Case Study: Wells Fargo - Principles of Management

1. What were the sources and causes of the problems in the first place?

The sources of Wells Fargo's issues included a toxic culture that emphasized aggressive sales goals, with employees feeling pressured to meet these targets regardless of ethical considerations. The "Motivator" report and other internal sales goals set unattainable targets, which encouraged fraudulent activity to avoid termination or other repercussions. This led to the opening of millions of unauthorized accounts and unethical treatment of customer data, eroding trust and leading to a scandal that exposed the deeply flawed sales culture.

2. Who were some of the primary decision-makers that led to the illegal sales activities?

High-level executives, including CEO John Stumpf and other senior managers, were primary decision-makers responsible for establishing these intense sales targets. Carrie Tolstedt, former head of the Community Banking division, also played a central role in driving the bank's sales practices and enforcing policies that prioritized sales growth over ethical behavior.

3. What were these individuals’ motives and motivations?

These executives were motivated by the desire to drive high profits and meet shareholder expectations. Wells Fargo's leadership sought to project an image of strong financial health and high growth, motivating them to create and enforce strict, often unreasonable, sales goals. This drive for profitability, coupled with competitive incentives, motivated management to push employees beyond ethical limits.

4. How were the illegal and fraudulent activities discovered?

The scandal was uncovered due to investigations by the Los Angeles Times and a subsequent lawsuit filed by the City of Los Angeles, which revealed Wells Fargo’s practices of account manipulation. Reports of customer complaints, internal whistleblowers, and investigations by regulatory bodies also contributed to exposing the fraudulent practices, ultimately leading to broader scrutiny and a substantial legal response.

5. Who was to blame?

Responsibility rests on both the executive leadership and sales management. The CEO, board members, and senior managers promoted a culture where unethical practices were tolerated or overlooked to meet financial targets. Additionally, employees who actively participated in fraudulent practices bear individual responsibility, although many felt pressured by unrealistic expectations from their superiors.

6. What unethical activities occurred before the illegal actions took place?

Unethical activities included prioritizing sales targets over customer welfare, encouraging aggressive upselling tactics, and creating a high-pressure environment that pushed employees toward unethical behaviors. Additionally, the internal systems that rewarded high sales rates indirectly promoted unethical conduct. Executives ignored early reports of misconduct, failing to take action and prevent the escalation into full-scale fraud.

7. What would you have done if you had been one of the sales professionals pressured to engage in unethical, illegal practices?

In such a scenario, the best course of action would have been to report these practices through available whistleblower channels or regulatory bodies. Documenting incidents and raising concerns to higher management or external regulators, despite the risks, would be important steps to address and prevent further unethical conduct.

8. How would a stakeholder approach, if taken by the company’s top leaders and board of directors, have possibly prevented the crisis?

A stakeholder approach would have emphasized customer welfare, employee well-being, and long-term trust, rather than aggressive sales goals and profit margins. If the board and leaders had considered the interests of customers, employees, and regulatory bodies, they might have set more realistic sales targets and prioritized ethical practices. This approach could have mitigated the pressure on employees and established a culture that discouraged fraud, ultimately preventing the crisis.

Sources: Comrie, Harley, “Wells Fargo Fake Accounts Scandal”, Seven Pillars Institute, March 15, 2017, http://sevenpillarsinstitute.org/case-studies/wells-fargo-fake-accounts-scandal ; “Wells Fargo Banking Scandal a Financial crisis We Can Finally Understand”, The Guardian, accessed January 2, 2019, https://www.theguardian.com/business/us-money-blog/2016/oct/07/wells-fargo-banking-scandal-financialcrisis; Glazer, Emily, “Wells Fargo’s Textbook Case of Botched Crisis Management”, The Wall Street Journal, October 13, 2017, https://www.wsj.com/articles/wells-fargos-textbook-case-of-how-not-to-handle-acrisis-1476380576.