Ethics and business law

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 unauthorised 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 behaviour, 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 honour the company's values and that there were no incentives to commit unethical behaviour. 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 decentralised 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.

1. List 5 things that went terribly wrong in the company's ethical practices.
2. 'Failure of ethical helpline was by far the worst of all failures in this case', would you agree to this statement? Why or why not?
3. How can the board of directors control such misuse of power from happening in the future? What checks and balances should be put in place? What should be the frequency of such checks and balances and what can be the outcome of it?