Ethical Concerns of Wells Fargo Bank

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Wells Fargo organization has in recent time attracted much attention by being the second largest bank in the world based on its market capitalization (Banks Daily, 2017). On the flipside, it has also attracted the worldwide scrutiny for its gross noncompliance to the corporate social responsibility (CSR) (especially ethical issues impacted by its aggressive sales strategies and culture, and top management’s evasion of roles). The November 2016 US Securities and Exchange Commission inquiry into the Wells Fargo sales practices revealed an inconceivable expose. The bank employees in Southern California were reported to have opened over 2 million deposit, and credit accounts for their clients without their consent since September of the same year. This was on a quest to meet the aggressive sales goals set by the bank’s management. The ethical problems and matching solutions are discussed in this paper.

Main Wells Fargo issues Linked to CSR Practices

The Aggressive Sales Philosophy

            Wells Fargo application of aggressive sales philosophy has been a problem because it undermines the business reputation and ethics. The company set very high and unrealistic sales targets while tying employee salaries with these targets (Berry, 2016; Corkery, 2017). These overambitious targets forced workers to resort to opening fake accounts for the clients to protect their jobs besides securing associated bonuses (Corkery, 2017). In 2017, about 3.5 million suspicious fraudulent deposit and credit accounts were publicised in the organization’s internal assessment report. (Egan, 2017). As a result, Wells Fargo has taken payment liability for approximately $185 million and endured a downgrade in its credit from BDRS rating agency (Cox, 2017). This fake account scandal may result in the loss of customer confidence and trust in the bank as they would feel their rights have been violated. Subsequently, the bank may suffer from the resulting negative brand image (CNN Money, 2017). This kind of organization’s culture brings the CSR related concerns related to commercial honesty and clients’ legal right protection.

 

Executive Evasion of Ethical Role

            The public and customers of Wells Fargo have been highly critical of the evasive response of bank’s management following the expose. An ex-employee known as Tishkoff states that the organization’s supervisors did not consider taking precautions despite having a perception of fake accounts situation as early as 2011 (Mount, 2016). All whistle-blower workers that tried to report illegal activities via the organization’s ethics channel were fired subsequently for insignificant and unreasonable reasons (Egan, 2016). This illustration reflects the official involvement of unethical sale strategies, further promoting the unethical practices. It is in this regard that the Congress suspended Well Fargo’s CEO, John Stumpf in 2016 for failing to reveal the fake accounts problems to shareholders in attempting to escape ethical rulings and maintain the organization’s image (Egan 2017).

            However, because the organization’s shareholders required comprehensive information regarding budgets decisions, the CEO declined to disclose this fake account scam perplexed most of them and eventually impacted integrity crises of Well Fargo (Belly, 2016). The failure of the executive led by CEO Stumpf to solve this unethical practice and hiding of relevant information indicated their dodging of ethical roles that provoked global censure on the organizations’ CSR indifference.

Recommendations to Rectify Above Ethical Problems

Formation of Ethnic-oriented Employee Evaluation and Proper Incentive Structure

            The formation of ethnic-oriented employee an incentive will help the organization to abandon its aggressive selling strategy (“Wells Fargo Board”, 2017). Professional ethics comprises of compensation distribution and performance assessment, cooperating with some issues that require extra considerations in worker performance evaluation and distribution of compensations (Wells Fargo, 2016). The HSBC’s situation was likened with Wells Fargo. Financial Services Authority accused HSBC in 2011 for its miss-selling strategy (Masters, Goff, & Cumbo, 2011) and the bank applied quick corrective measures. HSBC’s significant response was the cancellation of its sales goals from its 12,000 outlets (Dantas, Costa, Niyama & Medeiros, 2014). Afterward, there was a launch of new reward structure whereby bonus was given to workers that possessed attitude while giving services to the client and gained praises from clients (Osborne, 2013). Just like HSBC, Wells Fargo can apply this strategy and reduce the employee pressure in meeting the ambitious sales target and incidences of unethical practices. There is a need to get clients’ views on worker’s behaviors to evaluate whether all constituents of aspects. Conducting a transparent peer review, especially lower level works to their superiors is a viable strategy.

