In 2015, Wells Fargo was ranked the 3 rd best performing bank internationally and 7 th largest public company worldwide ( Elson & Ingram, 2018). The American financial organization was beating the odds in a terrible fiscal setting. According to Tayan (2019) in the year 2008, Wells Fargo acquired Wachovia to become the largess financial intuition by assets in the United States. Years later, the company’s revenue and stock grew and soared substantially; this raised the company’s net value of nearly $300 million. However, behind this enormous financial success, there was a somewhat customized culture which consequently drove the workers to perform dishonest practices by opening fraudulent bank accounts with a focus on reaching the company's set goals; which were often lofty. Between the year 2011 and 2015, Wells Fargo’s employee opened more than 1.4 million bank accounts and consequently applied for up to 560,000 credit cards without the consent of the customers; making it one of the biggest business scandals in 2016 ( Elson & Ingram, 2018). While Wells Fargo reacted unethically toward account opening scandals, there are strategies it can put in practice in order to prevent such incidents.
In reference to the account opening scandal by Wells Fargo employees, the organization’s actions and structure reflect some sense of ethical and social irresponsibility. To begin with, Wells Forgo took no effort to step forward and admit the fact that its employees were faulty despite the multiple information provided by the local management. In 2016, Consumer Financial Protection Bureau, Office of the Comptroller of the Currency and Loss Angels city attorney carried an investigation on the company and consequently filed a lawsuit against it ( Elson & Ingram, 2018). The investigation delivered unquestionable facts which proved that the financial institution had comprehensive knowledge of the immoral practice long before John Stumpf; CEO admitted. What’s more, the representatives of Well Fargo testified that they knew about the unethical practice back in 2010 ( Elson & Ingram, 2018). The two incidents reflect how unethical the company acted.
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Moreover, the company terminated 1% of the workforce to reduce questioning, and this displays social irresponsibility. The center of this issue is that only ten percent of the employees fired were in the management office while the remaining were subordinate workers; tellers (Tayan, 2019). Typically, 10 percent from the management offices comprised of individuals who tried to alert the public or human sources about the unethical practices they observed in the institution. The case was fully filed through unethical termination lawsuit in 2008.
Wells Fargo’s action of forcing customers to arbitrate was unethical. The appropriate response of the scandal was to accept faultily and board on a far-reaching marketing campaign. Nevertheless, the company tried to lessen cost and evade responsibility; it stopped people and class action complaint against it by blatantly enforcing an arbitration clause (Tayan, 2019). When opening new bank accounts, the customers ‘consented' to forced arbitration. However, victims of the deceitful bank's accounts stated that they could never have given their consent to forced arbitration because they did not give consent to the opening of the actual accounts. What’s worse, the judiciary ruled in favor of the institution and forces arbitration. Generally, forced arbitration by the company is unethical and socially wrong.
There is a lot Wells Fargo could have done differently regarding the incident to avoid lengthy unethical practices. First, under responsibility theory, public relations practitioners are inundated to protect the consent, voice, and opinions of clients and shareholder (Shapir, & Stefkovich, 2016). It was apparent that the institution failed to prioritize clientele protection and pursued forced arbitration instead; which led to loss of trust from customers and the general public. The company should have ensured that customers are prioritized and should focus on protecting them and not subject them to forced arbitration.
Secondly, Wells Fargo should have protected the truthful employees and not terminate them. According to the codes of Public Relation Society of Americas, member of an organization should strive to avoid any form of dishonest practices (Bjelica et al., 2016). Concerning the company's acts, this code was blatantly violated by the acknowledgement of the dishonesty minus any action to counter it and consequently firing of faithful and ethical workers. To prevent such extensive fraudulent practices and unethical reactions, practitioners needed to familiarized workers with strict codes of termination in an event where they are caught submitting dishonest materials. Besides, the primary concern of the practitioners should have centered in seeking the appropriate treatment of staffs who tried to break from the deceitful cycle.
Furthermore, the organization should have accepted that it faulty early enough. According to Shapir & Stefkovic (2016), it is essential to incorporate the professional core values whenever we practice public relation. The values include expertise, independence, honesty, fairness, and loyalty; these principles set proper practice standards through behaviors guiding. From the scandal, it is apparent that the company failed at advocacy through irresponsible actions of hiding the truth. The right response to take regarding this issue was to accept the seemingly open fact that the employees were opening fraudulent accounts.
