Business Case Overview Research
The performances of business entities depend on the administrative policies initiated by organizational cultures. Banking facilities are one major institution that utilizes collaborations in the management of financial services. The Wells Fargo financial institution became the third-largest bank by asset ownership in 2008 after the acquisition of Wachovia Corporation (Wang & Guarino, 2021). The American group created the North’s most extensive distribution system after its merger with Wachovia. Wells Fargo provides banking, commercial finance, insurance, mortgage, investment, and consumer finance services across its branches.
Although the bank enjoyed massive following and financial operations in the early 2000s, the organization engaged in an enormous account fraud scandal in 2016 that tainted its name and legacy (Hurley & Hurley, 2020). The respected organization became a fraudulent firm whose employees created millions of fake checking and saving accounts without customers’ consent (Bryant & Sigurjonsson, 2019). The incident drew the American bank to attaining customer refunds, huge fines, quarterly losses, and massive fines from monetary regulatory bodies in the U.S. The Consumer Financial Protection Bureau (CFPB) engaged in the more significant part of investigations on the allegations of financial irregularities of Wells Fargo between 2011 and 2015 (Antonacopoulou et al., 2019). The negative image in the scandal hauled Wells Fargo into developing negative reviews on its existence and operations across the country’s borders.
CFPB interviewed some staff engaged in opening over 1.5 million fake accounts at Wells Fargo to monitor the event’s causes. According to Lynch & Cutro’s (2017) findings, many employees confessed that the set sales goals within the organization were abnormal and impossible to meet. As a result, the sales management team encouraged the gaming system to apply for over 500,000 fraudulent credit cards, a movement aimed at deceiving the public about the company’s growth (Lynch & Cutro, 2017). One of the respondents and former employees at Well Fargo stated that the institution pressured workers to offer each customer at least a single product. According to Howard (2017), the cross-selling system promoted the opening of the saving and checking accounts at Well Fargo to realize the quarterly goals of the corporation. Failure to link customers to a particular product resulted in threats of sacking; thus, employees adopted the economic irregularity at Wells Fargo to secure their jobs irrespective of ethical concerns.
Besides, employees at Wells Fargo used false information to convince customers to open credit cards to achieve their financial goals. The unethical actions of issuing loans to clients against their will boosted the sales department into deceiving millions of customers. A former employee, upon interview, regrated working for the organization between 2011 and 2015 following the negative workspaces that promoted the deception of customers into unwanted monetary choices. “Working at the firm was the lowest point of my life because I was forced to encourage an elderly woman into signing for a credit card,” said the employees (Jones, 2020, p. 37). When the woman asked about the need for the credit card, the worker at Wells Fargo was forced to lie about the card’s significance as an updated approach (Hurley & Hurley, 2020). The illegality of the falsehood opening of accounts started with the reward of top officials linked to the fraudulent events. The leaders’ knowledge of the scandalous actions within Wells Fargo complicated the investigations behind the allegations until 2016. American economic and regulatory bodies successfully identified organizational gaps in the corporation following the numerous ethics workshops held by top leaders.
The Ethical Choice and Decision Research
Decisions that Resulted in the Scandal
The analysis of the entry of Wells Fargo into the scandal raises several questions about the decisions that might have led the organization into the misstep. Sisco (2019) shortlisted ethical choices as the dominating factor that guided regulatory bodies into isolating the driving forces behind Wells Fargo’s entrance into fraud. The reputation enjoyed by the firm might have contributed to the falsehood practices linked organization; Wells Fargo was experiencing massive followers and financial profits, unlike other banks, between 2008 and 2010 (Austin-Campbell, 2021). However, Sisco (2017) suggested that the onset of the 2009 financial crisis in the U.S. prompted the institution to input new strategies in the running of its sales. Similar organizations operating in the same market niche as Wells Fargo faced fiscal challenges during the crisis, prompting them to lose and, sometimes, close.
