Scenario
Wells Fargo was the darling of the banking industry, with some of the highest returns on
equity in the sector and a soaring stock price. Top management touted the company’s
lead in “cross-selling”: the sale of additional products to existing customers. “Eight is
great,” as in eight Wells Fargo products for every customer, was CEO John Stumpf’s
mantra.
In September 2016, Wells Fargo announced that it was paying $185 million in fines for
the creation of over 2 million unauthorized customer accounts. It soon came to light that
the pressure on employees to hit sales quotas was immense: hourly tracking, pressure
from supervisors to engage in unethical behavior, and a compensation system based
heavily on bonuses.
Wells Fargo also confirmed that it had fired over 5,300 employees over the past few
years related to shady sales practices. CEO John Stumpf claimed that the scandal was
the result of a few bad apples who did not honor the company’s values and that there
were no incentives to commit unethical behavior. The board initially stood behind the
CEO, but soon after received his resignation and “clawed back” millions of dollars in his
compensation.
Further reporting found more troubling information. Many employees had quit under the
immense pressure to engage in unethical sales practices, and some were even fired for
reporting misconduct through the company’s ethics hotline. Senior leadership was aware
of these aggressive sales practices as far back as 2004, with incidents as far back as
2002 identified.
The Board of Directors commissioned an independent investigation that identified
cultural, structural, and leadership issues as root causes of the improper sales practices.
The report cites the wayward sales culture and performance management system; the
decentralized corporate structure that gave too much autonomy to the division’s leaders;
and the unwillingness of leadership to evaluate the sales model, given its longtime
success for the company.

Sample Solution