FOR A FREE, PRINTABLE VERSION, CLICK HERE.
Wells Fargo's Corrupt Culture and Its Consequences
Wells Fargo was involved in many questionable business activities over the course of nearly a decade. The most widely scrutinized and discussed was the sales scandal which involved company salespeople opening accounts for customers without their knowledge or permission. Former Chief Executive Officer (CEO) John Stumpf and other top executives recently settled a federal case brought by the Office of the Comptroller of Currency, and Stumpf's severance package far outweighed the fine.
When John Stumpf walked away as CEO of Wells Fargo in the fall of 2016, he left with an exorbitant severance package of $134 million (of which $70 million has been paid back to Wells Fargo). He also recently learned the outcome of the OCC investigation was a comparatively small $17.5 million fine and ban from the banking industry with no admission of guilt. The ban from banking is irrelevant as he was unlikely to have had any leadership opportunities in banking going forward regardless of the lifetime ban.
Without ethical leadership from Stumpf, Wells Fargo lacked support for an ethical culture at the top. Wells Fargo had a history of strong core values and commitments, but without support from the CEO or board of directors, the company proceeded to develop a culture focused on performance, personal compensation, and bottom-line results. Stumpf did not think that the core values applied to core business decisions. Stumpf stifled core values in the support of what was perceived to be more important bottom-line business decisions. Stumpf was frequently informed by leaders about some of the misconduct, but was told it was isolated and not systemic.
Also responsible, were the board of directors who had fiduciary responsibilities and a legal obligation to uphold good governance standards. Internal controls and accountability mechanisms should have been established and monitored to assess the CEO, top executives, and organizational performance. Wells Fargo board members were ultimately responsible for the company's organizational effectiveness, compliance, and performance. The bank’s business model incentivized systemic and widespread unethical sales practices that spanned nearly a decade. At a minimum, the CEO and board of directors should have had a clear understanding of the business model that is being used to drive revenue. Stumpf was not just complacent, but an active participant in the bank’s fake accounts scandal. The current CEO, Charlie Scharf, stated in response “At the time of the sales practices issues, the company did not have in place the appropriate people, structure, processes, controls, or culture to prevent the inappropriate misconduct.”
© Daniels Fund 2020. All rights reserved.