A firm like Wachovia was disoriented by the high economic demands raised during the 2009 financial crisis. As a result, the company owners were lured into selling the property to Well Fargo, who were stable during the fiscal calamity across the U.S. The corporation purchased Wachovia during the most challenging banking business period; therefore, maintaining the excellent run forced the company to incorporate new strategies in its operations. The buying of Wachovia increased the organization’s unplanned spending; Jones (2020) suggested that the financial loops created during the purchase of the failing Wachovia contributed to the sinking of Wells Fargo into fraud. Maintaining a good reputation in the competitive business environment became problematic for Wells Fargo after buying Wachovia. According to Bryant and Sigurjonsson (2019), the Wells Fargo Corporation avoided the worst errors experienced in other banks during challenging economic periods leading to good customer relations.
Wells Fargo took advantage of its portfolio to betray its clients at the expense of their experiences. The trust created between the firm and its customers lured the followers and trustees of the bank into believing the financial plans and objectives laid by management without questions (Antonacopoulou et al., 2019). A bank with a well-established foundation and excellent reputation is probably entrusted to the people; minding data privacy would probably be a none issue. However, the sales department at Wells Fargo deceived Americans based on customer relations with the institution; the vandalized customer data privacy destroyed the trust between account owners and the bank. Wells Fargo succeeded in doing ethical business with its clients due to excessive pressure and expectations from the sales department; the over-ambitious demands and dreams put the company at risk of trading with customers’ information (Austin-Campbell, 2021). Misguiding clients by Wells Fargo successfully put the firm in a better position to vandalize its accounts. Trading using someone’s private information is misleading and illegal; therefore, Wells Fargo’s dishonesty in handling customer data originated from its ambitions of maintaining a positive business image.
The excessive emphasis on cross-selling was the primary consideration behind the firm’s decision to encounter scandalous charges in 2016. Cross-selling involves signing specific customers for additional products upon their choices; simultaneously, Wang and Guarino (2021) point out that cross-selling is the purchase of a company’s product or service upon registration as a member. Wells Fargo’s sales leadership projected the benefits of cross-selling as a significant boost to the expansion of the company’s customer base and financial stability. In Hurley and Hurley’s (2020) opinion, cross-selling improves the relationships between customers and corporations; consequently, implementing the program within Wells Fargo would have helped the bank to make customers understand. Secondly, the business strategy builds loyalty between firms and clients; Wells Fargo implemented the additional offering of a product to improve the buying behaviors of the target market. Thirdly, cross-selling at Wells Fargo increases earnings for customers; introducing the concept to American banks convinces financial beneficiaries to accept the business policy (Lynch & Cutro, 2017). Finally, the attribute of cross-selling to moving clients through different buying journeys prompted Wells Fargo to falsely implement the opening of checking and saving accounts for 1.5 million account owners.
Even though cross-selling results in positive business relations, the business approach did not aid well in the case of Wells Fargo. The managers at the firm implemented the trick into action to gain illegal funds and crazy profits at the expense of account owners. The decision to assume and approve the information of customer information without their consent marks the ethical concerns of cross-selling in the company. The Wells Fargo scandal started with assigning quotas to managers regarding the number of products sold, which escalated to the setting of daily goals for sales officers. Top leaders within a multinational organization interact indirectly with clients through employees; Wells Fargo was no exception. Workers were driven into opening millions of fake accounts and non-existing system updates, defrauding private data. Bank branches that did not attain the day’s objectives were forced to complete such deals in addition to other goals the following day.
Sponsoring daily goals through financial incentives forced employees into buying the idea irrespective of the consequences. The economic gains set to employees in marketing customer service products and cross-selling business framework included a significant subsidiary driving Wells Fargo into the 2016 scandal. Moreover, the decisions of workers to buy the fraudulent approach of business at Wells Fargo succeeded with the threats initiated by management to non-cooperative members (Bryant & Sigurjonsson, 2019). Nobody wanted to risk their jobs, especially after the 2009 financial crisis; the employees at Wells Fargo were convinced to deal with following the complex rules set for disobedient parties.
