The Wells Fargo Scandal in Southern California


In 2013, a cross-sale scandal erupted from a Wells Fargo bank in Southern California. According to Corkery (2016), Wells Fargo employees opened bank accounts and issued debit and credit cards to customers without their permission. The report says that the scandal emerged after the customers started receiving the cards in their mails and others noticed accumulating bank fees charged for the unauthorized activities. The employees were operating under pressure to meet daily goals set by the bank. The employees would also have to meet the target of opening many bank accounts to receive rewards.

Upon investigation, it was confirmed that Wells Fargo employees had opened 1.5 million new bank accounts and applied for at least 565 000 credit cards (Corkery, 2016). The bank, with 40 million retail customers, fired 5300 employees involved in the unauthorized operations (Corkery, 2016). As the report showed, the cross-selling function started in 2011 and many customers did not even notice. The bank refunded $2.6 million, which had been inappropriately charged to the customers.

Wells Fargo CEO John Stumpf initially blamed the problem on the employees; he was later pressured until he resigned without giving reasons. The bank was sued by the county government for malpractice and fined $185 million on a fraudulent basis. Of all the customers’ details used, only 115 000 of them incurred charges and were refunded (Corkery, 2016). Later, the fired employees revealed that they would create the accounts and close them after receiving the incentives. The Southern California branch employees would receive up to 15 to 20 percent incentives to their banks for meeting their daily targets (Corkery, 2016). The tellers would receive up to 3 percent of their salaries hence the push for malpractice.

Ethical Decision Making


Ethical decision-making involves choosing alternatives to action by eliminating the unethical options following the ethical principles. The Wells Fargo case contains several corrupt practices, and multiple ethical perspectives could analyze it. Utilitarianism is a moral theory that promotes actions that foster happiness instead of those causing unhappiness (Herring, 2017). When directed to economic, political, or social decisions, the theory aims to better the community. The approach is based on the consequences of an action but determines the effects of the results (Herring, 2017). Therefore, utilitarianism says that an action is right if it brings happiness to many people. Activities that benefit a few people at the cost of others are deemed morally wrong.

Applied to the Wells Fargo case, utilitarianism would find it immoral for employees’ actions because it only brought happiness to a few people and unhappiness to many. The 5300 employees worked to benefit them and the bank owner while hurting 1.5 million people (Corkery, 2016). Utilitarianism does not account for feelings, emotions, or even culture but what is right and wrong. In this case, the cross-selling of bank products was wrong because the customers were not aware.

Teleological Perspective

Teleological ethical perspectives are tied into egoism, utilitarianism, and eudaimonism. The teleological view is concerned with the consequences of actions, meaning that steps are to be judged based on the good or evil they generate at the end (Herring, 2017). Egoism states that a good action gives results that maximize personal interest, at the expense of others or not. It was ethically correct for the employees to be fraudulent in the Wells Fargo case so long as they get the offered incentives (Herring, 2017). Eudalmonism then posts that an action is good if its results fulfill the set goal and fulfill the welfare of other humans. The cross-sale case was unethical because it met the goals without caring for the humans’ or customers’ welfare.

Deontological Perspective

The deontological ethical theory posits that actions are termed good or bad based on a clear set of rules. Thus, if the activities observe the set rules, they are excellent and wrong if broken (Herring, 2017). When applied to the Wells Fargo case, the actions were wrong because they broke the set rules. The bank has set privacy rules for the customers, including not selling them products without their consent. According to Tayan (2019), Wells Fargo employees’ handbooks stated that breaking down customers’ deposits to create more accounts as an intended way of increasing incentives is considered a violation of sales integrity. Therefore, it was unethical for the bank employees to open bank accounts and allocate credit and debit cards without their knowledge.

Employees Moral Dilemma

The employees were under pressure to meet their daily targets, and when the targets were not met, the remaining were pushed to the next day. Despite being a reward, it is clear that the bank managers expected the employees to meet the targets. Furthermore, in such commission payment bases, the minor productive employees are more likely to lose their jobs by getting fired (Corkery, 2016). Consequently, the employees had to open new accounts to keep their jobs. They were torn between losing their jobs and doing the right thing. Morally, the employees were supposed only to open accounts requested by the customers. Relying on only authorized accounts would mean not meeting daily targets and risking the loss of a job. Henceforth, afraid of losing their only means of living, the employees engaged in immoral acts.

Attribution of the Scandal to the Reward System/ Organizational Culture

The cross-selling scandal was primarily attributed to the need for incentives as the organizational culture. Even though the bank officials claimed not have knowledge of any domineering sales culture, the report revealed that the firm had a record of setting sales targets that contrained employees. According to Tayan (2019), branch managers were assigned quotas demanding the types of products to be sold over time. Therefore, if the managers failed to meet the targets, the shortfalls were moved to the next day, increasing that day’s goal. Consequently, the branch employees were allocated the targets and incentives to be offered after meeting the goals. Despite the bank putting risk protective measures to uphold the firm’s vision and value in its culture, it set the most challenging incentive system that led to the corruption of the entire culture.