Several factors and individuals are associated with the genesis of the incident. To begin with, the ‘Eight is great’ saying is responsible for the event. ‘Eight is great’ was a mantra which formed a foundation for an aggressive goals structure created by John Stumpf ( Bjelica et al., 2016) . This goal-oriented scheme set 8 as the number of accounts per customer in a day, and the workers had to attain the goal to prevent termination and earn bonuses. Typically, the target was unrealistic and unattainable because the number of customers who open accounts in a day is far less than the required. While the staff who failed to attain this goal were subjected to termination, threats, and abuse, most of them saw it ‘wise’ to create fraudulent accounts to maintain their occupation or to earn bonuses. Therefore, the unattainable goal was the driving factor of the scandal.
Also, the use of U5 forms by the company formed a productive breeding ground for the scandal. Apart from subjecting employees who failed to archive the "Eight is great" goal to termination, threats, and abuse, the company also used U5 forms maintained high sales. U5 forms serve as a bank record about a former employee (Tayan, 2019). The information in the U5 forms is typically shared among different banks. This means that in an event where an employee is fired on the ground of inefficiency, he/she would have a difficult time to secure another banking job. Wells Fargo used U5 form to keep their employee active and productive. Due to the fear of losing the job and worse; no getting related job in the future, they sought to fraud to achieve the set goals.
Another factor that significantly contributed to the incident is a perverse incentive. According to Tayan (2019), perverse incentives are those who have undesirable and unintended results. Perverse incentives were significantly associated with the creation of a fake account; it played a significant role in Wells Fargo's Scandal. Executive compensation systems are specifically designed to evade battles of interest between the shareholders and the executives. Typically, this is achieved through partially rewarding executives using the company’s stock (Elson& Ingram, 2018). Perverse incentives are the genesis of such compensation arrangements, having that stock ownership inspires executives to focus on short-term growth by engaging in risky and unethical behaviors. The focus on short term growth by executives can endanger the long-term health of a company.
Incidents of unethical practices are common, and the worst part is that they are becoming difficult to tame. In the case of Wells Fargo scandal, there are ways and methods we can embrace to prevent future occurrence of similar scandal. First, to actively deal with the fraudulent issue in the corporation; Wells Fargo, there is a critical need to focus on executive bonuses since perverse incentives spread vertically. The act of reducing perverse incentives form corporate executive; which significantly contribute and allow fraudulent activities can be accomplished though hash clawback provisions, deferred compensation, and administration of fiscal or criminal penalties and elimination of stock incentives. These strategies can help to counter the fraudulent activities in the organization.
Besides, offering the employee a legal representation can help counter fraudulent account creation by employees in an attempt to meet “Eight is great” goal. Normally, executives are financially motivated and powerful. As such, it is difficult to reform executive compensation quickly. Moreover, in a capitalist setting, employee salaries and wages are equal to the labor power, and to necessarily labor worth ( Elson & Ingram, 2018). Commonly, the level at which corporate executives exploit staffs is equivalent to the exploitability of employees. Therefore, the most effective response toward this issue is to provide a robust legal employee representation for the worker who encounters threat or abuse by the management or those who are subjected to unfair U5 forms. More importantly, to prevent a future incident of fraudulent activities, society needs to know their rights and fight to attain this in an evident where they feel violated.
As it is apparent from the argument provided, Wells Fargo acted unethically concerning the fraud incident, and this could be prevented through ethical measures. The company portrayed unethical reaction by hiding valid information, firing employees, and customer forced arbitration. More importantly, to avoid such incident from the recurring, legal representation of employee is essential, and termination of perverse incentives is a must.
References
Bjelica, D., Gardašević, J., Vasiljević, I., & Popović, S. (2016). Ethical dilemmas of sport advertising. Sport Mont , 14 (3), 41-43.
Shapiro, J. P., & Stefkovich, J. A. (2016). Ethical leadership and decision making in education: Applying theoretical perspectives to complex dilemmas . Routledge.
Tayan, B. (2019). The Wells Fargo cross-selling scandal. Rock Center for Corporate Governance at Stanford University Closer Look Series: Topics, Issues and Controversies in Corporate Governance No. CGRP-62 Version , 2 , 17-1.
Elson, R. J., & Ingram, P. (2018). WELLS FARGO AND THE UNAUTHORIZED CUSTOMER ACCOUNTS: A CASE STUDY. Global Journal of Business Pedagogy Volume , 2 (1).
