By Louisa Rochford
Founded by Henry Wells and William Fargo in 1852, multinational financial services company Wells Fargo has had a long and lucrative lifespan in American history. It remains one of the “Big Four Banks” in the United States alongside Bank of America, JPMorgan Chase and Citigroup, with 8,050 branches, 13,000 ATMs and operations in 35 countries. However, the bigger they are, the harder they fall—something that made the scandals it has faced all the more widespread, significant and ongoing.
The most noteworthy of these was the account fraud scandal that came to light in September 2016, resulting in a fine of a cumulative $185 million for creating more than 1.5 million unauthorised checking and savings accounts, and 500,000 fraudulent credit cards. By the end of 2018, Wells Fargo had been met with an estimated overall $2.7 billion in civil and criminal suits, and the company’s business ethics have been thrown into question. Can Wells Fargo be redeemed, and what can we take from this cautionary tale?
After Wells Fargo survived the financial crisis of 2007 – 2008 relatively unscathed, the bank held a stable reputation on Wall Street—until the news of rampant account and securities fraud came to light. Digging deeper into the illegal activity unveiled unethical sales practices such as an aggressive form of cross-selling, the result of unreasonable goals that the bank’s employees struggled to meet.
Cross-selling, the practice of attempting to sell multiple products to consumers, was allegedly introduced by Richard Kovacevich, a former Wells Fargo CEO who also coined the phrase, “Go for Gr-Eight” – or, in other words, aim to sell at least 8 products to every customer. Even putting aside this ‘motivational’ motto, targets could reach as high as 20 products a day or more. Bankers and managers were pressured, with increasing weight, to meet these impossible quotas and were inevitably encouraged to undertake fraudulent and unethical activity in order to sell more, more, more. Credit cards were ordered for pre-approved clients without their consent, fraudulent checking and savings accounts were created, and even when clients were sold to directly, they were sold products they didn’t need under the disguise of lofty misinformation.
Ken Mac, a former branch employee during the summer of 2013, described an instance where he encouraged the unwanted sale of a credit card to an elderly woman, claiming that “it was confirmation that she stopped by to update her address. I felt sick in my stomach.” Despite feeling clear remorse, he said that overwhelming pressure gave him no other option—“it was a tough economy, and I was worried, if I lost this job, I would be in a tough financial situation.”
He called it “the lowest point of [his] life.”
As a result of these transgressions, amounting to an estimated total of 3,500,000 fraudulent accounts, 5,300 employees were fired between 2011 and 2016 and the unreasonable sales quotas were supposedly discontinued after the announcement of its $185 million fine from the Consumer Financial Protection Bureau. Then-CEO, John Stumpf, resigned as a result of the scandal and was replaced by Tim Sloan—who also wound up resigning at the end of March 2019.
Culpability became a strained topic. Was the fault squarely on the employees directly opening the accounts, or were their managers and superiors, whom many reported to not only be aware of but also encouraged the illegal activity, to blame as well? Who was more to blame? As Ethics Unwrapped explains, Wells Fargo became implicated in conflict of interest and incentive gaming. Employees were unreasonably pressured to reach goals they could not meet, were punished for not doing so, and rewarded for achieving the most through any means necessary. It paints a picture of faulty culture within the firm, and a lesson that can be taken for many: while incentive and rewards can be used to great effect, this combined with unreachable targets and inefficient ethical guidance will lead to an unhealthy environment and problems for all involved. Stumpf has been labelled equally responsible, especially by US Senator Elizabeth Warren, who described his leadership as “gutless”. She went on to tell Sloan, who had previously served as Wells Fargo’s Chief Operating Officer and Chief Financial Officer: “At best, you were incompetent. At worst, you were complicit.”
However, has much changed since then? Meggan Halvorson, a Wells Fargo private mortgage employee of six years, explained to the Guardian: “It doesn’t feel like they’ve changed much of anything, to be honest. Things put in place don’t seem to be doing much of anything and we still hear complaints from customers.”
“There’s no real respect for people’s work-life balance,” Halvorson continued. “The overwhelming thing you hear from management is: ‘Just be thankful you have a job.’”
Redemption for the bank is possible, however the weight of its fraud and tarnished reliability will go unforgotten. Even then, if these practices remain at the firm, its future will likely continue to be downhill from here.
Nothing will change until Wells Fargo does.