Case Study: Wells Fargo, Crisis and Scandal - Principles of Management

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1. What happened at Wells Fargo with regard to past activities that led to this major scandal?

Wells Fargo’s major scandal involved creating millions of fake customer accounts to meet unrealistic sales goals. Thousands of employees engaged in opening unauthorized accounts, creating a fraudulent image of the bank’s financial success. This practice, ongoing for years, included impersonating customers and charging them for unwanted services. This extensive fraud was revealed to be not only widespread but encouraged by the bank's high-pressure culture.

2. What internal dimensions of the company were part of the problems that occurred?

Internal dimensions such as an aggressive sales-driven culture, unrealistic sales targets, and the internal “Motivator” report significantly contributed to the scandal. The extreme pressure to meet sales goals led employees to prioritize performance over ethics. Additionally, ineffective oversight and a lack of accountability allowed the fraudulent practices to continue unchecked.

3. How might the organizational structure of the company have been part of the problems that occurred?

Wells Fargo’s organizational structure likely lacked adequate checks and balances, with upper management prioritizing sales over ethical practices. The structure may have been too hierarchical, which discouraged employees from voicing concerns for fear of retribution. Additionally, the lack of robust monitoring and whistleblower protections allowed unethical practices to persist.

4. Identify and use relevant concepts from this chapter as well as your own thoughts and analysis to diagnose the scandal at Wells Fargo. How could such a scandal have occurred in the first place? Who and what was at fault?

This scandal highlights the role of corporate culture and leadership in shaping ethical practices. Wells Fargo’s high-pressure sales environment, combined with weak accountability systems, created an environment ripe for unethical behavior. The leadership's focus on short-term profits over sustainable business practices, along with inadequate internal controls, contributed significantly. Management’s failure to instill an ethical culture and to address growing misconduct directly made them accountable.

5. Suggest some solution paths the company might consider to avoid such a scandal from reoccurring

- Implement Strong Ethical Standards: Reevaluate the company’s mission and values to emphasize integrity over aggressive sales tactics. Communicate these standards to all employees.

- Redesign Sales Targets: Set realistic, customer-oriented goals that do not push employees toward unethical practices. Reducing the pressure for unrealistic targets could help prevent similar issues.

- Enhance Whistleblower Protections: Establish secure, anonymous channels for employees to report unethical practices without fear of retaliation.

- Strengthen Oversight and Accountability: Create better internal checks to monitor employee behavior, along with periodic, independent audits to detect early signs of misconduct.

- Revamp Leadership Training and Development: Emphasize ethical leadership practices and decision-making in training programs for managers and executives.


Sources: https://en.wikipedia.org/wiki/Wells_Fargo; Pasick, Adam, “Warren Buffett Explains the Wells Fargo Scandal,” Quartz, May 6, 2017. https://qz.com/977778/warren-buffett-explains-the-wells-fargo-scandal/ https://qz.com/977778/warren-buffett-explains-the-wells-fargo-scandal/; Bloomberg, “The Wells Fargo Fake Accounts Scandal Just Got a Lot Worse,” Fortune, August 21, 2017. http://fortune.com/2017/08/31/wells-fargoincreases-fake-account-estimate/; Horowitz, Julia, “‘huge, huge, huge error’ in Wells Fargo Handling of Ethics Line Calls, CNN, May, 6, 2017. https://money.cnn.com/2017/05/06/investing/buffett-wells-fargo-berkshireannual-meeting/index.html; http://money.cnn.com/2018/02/05/news/companies/wells-fargo-timeline/ index.html; Wattles, Jackie, Grier, Ben, and Egan, Matt, “Wells Fargo’s 17 Month Nightmare,” CNN Business, February 5, 2018. https://money.cnn.com/2018/02/05/news/companies/wells-fargo-timeline/index.html. Chapter 4 External and Internal Organizational Environments and Corporate Culture 117 Hudson, Caroline, “Wells Fargo Stocks Still Struggling in Wake of Scandal,” Charlotte Business Journal, April 2, 2018. https://www.bizjournals.com/charlotte/news/2018/04/02/wells-fargo-stocks-still-struggling-in-wakeof.html

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