Ethical Issues in the Fraudulent Event
Ethics is an essential factor in every working space because it regulates individual actions within a firm. The discussion of the Wells Fargo Company scandal outlays the essence of ethical conduct and codes within businesses. Austin-Campbell (2021) connects ethics to outlining regulations of acceptable behaviors beyond government control. Reviewing the case study at Wells Fargo leads readers to isolate the importance of ethics in leadership and the negative impacts of its absence in such environments. Instead of promoting integrity among employees, the management at Wells Fargo broke the trust of its key stakeholder and the heart of the business. First, the organization jeopardized the private information of account owners by using their details forcefully and without consultation to promote cross-selling. The attitude of a company to unethical access and utilize customer tags showcase incompetence; legal actions taken against Wells Fargo lied on the unethical implication of activities without the conscience of customers.
Secondly, the decision-making approaches by leaders at Wells Fargo influenced the organization’s performance in 2016. Workplace pressure damages employees’ psychological health; however, Wells Fargo did not consider the decision-making process regarding supervising and handling junior workers; imposing fines and threatening employees to lose their jobs was unethical (Lynch & Cutro, 2017). The poor bonding between workers and leaders in Wells Fargo propagated the collaboration of the staff in engaging in fraudulent acts. The blame should not be purely placed on leaders; the employees, too, had a choice to speak about the illicit incidences happening at the company without depending on regulatory bodies. Employees’ greed to maintain their salaries and wages was an ethical shortcoming that endangered customers’ accounts. The staff were willing to earn their advances without caring about the customers’ needs; without the clients, the workers at Wells Fargo would have no money for salaries. Instead of putting customers’ interests first, the Wells Fargo employees acted to their fears and betrayed their clients.
The lack of honesty in Wells Fargo’s sales leadership department adopted unethical working cultures. If Wells Fargo were honest with their customer, they would have spoken directly to the account owners at their bank about the recent occurrences irrespective of the effects. Decision-making starts from identifying problems; thus, telling the people the difficulties a firm face would have created a better solution on how the cross-selling issue could be implemented to keep the company functional. Nonetheless, Wells Fargo foresaw engaging customers in a downward move that could lead most clients to other banks (Howard, 2017). Ethics provides organizations with rules that guide the relationships between customers and business owners. Honesty is one such factor that keeps the bonding of customers and companies tight, and incorporating it in the matter at Wells Fargo would have prevented the firm from losing its trust and integrity to the public.
The Consequences of the Wells Fargo Scandal
Qualitative
Customers
The choice of Wells Fargo bank to fund a fraudulent activity to its customers resulted in various implications. First, the firm suffered customer loyalty resistance and withdrew financial services. Wells Fargo has had a low customer base following in recent years, a legacy it enjoyed in the early 2000s (Sisco, 2017). The majority of the fiscal service consumers withdrew membership from the bank after the eruption of the unforeseen incident of unwanted account openings and issuing of loans to non-applicants. Customers quit the bank due to security issues and opened other accounts in banks that valued their data privacy. Other clients forced with loans left inactive reserves in the organization with zero compensations after realizing the fraudulent activity by U.S finance regulating bodies.
Organization
In addition, Wells Fargo’s organization experienced employee turnover oriented to pressure and unsatisfying working environments. The institution’s unrealistic workplace conditions and demands resulted in workers’ resignations. The managers at Wells Fargo force employees to open saving and checking accounts for people unknowingly, a factor that liked the firm to the scandalous events in 2016. Furthermore, the workplace culture at Wells Fargo has remained unchanged even after the completion of the investigation on fraud; the organization has unrealistic culture promoting overstretching of workers to recover the losses. The firm also experienced continuous contemporaneous allegations of signing unnecessary insurance policies. The sales practices employed in the documentation of the automatic insurance policies isolate the unethical considerations of Wells Fargo’s operations and association with its clients.
Government and Competitors
The unprecedented operational environment of Wells Fargo originated from the organization’s consequences of illegally transferring customers’ information to their database for financial gain. The government took the case reported against Wells Fargo seriously and charged it with multiple fees and operational regulations. For example, Erbas (2019) echoed that the U.S. government charged Wells Fargo with a fine of $1 billion fine on the unwitting insurance policy cover charges initiated to customers. Secondly, other business entities are not willing to do business with Wells Fargo after being associated with the scandalous act in 2016. Charlie Scharf, the fourth Chief Executive Officer since the fall of the banking corporation, complained about the unending legal charges of Wells Fargo as a derailing factor to the stable business environment (Brener, 2020). According to her statement, the organization cannot enjoy its past business enthusiasm based on the widespread customer abuse accusation linked to the Wells Fargo scandal.
