Finance and banking sector is the cornerstone of any economic growth and development due to the roles the institutions play in enhancing money circulation, provision of loans and other financial benefits. Wells Fargo and Company (WFC) is one of the banks that have dominated America’s Banking Industry for more than one and a half century. However, the recent scandals on the frauds committed by the employees and the excessive compulsion from the management to acquire the set cross sales have led to WFC becoming a major topic of discussion among different scholars. Hence the need to determine the strategic success and failures in WFC and determine whether the scandals in 2016 of the creation of over 2 million fake accounts will destroy the company and provide a competitive advantage over the leading competitors. The purpose of this report will, therefore, include depicting WFC growth since its starts like an express mailing company in the West by Henry Wells and William Fargo in 1852.
Additionally, it will show its development from a community bank in the West region and the values and beliefs that have enhanced its rapid expansion and domination as the most valuable bank in America on market capitalization value. Within this broad scope, it will be possible to understand the benefits, vision, mission, and strategies of the organization. This first section will also use Porter’s approach to determine the company’s strategy in enhancing its profits and sales of services to maintain a competitive advantage over its major competitors. The section will also address the industry whereby stocks and market capitalization among other factors that help in demonstrating the industry are employed to illustrate the impacts of the scandal and strategies used by the company to remain competitive in the vigorous competitive sector.
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Part two of the paper tries to assess the factors such as personal leadership styles and personalities would influence my decision in joining the company and techniques that would complement these leadership styles to fit in WFC. The last section is a summary of all important ideas and points from the entire report.
Part One
The golden era of the West in the U.S. led to the Henry Wells and William Fargo to form a partnership and begin an express mail and financial services such as the carrying and carrying transaction notes to the miners and other people mainly in the West. The company would flourish due to the ability of the two founders in enhancing the trust from the miners and moving from one place to the other as if following the workers and improving their service deliveries. Since 1852, the express mail delivery company has transformed into one of the four largest banking and financial institutions in the country. The changes in time and economic knowledge have changed with the embracement of technology in the past two decades resulting in changes of ways of service delivery, but the company has been built on the strong consumer-based vision statement written down in the 1990s.
Vision
WFC vision states, “We want to satisfy all our customers’ financial needs and help them succeed financially.” This vision statement has been the foundation of the company and has aided it in its growth and development in the U.S. and other countries. The company understands that the customer aims to enhance and leap the best from the hard-earned finances, hence the expression that the company objective is to ensure that consumers engage in successful investments and availability of loans to enhance the productivity of the consumers. The company’s vision demonstrates the undivided attention on the bank’s customer-centric strategy and organization that is termed to be main influence of the organization culture.
Values
The company identifies with five essential values that every employee must possess or understand to fit in WFC team. Similarly to the vision statement, the first value is the view of people as a competitive advantage, engaging in activities that are right for the consumers, ethics, leadership and diversity and inclusion of the employees and targeted clients. These values are evident as the term team members are used to refer to the employees to enhance the cohesion and competition among the employs and to promote the sense of self-belonging within all scopes of the company. The need to build trust and engage in activities that help proliferate the earnings of the company are top priorities as WFC is determined to increase its profits and ensure that they retain their happy consumers as they target potential clients.
WFC vision, values, and culture are essential in addressing the strategy and description of the bank. The bank has over the years been termed as a community-based international bank and financial service holding company. The provision of banking, mortgage, insurance, consumer finance, and investments are the services provided by the company. The company has transformed towards the embracement of technology through the use of e-commerce and increased ATMs both domestically and internationally but mainly focuses on the national platform with its headquarters at San Francisco, California. The business model is subdivided into three critical pillars namely, diversified non-interest income, loan portfolio and prudent risk management. These segments make it possible for the company to deliver many services without having to establish new divisions or departments.
The company demonstrates some of the best values and customer-centered ideas which may be reasons that one in every three Americans engages directly or indirectly with the WFC. The company also participate in a financial transaction in every one of 500 workers in the U.S., but in 2016, following allegations that the company employees had created or opened fake accounts from the registered clients. The employees were pressured by the management either their supervisors or the branch managers on realizing the set cross sales and in return would gain $25 gift voucher whereas the branch managers who achieved the set targets got a $10,000 bonus.
WFC always claimed that the organization was built on the three essential objectives that would ensure a relationship that lasted a lifetime with the consumers provided health to consumers on decision-making and financial investments and the willingness to do right at all cost. These claims seem quite significant, but the recent events were complicated in determining the values, relationships and the engagement with both the employees and the customers. The cross sale strategy led to the company setting a target that workers were expected to achieve. These cross sales included opening about eight separate finance accounts. The management argued that the workers be expected to work together as team members, but the engagement in the competitive nature whereby the top performer was rewarded, and the lowest performer threatened to lose his/her job.
According to Fox, the company was aware of the creation of fake accounts, but it seemed that it did not eliminate the vice. The engagement in compliance and ethics in 2014 following the management awareness that some of the employees were creating fake bank accounts to reap more bonuses, did not achieve its goals. The CEO’s claim that the management did not know that these issues were happening was a lie because the audits in 2013 had demonstrated the amoral behaviors in most of the employees with no employees being punished. Fox claimed that the claims by the former CEO, Stumpf, had denied his knowledge of the frauds that involved the customers losing money from their accounts to finance the fake accounts. The management claimed that the criminally oriented workers were responsible, but the workers claim that they had to do it to escape being fired as the managers and supervisors made it clear that low cross-selling agents would be history to the company.
