CASE 3
Wells Fargo: The Stagecoach Went Out of
Control
CASE NOTES FOR INSTRUCTORS:
This case is a good example of how unethical conduct can have strong repercussions for a firm. Until
recently Wells Fargo was the world’s largest bank. However, it has been surpassed by J.P. Morgan. One
likely contributor was the wide-scale cross-selling scandal committed by Wells Fargo, resulting in a
massive $185 billion fine against the firm. Trust in the company plummeted, with a major drop in new
customer checking accounts and credit card applications. The extent of the misconduct was worsened by
top management’s knowledge and complacency.
The Consumer Financial Protection Bureau found that Wells Fargo employees had faked 2 million
customer accounts to meet short-term sales goals. A major problem was Wells Fargo’s corporate culture.
The 150-year-old firm had a controversial sales program in which employees must meet aggressive sales
goals or risk being fired. The program highly encouraged cross-selling, or selling additional products to
consumers. Because of the firm’s unrealistic sales goals and a lack of controls to ensure employees were
really engaging in selling, the chances for fraud were high. Many employees adopted the teleological
perspective that the ends (keeping their jobs and receiving greater incentives) justified the means
(obtaining these sales goals even if it meant falsifying customer accounts).
Investigations into Wells Fargo revealed that managers had known about the misconduct for some time.
An email was discovered from 2007 describing how employees were opening up fake accounts and
forging customer signatures (the CEO maintains he never received these emails). Several employees have
also come forward to claim that they were fired after speaking up about the misconduct. If true, this
would directly violate whistleblower protection laws.
The Wells Fargo sales department operated in their own thought world or subculture. They were detached
from the organizational culture of required compliance found in banks. While they were exposed to
corporate ethics training, they were given big incentives to open new accounts. They developed their own
set of standards and values that socialized new salespeople into opening fake accounts. Required ethical
expectations were not effectively communicated from top management because the focus was on
financial performance. Many of these top managers were fired because of a failure in ethical leadership.
The lesson learned is that a specialized functional area like sales may need its own code of ethics and
specific ethics training.
Students might engage in a debate on who has the most responsibility in this scandal. While the
employees might have engaged directly in the misconduct, top managers were the decision makers.
Investigations suggest that top managers knew about the misconduct and did nothing to stop it. At the
very least, the sales goals and incentive systems they set created a toxic corporate culture where
employees felt pressured to engage in fraudulent conduct. Students should especially note how this
culture directly contradicts Wells Fargo’s expressed corporate values.
QUESTIONS AND DISCUSSION
1. How did Wells Fargo’s focus on short-term gains violate the duties they owed to consumers, regulators,
and employees?
Wells Fargo has a duty to consumers to treat them fairly and ensure their accounts are protected and
secured. It has a legal duty to regulators to obey applicable laws and avoid fraudulent activities. It also has
Instead, Wells Fargo’s aggressive sales goals violated all of these duties. These goals embraced short-term
profits over ethics and social responsibility. They also cost Wells Fargo in the long-run with the massive
$185 million fine, the firing of thousands of employees, and the loss of trust in the firm. Wells Fargo
created a toxic corporate culture in which employees were penalized if they did not meet aggressive and
Wells Fargo betrayed its responsibilities to its customers. Employees opened fake customer accounts and
even forged their customers’ signatures to appear as if they were meeting Wells Fargo’s aggressive sales
goals. This harmed customers who did not want these additional products and did not purchase them. It
Finally, Wells Fargo neglected its responsibilities to regulators. The falsified customer accounts and
A more recent scandal occurred when The New York Times reported that more than 800,000 bank auto
loan customers were charged for car insurance they did not require. Although this was discovered in 2016,
2. Describe how the Wells Fargo scandal demonstrates that organizational leaders must not only
establish goals but ensure that those goals are being acted upon appropriately.
One of the most outrageous parts of the scandal is management’s apparent complicity with the
misconduct. Investigations show that many managers not only knew about the misconduct but appeared
to encourage it. Even without this complicity, however, Wells Fargo leaders are still at fault for not having
appropriate controls in place to ensure employees were acting appropriately. Wells Fargo set unrealistic
sales goals that pressured employees to cheat if they wanted to keep their jobs. It then failed to monitor
3. Why are ethical values useless unless they are continually reinforced within the company?
Ethical values are useless because unless they are reinforced within the firm, they are little more than
words on a piece of paper. In the case of Wells Fargo, the company had strong ethical values but did
nothing to encourage their practice. In fact, managers rendered these values virtually meaningless by their
ADDITIONAL RESOURCES
Wells Fargo Code of Conduct:
https://www08.wellsfargomedia.com/assets/pdf/about/corporate/code-of-ethics.pdf
How the scandal may impact cross-selling at other banks:
https://www.wsj.com/articles/what-the-wells-fargo-cross-selling-mess-means-for-banks-1
473965166
Employees describe Wells Fargo’s toxic corporate culture:
http://www.npr.org/2016/10/04/496508361/former-wells-fargo-employees-describe-toxic-
sales-culture-even-at-hq
Wells Fargo charges auto customers for insurance they did not need:
https://www.cnbc.com/2017/07/31/wall-street-is-livid-over-wells-fargos-latest-scandal-he
re-we-go-again.html