The Wells Fargo Firm’s Account Fraud Crisis Proposal

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Updated: Dec 14th, 2023

Introduction

Wells Fargo had a longstanding, reputable distinction for its managerial practices. At the peak of the financial crisis, the corporation utilized its financial power to acquire Wachovia, hence establishing the third-largest bank by investments. The business surfaced from the subsequent economic downturn relatively unscathed, with servicing and stock price effectiveness being the best among its peers (Peters, 2020).

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Unfortunately, its image is now in shambles as a result of a major controversy that is still developing. In 2013, the first concerns of fraudulent conduct in Wells Fargo’s sales department arose (Tayan, 2019). Specifically, the bank established at least 3.5 million bogus accounts for consumers without their knowledge (Waters, 2022). As such, these unbecoming activities resulted from management failures in the firm.

Recent emphasis has been placed on corporate culture and its influence on organizational results. According to Tayan (2019), with emphasis on Wells Fargo’s perspective, it lacked a culture that influences worker involvement, inspiration, and productivity, the nature of this link and the methods for infusing the appropriate values in employee behavior was not well understood. Therefore, the organization suffered from three major issues, failure to adhere to the company’s mission, a lack of corporate leadership, and deficiencies in the centralization of internal operations of the organization.

Issues Surrounding Wells Fargo

Failure to Adhere to Company’s Mission

Every firm must strive to surpass its consumers’ demands and deliver an exceptional customer experience. In this regard, it was evident that this was not the aim of Wells Fargo’s Consumer Banking segment. The sole concern of the Community Banking Division was generating revenues, which fueled performance bonuses, and this was a critical shortcoming of the company’s ethos (Silverman, 2017).

Moreover, the Community Bank characterized itself as a sales force, similar to departmental or retail shops, instead of a service-oriented brokerage firm (Silverman, 2017). This offered rationale for an unrelenting emphasis on sales, shortened education, and high staff turnover. Hence, this must be strange and depressing in accordance with Wells Fargo’s mission and vision statement: “Leaders are accountable. They share the credit and the blame. They give others the opportunity and duty to succeed. (Tayan, 2019)” is evident that this organization phrase statement is customer-centric however, their deeds are profit-oriented.

On the same note, the then CEO John G. Stumpf’s principles and mission for Wells Fargo indicated their goal for utmost customer satisfaction. For instance, it stated on its website: “We believe in values lived, not memorized phrases. If forced to choose, we would rather have a team member who embodies our beliefs than one who just memorizes them (Tayan, 2019)”. This statement seemed ironic; precisely, in the instance of Wells Fargo, the majority of the company’s beliefs and aspirations were violated, with 5,300 workers breaking the code of ethics (Veetikazhi, 2019). These workers performed this task on a daily basis for many years. In this sense, if personnel are on low wages and their survival relies on accomplishing an unachievable sales goal, they may compromise their principles rather than risk losing their job. If coworkers are all engaging in a scam that plainly pleases their employers, they are being abused by the organization’s leaders.

Deficiencies in Centralization of Internal Operations

John Stumpf, the former chairman and CEO of Wells Fargo, was compelled to step down as a result of the crisis that engulfed the company. Stumpf held the belief that the tasks of internal control and compliance ought to be decentralized in addition to the operations being decentralized. In spite of the fact that significant problems remained to exist inside Consumer Banking, he never wavered from his conviction.

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His notion of centralization idolized a decentralized corporate framework that offered too much autonomy to the top leaders of the Community Bank. This senior manager was hesitant to alter the business model or acknowledge that it was the underlying consequence of the issue. As a matter of fact, the leadership of Community Bank fought and obstructed any outside inspection or monitoring, and when they were compelled to report, they reduced the extent and scope of the issue, and this ensued in adversities the firm faced. When seen in this light, the board of directors at Wells Fargo could not recognize decentralized internal control and compliance operations as a substantial business risk. This was particularly the case after they became aware of the problems that are prevalent in community banking.

Lack of Corporate Leadership

The reportedly unexpected outbreak of scandal at Wells Fargo unveiled a backlog of condemnation of the leadership framework of Wells Fargo. Despite five years of clear and frequent cautions, the management team and board of directors were astonishingly slow to adequately recognize the scope and seriousness of this deception and confront it (Gutterman, 2017). In 2011, based on Stumpf’s statement, the board committee became aware of the scam. They had a more in-depth talk in 2013–2014, around the time that the first public exposure of the illegal activity emerged. Stumpf stated that he became alerted in 2013, two years later, after unsuccessful business unit solutions as the number of phony accounts continued to rise.

In exploring why they reacted so slowly, Stumpf’s remarks reveal a leadership team that declined to accept that sales fraud could be systematic in a company culture like theirs. Members of the executive team, the majority of whom have devoted decades at the firm, determined that this fraud must have included modest, isolated events. This leadership blind hole is the product of misplaced admiration for its ethos and its capacity to protect the bank from systemic issues. It symbolizes the greatest level of governance failure for CEOs and members of the board. However, it seems that several warning signs never reached them. Various employees who attempted to raise concerns about the oppressive atmosphere and illegal behaviors were disregarded, intimidated, and even terminated.