Ethical Justification of Employees’ Actions

Wells Fargo fired 5300 employees who had been in the scandalous practice since 2011. The employees were working under an intolerable culture that required them to over-perform. In 2017, further investigation revealed that the bank was aware that the set goals were unrealistic (Tayan, 2019). In most instances, community bank leaders know that their plans or targets are unattainable. Such plans are known as 50-50 models, meaning that some bank regions would not meet the targets. Wells Fargo Southern California was one of the banks that could not attain the target. The bank was targeting a higher number of customers that exceeded the population in the region (Tayan, 2019). The branch managers kept pushing the employees despite knowing the goals were unrealistic. Consequently, in fear of penalties, the employees had to meet the targets by whichever means possible. Ethically, the employees did the right thing as they were under pressure and feared losing their jobs.

Scandal Responsibility

The branch managers and the front-line employees are responsible for the scandal; however, the managers are the most answerable. The investigation report shows that the branch managers failed to identify an apparent link between the set goals and the fraudulent behavior despite being on record. The goals allocated to the branch were unreachable; the managers understood that yet continued to pressure the employees. As the pursuit continued to become hard to achieve, the level of violation increased (Tayan, 2019). The mischief was mainly associated with the sales pressure behavior than compensation rewards. Therefore, it was impossible for the managers’ failure to notice a trend in the target data.

The managers are expected to control the bank operations by managing what gets out of control. It is explicit that the Wells Fargo managers were ignorant, also acting under pressure, or motivated by the incentives. The branch managers had the right to inform the headquarters that their branch could not attain the target. Henceforth, the shortfalls from the everyday targets would not need to be moved to the next day. The managers are to be blamed because they also had a reward motive. Motivated to be rewarded as the most productive managers, they pushed the employees to the corner, leading them to engage in misconduct. The managers also failed in their role of risk management because, with the pressure formulated to the employees, they would have expected such behaviors. Consequently, they would have been ready to vet the employee data for any possible misconduct.

Bank Response to the Scandal

Wells Fargo, after the scandal, conducted a series of steps to resolve the issue and prevent it from future happening. The bank changed the CEO, revised the reward structure, hosted ethics workshops, and separated chairman and CEO roles. However, the company did not do enough to prevent such happenings in the future. There is a need to revise specific segments of organizational structure as the current one proved ineffective. Tayan (2019) analyzed a personal investigation report that showed gaps in the corporate control function system. The organization mandated the group leaders to assess and address risks within their units and later report to the organization’s head. For example, the bank group risks officers said directly to the bank’s head and gave little details to the central chief risk officer. The sample is one of the poorest organizational structures in the bank system.

The bank branch should first redirect the group risk control officers to not report to the bank’s head but to the central chief risk officer, who should then report to the bank’s leader. Such amendment would ensure that the risk management process is effective and timely. Furthermore, the central risk officer should be added the mandate to control the sales and compensation practices as they are significant sources of risk in misconduct (Ferrell et al., 2021). Another much-needed change is with the operations of the human resource department. The HR department had all the information-rich in malpractice yet did not develop assessment measures. The department needs to develop means to consolidate sales information and report any abnormalities to the responsible persons. The consolidation would ensure that employees who attempted to cheat in performance would be more careful.

The bank needs to revise the practices of internal audits to accommodate possible risks. According to Tayan (2019), the available audit system had the necessary processes to detect, investigate and resolve a violation of sales practice. However, the bank never attempted to determine any root cause for unethical misconduct in the sales practices. The audit system needs to be formulated to assess the sales practices to determine the possible root cause of malpractice. Such actions would have prevented the scandal and would prevent related future events. The community bank management would need to revise the managers’ duties because they need to be more effective. The stem of the whole cross-sale scandal is the management system.

Managers should be the business’s ears and eyes, meaning that they should have good employee relations. Management with positive relations with employees would easily fetch information from them (Ferrell et al., 2021). It is a lack of such concerns that employees would plan violation practices for years without being caught. The bank managers needed replacement and new training on senior-junior relations for the business. Study shows that organizations with harsh management will make employees lose confidence in the firm’s vision (Ferrell et al., 2021). Therefore, the administration needs to develop and maintain good relations with the employees. That way, there would always be employees reporting misbehaviors amongst other employees.


Corkery, M. (2016). Wells Fargo fined $185 million for fraudulently opening accounts. New York Times. Web.

Ferrell, O. C., Fraedrich, J. & Ferrell. A.H. (2021). Business ethics: Ethical decision making and cases. Cengage Learning.

Herring, J. (2017). 1. Ethical theories. Legal Ethics, 1-5. Oxford University Press

Tayan, B. (2019). The wells Fargo cross-selling scandal. Harvard Law School Forum on Corporate Governance. Web.

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