Quantitative
A report issued by the CNN business report highlighted that Wells Fargo is being haunted by its history. Four years later, the company recorded a $ 321 million quarterly loss on customer refunds, meaning more financial losses are yet to be gained based on the fines imposed on the firm (Wang & Guarino, 2021). The illegal trades conducted by Wells Fargo attracted customer remediation of $ 2.2 billion in compensations that could have otherwise been limited through ethical codes (Hurley & Hurley, 2020). The CFPB fined the company a total of $ 185 million as compensation for the illegal activity tied to the bank after the completion of investigations. Furthermore, Wells Fargo faced a $2.7 billion fee as a recovery of the criminal and civil suits filed against it in a court of law by the end of 2018 (Jones, 2020). The quantitative analysis of the consequences of the Wells Fargo scandal exposes the dangers of engaging in fiscal abuses; companies sink into massive financial losses and risk closure.
Alternatives to the Scandal
The Wells Fargo scandal was avoidable; the management team would have settled for the long-term purpose of the workplace culture to ensure its success. However, the short-term-oriented strategies incorporated in the practices of cross-selling lead the firm to more losses than gains. The current happening at the institution is tied to the wrong decision-making approaches implemented by the firm’s hierarchy. The organization should build a monitoring team behind the reward of employees to empower the leadership on equitable and equal utilization of resources. However, the unethical business practices incorporated in the scenario resulted from poor planning and empowering productive leadership.
Case Summary
The demands by Wells Fargo Bank in the 2008/2009 fiscal year to mandate the companywide quota acquisition of new accounts facilitated the background of the firm’s 2016 scandal. The large premium account at the company was used as the loophole for commercializing the saving and checking accounts opened for every customer through the cross-selling program. Ruining customers’ credit lines facilitated the inception of investigations by regulatory bodies in the U.S. The decisions by the management to use excessive force in enacting the cross-selling policy resulted in ethical problems, which later translated to employee turnovers at Wells Fargo. Trust, honesty, and integrity included the primary ethical issues linked to the Wells Fargo scandal of 2016. The qualitative consequences of fraud cost the organization more considerable quantitative fines and charges from the government and other regulatory bodies in the finance business. Wells Fargo still pays its customers compensation for the damages created to their privacy, the latest report being the repayment of $321 million.
References
Antonacopoulou, E. P., Bento, R. F., & White, L. (2019). Why didn’t the watchdogs bark? Internal auditing and the Wells Fargo scandal. Academy of Management Proceedings, 2019(1), 12966.
Austin-Campbell, S. (2021). Wells Fargo: An examination of a corporate scandal and the economic impact on the value of the stock. SSRN Electronic Journal, 7(2), 32–51.
Brener, A. (2020). A new approach to compliance and the lessons from Wells Fargo. Strategies for Compliance, 16-38.
Bryant, M., & Sigurjonsson, T. O. (2019). Wells Fargo and Company: Shareholder derivative action – Should the case succeed in federal court for the board of directors? International Journal of Critical Accounting, 11(1), 1.
Erbas, D. G. (2019). Identification of Wells Fargo bank’s organizational culture and ethics issues. Global Journal of Management and Business Research, 9-12. Web.
Howard, R. (2017). Wells Fargo CEO, local and federal officials testify on banking scandal: September 20, 2016. Historic Documents of 2016, 471-483.
Hurley, P. R., & Hurley, R. E. (2020). Lessons from Wells Fargo Banking Scandal. Academy of Business Research Journal, 2, 78-91.
Jones, E. (2020). The political economy of bank regulation in developing countries: Risk and reputation. Oxford University Press.
Lynch, L. J., & Cutro, C. (2017). The Wells Fargo commercial banking scandal. SSRN Electronic Journal, 6(2), 28-54.
Sisco, H. F. (2017). Financial crisis management and Wells Fargo. The Handbook of Financial Communication and Investor Relations, 319-326.
Wang, W., & Guarino, A. S. (2021). A case study in crisis management in the digital transformation era: Wells Fargo & Company. European Journal of Business and Management Research, 6(4), 127–130.