrived in the cult it and are now in positions of power.” One former employee said she could not meet sales goals in an ethical way and called Wells Fargo ethics hotline.

She was eventually fired. In 2016, Well Fargo was fined a combined total $185 million for fraudulent activity, and CEO John Stumpf resigned. Between 2011 and 2016, approximately 5,300 employees were fired for fraudulent sales practices. Sales quotas were eliminated effective January 1, 2017.

Wells Fargo has a fiduciary duty to treat its customers fairly. The bank offered many different services to its customers. But the bank’s management set unrealistically high sales goals for its employees, encouraging many employees to game the system. If a customer bought one service, employees were urged to “cross-sell” several more. “Eight is great” was the company mantra. The only way that Wells Fargo employees could meet their unrealistic sales targets, and thereby keep their jobs, was to make up accounts that customers had not requested and often didn’t even know they were being charged for. Employees fabricated millions of fraudulent accounts in order to keep their bosses happy and remain employed. It was a classic conflict of interest.

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Conflicts of interest in the case study

The conflict of interest is clearly evident in the case study from employees having a direct financial and employment incentive to meet sales targets. The opening of unauthorised accounts also benefited employees and managers through sales, performance and job security. But it ultimately negatively affected the customers through unwanted account fees and potential credit consequences.

Factors that played the important role in leading so many Wells Fargo employees to cheat customers

The most important factors, as identified from the case study, are the unrealistic sales quotas, employment pressure, incentive-based compensation and managerial expectations. The cross-selling culture has made it difficult for employees to achieve legitimate sales with the fear of dismissal if they fail to meet targets.

Was the problem the corporate culture, or a few thousand bad apples?

The problem was mainly the corporate culture and it is not simply a few thousand unethical employees. There were 5300 employees being fired but the misconduct was widespread across branches and continued even after ethical walks of and compensation changes.

Why the fraudulent activity continues even after ethical workshop and compensation changes

This is mainly because the measures undertaken were simply good enough to address the symptoms, but not the underlying pressure system. Employees are still faced with the issues of high sales expectations. And managers still had incentives tied to performance. Along with these, Wells Fargo should have eliminated unrealistic sales quotas earlier and rewarded customer satisfaction, protected whistleblowers, audited accounts for genuine personal concern and not only held frontline employees accountable.

Were low level employees more to blame or were managers?

The responsibility of managers is significantly higher as compared to low level employees because they created, enforced and tolerated the sales environment in which fraudulent behaviour became widespread. But it does not mean that employees are not responsible at all, as they were also responsible for deliberately creating unauthorised accounts.

Do you agree with Jacob Lew?

Yes, Lew is correct because it is the culture and compensation that motivates towards unethical behaviour. It is evident from the case study of Wells Fargo that poorly designed incentives can make even ordinary employees into participants in widespread misconduct. It is therefore important for the companies to link rewards to ethical and customer outcomes and establish independent compliance oversight, conduct regular audits of employee decisions, monitor any kind of unusual activities and thereby impose consequences on managers who are responsible for tolerating harmful targets.

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The analysis of the Wells Fargo fraudulent case including conflicts of interest, sales pressure, corporate culture, employees’ misconduct and ethical controls above revealed important findings about the importance of ethical decision making in business. If you need a similar kind of assistance with analysing case studies on business ethics, get in touch with our management experts in Singapore for business ethics assignment help. You can also get complete assistance with assignment from any subject by visiting our assignment help page. If you want to be confident enough before proceeding to order your assignment you can also explore the solved assignment answers from Ngee Ann Polytechnic by our Singaporean experts.

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