The threats and humiliation were responsible for enhancing the defrauding behaviors, but it was made more complicated by the greed of the managers and supervisors who would gain large bonuses. The management was complacent and allowed the creation of the accounts which led to the company suffering $185 million in fines from the Consumer Finance Protection Board (CFPB). The penalty and the negative media publicity are likely to affect the company negatively, but if the last fiscal year was anything to go by, WFC does not seem to be on a downturn. Most scholars predicted maybe because of the family ties that it has built all through its lifetime which can be viewed as a positive strategy to gain a competitive advantage over other firms.
WFC Strategy
According to Porter’s strategy types companies can use cost leadership and differentiation leadership. Cost leadership is a strategy that involves the company utilizes an approach that minimizes the costs to a low level lower than the rivals. The company employs a system that is competent and efficient in production to eliminate loses suffered in processes to minimize operation costs, demoralization of employees and increasing economies of scale. This strategy is different from that of differentiation leadership that utilizes the variation of goods and services to exploit the opportunities that other companies fail to spot in the market. The world is changing drastically, and it is difficult to determine the exert type of strategy employed by WFC. The cross-selling quotas enhance the flexibility of service provisions, but cross-selling allowances are the norm for the entire industry. WFC uses cost leadership in the different accounts such as targeting the Native Americans and lower level majorities to pool costs for insurance and loans. By targeting these minority groups, the bank gains exemptions in taxes thus increasing a competitive advantage over its rivals. On the other hand, differentiation and offering cross-selling quotas that are different from other groups can be viewed as differentiation leadership.
Since the beginning of the 21st century, the company has focused on targeting the middle-level consumers. The middle-level consumers are more and able to pay back loans compared to the affluent and low-income individuals respectively. However other competitors are also pursuing the same consumers due to the predicted increase in the next few decades. The principal rivals of WFC are JP Morgan Chase and Company and Bank of America. JP Morgan Chase and Company is the most substantial assets thus yields higher earnings than WFC, but WFC has a higher revenue generating efficiency than JP Morgan Chase and Bank of America. The competitive aspects of the industry and other factors are explained in the next chapter.
Part B
Market Capitalization measures the business value based on share price and the number of shares outstanding. It generally represents the market's view of a company's stock value and is a determining factor in stock valuation. Bank of America has a market capitalization of $304.79 billion, Citigroup has $173.68 Billion, WFC has $270.49 billion, and JP Morgan Chase has $377.35 Billion. Since 2016, the growth of JP Morgan Chase has been astonishing, but the returns on investments have been relatively lower compared to that of WFC.
The high value of market capitalization does not expressively demonstrate the exact amount of the company with different surveys showing that WFC has been the most valuable of the banks in the industry. The shocking results in the reduction of employers illustrate a failure in the banking industry.
Part C
Transformation leadership and authentic leadership styles are the most suitable type of leadership to eliminate the complacency depicted in WFC scandal because unlike the transactional method there is less authoritative that would have reduced engaging in the defrauding aspects or activities in the company. Transformative leadership promote innovativeness and limits the following of laws as scripted, but it is towards enhanced creativity and ability to utilize better ways to encourage online accounts other than the fear of failure which resulted in the criminal activities. The company lacked interpersonal communication due to fear but employing a transformative or authentic strategy would have enhanced communication both in the horizontal and vertical hierarchy of the organization structure. Innovative and charismatic individuals who can provide an opportunity for others by delegating and ensuring that the workforce understands the objectives of the company.
Following the online survey to obtain my Big 5 Personality style it was evident that I possess openness which makes me suitable for the engaging in transformative and authentic leadership style. High openness enables understanding of people and engaging in innovative and novel ideas in solving a problem rather than sticking in past approaches that have demonstrated they are more likely to fail as was the case in WFC scandal. The other significant personality traits were introversion and agreeableness. The introversion aspects may limit my engagement with the people, but the ability to concentrate and engage in thoughtful conversations makes me improve any team or lead a highly-objective project. Trust, altruism, and kindness make me agree when I am wrong rather than use deception as was the case with the employees at WFC. I need to increase my social aspects and limit the high introversive traits to ensure that I am more approachable and can engage in small informal talks with my colleagues and add more friends. Social aspects are essential to ensure that in a similar situation whereby the management tries to use fear strategy to the employees, the employees can unit or unionize to fight for their rights.
Conclusion
WFC is a leading bank in the American Banking industry but the values that led to the development and proliferation in over 100 years faced major challenges due to fake account creation. The complacency of the leaders demonstrates a loss of innovative ideologies in the transformation of the company thus leading to financial loss through fines. The study demonstrated that cross-selling quotas and poor leadership styles are the main cause of challenges and defrauding activities. However, lack of an appropriate style of running the business is a key challenge for WFC which have led to companies such as JP Morgan Chase to gain competitive advantages over WFC. The scandal depicted the loopholes in the industry and called for changes in leadership and personality to improve the earnings and ethical aspects of the financial and banking sector.