 Support External Auditing and Monitoring

            The organization should focus on supporting external auditing and monitoring to ensure that executive fulfills all ethical roles. The executive powers are sometimes more than corporate regulations, and hence the internal regulations channels like moral line are usually ineffective. Wells Fargo’s imperativeness to enhance fruitful cooperation with the auditors is shown.  A good example of a company that the executive disclosed a significant weakness in its internal control is American International Group (AIG) in 2008 (Pfeffer, 2013). The 2008 American Insurance Group (AIG) case demonstrated an example of a company with weak internal control. Seeking the intervention of the PricewaterhouseCoopers to supervise the internal auditing in AIG salvaged the situation, and the same analogous strategy can be done in Wells Fargo. This will give the executive pressure and at the same time motivate all top management stakeholders to focus on the lawful interest of investors and clients. However, the exercise will face financial burden during the process of auditing and monitoring because it will involve hiring and coordinating (Fazal, 2013). Nonetheless, there is increased importance of business ethics, and hence, both banks’ integrity and transparency are critically scrutinized by the public. Through these mechanisms, Well Fargo can rebuild its reputation and attain a moral advantage in the market competition.   

    

References

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            Market Capitalization. Banks Daily. Retrieved from http://banksdaily.com/topbanks/World/market-cap-2017.html

Belly, K. (2016), October 26). Wells Fargo is New Poster Child for Reputation Crises

Chui, L., & Pike, B. (2013). Auditors’ Responsibility for Fraud Detection: New Wine

            in Old Bottles? Journal of Forensic & Investigative Accounting, 5(1), 204-

            233.

CNN Money. Retrieved from http://money.cnn.com/2016/09/21/investing/wells-Fargo-fired-worker retaliation-fake-accounts/index.html

Corkery, M. (2017, January 13). Wells Fargo Struggling in the aftermath of Fraud

            Scandal. The New York Times. Retrieved from

            https://www.nytimes.com/2017/01/13/business/dealbook/wells-fargoearnings-

            report.html 

Cox, J. (2017, September 20). Wells Fargo’s Fake-account Scandal Leads to Credit Downgrade. CNBC. Retrieved from https://www.cnbc.com/2017/09/20/wellsfargos-

            Fake account scandal leads to dbrs credit downgrade.html

Dantas, A. J., Costa, M. F., Niyama, K. J., & Medeiros, R. O. (2014). Audit Regulation in Banking Systems: Analysis of the International Context and

            Determining Factors. Rev. Contab. Finanç, 25(64), 7-18.

Egan, M. (2016, September 21). I Called the Wells Fargo Ethics Line and was Fired.

             CNBC. Retrieved from

 http://money.cnn.com/2016/09/21/investing/wells-fargo-fired-workers-retaliation-fake-accounts/index.html

Egan, M. (2017, August 31). Wells Fargo Uncovers up to 1.4 Million More Fake

            Accounts. CNBC. Retrieved from

            http://money.cnn.com/2017/08/31/investing/wells-fargo-fakeaccounts/

index.html

Egan, M. (2017, October 3). Wells Fargo Accused of Lying to Congress about Auto Insurance Scandal. CNBC Money. Retrieved from

             http://money.cnn.com/2017/10/03/investing/wells-fargo-lie-congress-hearingauto-

            Insurance/index.html

H. (2013, March 27). What are Limitations of External Audit? Retrieved from

            http://pakaccountants.com/what-are-limitations-of-external-audit/

Masters, B., Goff, S., & Cumbo, J. (2011, December 6). HSBC Fined for Mis-selling

            Care Bonds. Financial Times. Retrieved from

            https://www.ft.com/content/3dfe4144-1f2d-11e1-ab49-00144feabdc0

Mount, I. (2016, October 12). Wells Fargo’s Fake Accounts May Go Back More Than

            10 Years. Fortune. Retrieved from http://fortune.com/2016/10/12/wells

Fargo fake

            accounts scandal/

NCBC (April 2017) Wells Fargo board slams former CEO Stumpf and Tolstedt, claws back         $75million

Osborne, H. (2013, February 20). HSBC Removes Sales Targets from Staff

            Incentives. The Guardian. Retrieved from

            https://www.theguardian.com/money/2013/feb/20/hsbc-removes-sales-targetsstaff

incentives

Pfeffer, J. (2013, March 26). The measure (and Reward) Ethical Behavior. Inc. Retrieved

            From https://www.inc.com/jeffrey-pfeffer/measure-and-reward-ethicalbehavior.html

Wells Fargo (2016). Strategy and Governance Annual Report. Retrieved from wellsfargo.com/about/investor-relations/annual-report

January 19, 2024
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