Recommendations

Failure to Adhere to Company’s Vision

Wells Fargo should initiate steps to evaluate all its business areas. The corporation must enhance its estimate of possibly illegal user accounts and give extra reimbursements totaling more than millions of dollars. On the same note, the bank must also discover infractions of sales practices in its car and mortgage loan units. Moreover, in cases of mass buyer abuse, for instance, the organization could perhaps take the unusual move of instilling a lot of restrictions on the company’s total assets, prohibiting the financial institution from expanding beyond the total assets it had at the conclusion of the previous year until it demonstrates improved performance in corporate checks.

Importantly, misbehavior should not be allowed, and customers impacted by Wells Fargo anticipate that substantial and thorough changes will be implemented to prevent a recurrence. The bank should reach a settlement agreement with the Consumer Financial Protection Bureau and the Office of the Controller of the Currency to address breaches involving car and mortgage lending. Moreover, the corporation must agree to pay damages to resolve a securities class action case involving cross-selling. Ultimately, the corporation shall introduce attorneys general to address civil claims for breaches, including cross-selling, vehicle lending, and mortgage lending, and has promised to compensate the impacted parties.

Deficiencies in Centralization of Internal Operations

Wells Fargo should have highlighted certain changes in the way the internal audit role is organized as part of the endeavor to put a succession of huge crises in the company’s past. These adjustments should have included the adoption of a more centralized system of the internal auditing system. The internal audit role at Wells Fargo ought to have been centralized, and the company should have broken down the silos that led to the difficulties and adherence breaches. In addition to this, to have less autonomy, it needs to have centralized new internal audit teams, which would include teams devoted to reviewing consumer finance practices, risk management, and capitalization.

Similarly, the bank missed an opportunity to strengthen the role of internal auditing and supervision at the board level. Basically, the bank must be compelled to ramp its audit committee’s employee retention by nearly three-quarters of staff members and add more knowledgeable executives to the panel risk management committee. Such measures will help the bank recover from the succession of fiascos in a drive to establish the most customer-focused, efficient, and inventive Wells Fargo ever.

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Lack of Corporate Leadership

Wells Fargo should have concentrated on CEO remuneration and corporate governance structures as a better way to avoid similar behaviors from occurring in the future. This would have been the most effective remedy. Dependence on policymakers or the judicial system to rein in bad behavior on the part of top management might have a small positive impact. Nonetheless, ensuring that the governing board has the appropriate intrinsic checks, risk assessment, and corporate governance is a vital and crucial element that can prevent bad behavior likelihood of occurring (Wharton, 2017).

It may not make as big a splash as subjecting individuals to prison or fining businesses, but it will get the job done far more efficiently. In addition, the primary powers at the board’s disposal include the ability to structure and determine the remuneration for top executives and to fire managers whose performance is not up to the board’s standards. In a similar vein, executives are responsible for establishing incentive systems and supervision to ensure that staff work in a manner that benefits the bank. Even though various parts of this governance structure have the potential to fail at different times, the system as a whole is quite robust and flexible in how it reacts to faults.

Conclusion

This report proposal analyzes the Wells Fargo account fraud crisis that came to public attention. It is one of the largest financial scams in history. Wells Fargo workers established 3.5 million unlawful bank accounts to meet excessive sales goals set by top management. Since then, the firm has paid significant penalties and endured extensive corporate reorganization owing to public pressure and heightened regulatory controls. The primary reasons for this controversy have been decentralized management, a lack of devotion to the company’s goal, and inadequacy in corporate governance on the part of the firm’s leaders.

In reaction, it is recommended that Wells Fargo strengthen its governing board to concentrate on the main decision-making mechanism and harmonize the diverse employee priorities. In addition, an improved organizational ethos must be established, and a group of independent directors must be recruited who can provide an impartial perspective on the organization’s various tactics and approaches. Moreover, the organization’s focus should be on customer happiness rather than profit maximization.

References

Gutterman, A. (2022). . Web.

Peters, J. (2020). . Slate Magazine; Slate. Web.

Silverman, S. (2017). . The Business Journals. Web.

Tayan, B. (2019). . The Harvard Law School Forum on Corporate Governance. Web.

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Veetikazhi, R. & Krishnan, G. (2019). . South Asian Journal of Business and Management Cases. Web.

Waters, C. (2022). . CNBC. Web.

Wharton. (2017). . Knowledge at Wharton. Web.

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IvyPanda. 2023. "The Wells Fargo Firm's Account Fraud Crisis." December 14, 2023. https://ivypanda.com/essays/the-wells-fargo-firms-account-fraud-crisis/.

1. IvyPanda. "The Wells Fargo Firm's Account Fraud Crisis." December 14, 2023. https://ivypanda.com/essays/the-wells-fargo-firms-account-fraud-crisis/.


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