Wells Fargo, one of the largest and most profitable banks in America, struggles to repair its dented image after it was caught in a mega fraudulent accounts scandal. The San Francisco-based bank had its management pressure on its employees to meet unrealistic sales targets, which led to the fake account incident. The customers were forced to pay bank charges they did not know about, and it was much later that the scandal was unraveled. Between 2011 and 2015, more than 1.5 million accounts were opened by Wells Fargo employees, and 565,000 credit cards were applied in customer’s names without their authorization (Arnold et al., 2019). During a lawsuit by the government regulatory bodies, the Securities and Exchange Commission (SEC), the Department of Justice (DOJ), and the Federal Reserve, it was established that Wells Fargo blatantly falsified its bank records (Arnold et al., 2019). Apart from the hefty fines that have been imposed on Wells Fargo, there are lessons that can be learned from the fake account scandal with regards to ethics and leadership, and the role of government in corporate America.
The Wells Fargo fake account incident has shown that performance targets should be aligned to achievable and supported goals. Although leaders are committed to business models that call for annual company growth, they should consider the feasibility of their targets and the available resources. Pushing for high sales quotas by the management at Wells Fargo forced their employees to open fake accounts through cross-selling. Customers had to pay for credit cards and bank charges that they did not authorize or know about (Arnold et al., 2019). The Wells Fargo scandal shows that employees in organizations will indulge in unethical practices to meet the sales quotas.
Employees at Wells Fargo tried to voice their concerns about the non-achievable targets, but the management fired anyone who showed dissatisfaction. Wells Fargo employees, therefore, engaged in unethical practices to avoid losing their jobs (Arnold et al., 2019). Company leaders should not be opposed to bad news, and if the set targets are too high, they should be open for discussion with their junior employees. Feedback from the sales team is imperative if any organization is to succeed.
The fake accounts incident at Wells Fargo has been an eye-opener to many organizations who think that an employee’s misconduct is an isolated case. The management at Wells Fargo never investigated the reason as to why their employees became involved in the opening of fake accounts. When the vice became rampant and called the management’s attention, a workshop was conducted to warn the employees of opening fake accounts. Still, with the lofty targets, their employees could not change their nefarious ways. More than 5,000 workers got fired from Wells Fargo over the scandal (Arnold et al., 2019). Apart from firing employees who violate company rules, the management should investigate what caused that company rules to be neglected. If the reason is emanating from the company, then immediate measures should be implemented to curb it.
Banks enjoy undisputed trust from their customers who entrust them with their money. However, the incident of fake accounts at Wells Fargo has eroded part of this trust. During a lawsuit by the government regulatory bodies, it was established that between 2002 and 2016 Wells Fargo admitted to have unlawfully misused customers’ personal information, which harmed their credit rating (Arnold et al., 2019). From the time the scandal was discovered, Wells Fargo has been trying hard to repair its reputation. It has restructured its banking policies and stopped putting unnecessary pressure on their employees to meet its sales quota. The annual growth targets have also been revised downwards to a realistic level. The Office of the Comptroller of the Currency also banned the former CEO of Wells Fargo, John Stumpf, from ever working in the banking sector again. Since 2016, the profits that were significant at one time have continued to decline (Arnold et al., 2019). It does not matter how big the company is, if it violated customers’ trust and confidence, profits would inevitably decline.
Since 2016, when the fictional accounts incident came into the limelight, Wells Fargo has been under regulatory reforms. The role of government in corporate America has been demonstrated strongly in the Wells Fargo fake accounts incident. The Securities and Exchange Commission (SEC) and the Department of Justice (DOJ) have fined Wells Fargo a $3 billion fine for violating its customers’ trust in its lending and banking business. An estimated $500 million of this money will be used by regulatory body SEC to restitute defrauded customers (Teo & Kimes, 2019). The fictitious accounts at Wells Fargo have also caused it to spend over $1.5 billion as litigation fees for the numerous court cases instigated by the American government. The Federal Reserve has also imposed an unprecedented sanction against Wells Fargo, which prevents it from growing its assets beyond $2 trillion (Teo & Kimes, 2019). By seeking justice for the defrauded customers, the government has ensured that customers’ trust in the banking sector remains. The shameful act at Wells Fargo has not affected the entire banking sector in America.
The Wells Fargo fake account incident has taught valuable lessons to many organizations. With the hefty fines imposed by the Securities and Exchange Commission (SEC) and the Department of Justice (DOJ), organizations have learned that government regulatory bodies exist to defend both the customer interest and the business. Customer trust in the banking sector is imperative, and if broken, it has adverse effects on company profits. Leaders in organizations also need to be realistic when setting sales quotas to avoid creating unnecessary pressure for their sales team, who indulge in unethical practices to meet these unrealistic targets. Moreover, the leadership should always listen to any concerns raised by their employees. The Wells Fargo fake account incident has tarnished the once vibrant bank’s reputation, and it is now forced to spend heavily on settlements and restoring its customers’ trust.
Annotated Bibliography
Arnold, D. G., Beauchamp, T. L., & Bowie, N. E. (2019). Ethical theory and business. Cambridge University Press. Web.
Denis G. Arnold, University of North Carolina, Charlotte, Tom L. Beauchamp, Georgetown University, Washington DC and Norman E. Bowie, University of Minnesota. The three authors are scholarly professors. In chapter seven, entitled Marketing Ethics, they give details on how good leadership and practicing ethical values promote a company’s economic growth.
The book is relevant to the study because it explains how proper incentives programs should be implemented within a company, and gives the guidelines to follow before dismissing an employee.
This book is published by Cambridge Press, a renowned and respected publisher, and therefore, its content is informative and reliable.
Teo, T., & Kimes, S. (2019). Wells Fargo bank: The fake accounts scandal. Sage Publications. Web.
Thompson Teo is an associate professor, while Sheryl Kimes is a professor. They have both written a book on how Wells Fargo, which was one of the largest banks in America, got into trouble after creating over 2 million fake accounts. The book features how the management handled the fake accounts scandal and what it could have done differently.
The book is relevant to the study because it emphasizes the role of the government regulatory bodies such as SEC and DOJ in monitoring the banking sector, and ensuring that Wells Fargo is fined, and their customers are compensated.
The authors are highly knowledgeable in their field of practice making the source highly reliable.