Read the business case on Wells Fargo (link in the pdf above).

1. What was Wells Fargo's strategy for competing in the community banking area?

2. What factors (think about our chapters on motivation, leadership, control via organizational culture, structure, teams, etc) might have contributed to the questionable sales tactics taken by bank employees?

3. What should Sloan do to prevent similar actions in the future? (Really think on this one because when you have systemic unethical behavior, one small change isn't usually enough to root it out)

PART IV Cases It was not a government agency. Yet in 2017, the company did promise to buy 70% of the goods it sold in US. stores and U.S. Sam's Clubs from suppliers who answered the Sustainability Index questions and were committed to doing better: With regard to the farmers who also supplied the company, Walmart urged them to track fertilizer use and have optimum goals for its use. It asked them to monitor soil fertility and have goals to minimize degradation and erosion. It inquired if they could grow Wheat with less water and fertilizer, and it urged wineries to grow their grapes in accordance with biodiversity plans. Walmart received positive media attention for these initiatives, but it had to prove that that they were more than hype. Advocacy groups continued to doubt the company's sincerity. Much to Prove In the realm of sustainability, Walmart still had much to prove, It was trying to increase the amount of organics it offered to customers at low prices, but this effort had not met with full success. It was trying to improve the way its own workforce and that of its suppliers throughout the world were treated, but again its success was partial. Finaily, it tried to make its own stores more energy efcient and to improve the environmental and energy performance of suppliers everywhere in the World, but especially in China, but these efforts had not achieved as much as the company wanted, Walmart had to ask itself to what extent whether it was on the right path. How could it make further progress? What more could it do? Use the weightofwreasons framework for ethical decision-making to address these questions. Must it make tradeoffs in meeting its obligations to its various stakeholders? What principles should guide the company? Which stakeholders matter most, and how should it engage them? What actions can the company take in the shorttom, and what does it need to do in the long-term? is Walmart's long-term strategy and business model compatible with its sustainability goals? Wells Fargo: Can It Come Back? hm Wells Fargo ourished while other banks oundered alter the 2008 Great Financial Crisis. Its reputation was intact because it took fewer risks and its business was apparently built on a sounder ethical foundation. The legendary Warren Buffett remained a major investor and defender of Wells Fargo even after the Imoss~selling scandal, which shook this company to its very foundations. At his 2018 meeting with shareholders, he said, "I see no reason why Wells Fargo us a company . . . going for- ward is in any way inferior to other big banks in which it competes?\" Cross-Selling At Wells Fargo, cross-selling meant pitching a new product or service to a consumer who already had one product or service the bank provided, for example, offering a credit card or mortgage to a customer with a checking account. Richard Kovacevich, PART IV Cases The employees at Wells Fargo who were let go had difculty gaining employment at other banks, since the bank issued documents with a record of their misbehavior. The defamatory documents asserted that they had been complicit in malfeasance and the creation of the unwanted accounts. The red employees had no right to appeal the documents, which alleged that they had participated in unethical conduct, other than to le a lawsuit against the bank. Senate Hearings With outrage against the company high, the Senate Banking Committee, egged on by Senator Elizabeth Warren of Massachusetts, held heaiings.\" The commit tee I'orced Stumpf to appear at the hearings in 2016. Prior to appealing, Stumpf relented to the demands of the company's board and chose to relinquish $41 million of his not yet. vested stock options. Stumpf gave prepared testimony but refused to answer many of the questions. citing lack of expertise. He received heavy criticism for the praise he had once heaped on Carrie Tolstcdt, the previous head of retail banking, whom the company forced into ietiremcnt in 2016. The bank had investigated her for the way she had brought pressure on middle management to radically increase the bank's crosssell ratio, which was the metric she had used for the number of accounts each customer had. Senator Warren called Stumpf's leadership of the bank \"gutless\" and told him to step down. Senator Pat Toomcy of Pennsylvania doubted whether the employees the bank terminated had acted independently, without orders from supervisors or management. After a less than spectacular defense of the company at the hearing, Stumpf did resign. Apparently, the board did not force this decision on him; rather, he main tained that it was in the company's best interest. The board then used a clawback stipulation in his employment agreement to strip him of $28 million in earnings. Tolstedt as well had to relinquish her earnings, though she continued to maintain her innocence regarding what had transpired. Repercussions After the hearing, the Consumer Financial Protection Bureau ned Wells Fargo $185 million, a Very small ne given the magnitude of the company's violations."5 The following year, the Ofce of the Comptroller of the Currency (OCC) imposed additional penalties, It added new restrictions, subjecting the hank to oversight as if it were a troubled and insolvent institution. Immediately after news of the scandal was revealed, the company's prots fell. Its expenses grew because of payments to lawyers and outside firms. it had to shut down more than 400 of its 6,000 branches. It out other costs and announced that it would rely more on technology than on its sales force to grow rcvcnuc. Compared with other banks. its stock continued to perform poorly. Customers could not pur- sue legal action against the bank because of provisions in the agrocmcnt they had made when they opened an account that mandated that in the case of a dispute they would have to enter into private arbitration with the bank. Wells Fargo did CHAPTER 10 end up paying $110 million to customers who had accounts opened in their name without permission. In 2017. Timothy Sloan, the new CEO. agreed to rehire about 1,000 employees ter- minated wrongfully or who had quit because of the fraud, but not employees whom he maintained were implicated rightfully Senator Warren charged that Sloan too should go because he had been in a top leadership positionwhen the fraud took place. Prosecutors in New York City, San Francisco, and North Carolina started their own investigations, as did the SEC. The state of California ended its relationship with the bank. and the city of Chicago took out the money it had invested in the bank. Cities such as Philadelphia and Seattle backed away from ever having anything to do with the bank. in 2019, Sloan too was compelled to step door: as the company's CEO.\" As of September 2019, Wells Fargo still (lid not have a CEO. Experienced executives from other companies did not want the position. Fines and Other Penalties In April 2018, Wells Fargo agreed to pay $209 billion in settlement of risk manage- ment claims." This ne was the largest against a bank made at that point by the Trump administration. The Consumer Financial Protection Bureau and the OCC ned the bank for its inability to catch and prevent improper charges from being lev- ied on consumers in its mortgage and auto-lending businesses. The company had to develop and submit a compensation plan for affected customers within three months. The government imposed the nes for improper fees charged in mortgage lending. It determined that the selling of unneeded auto insurance could have resulted in defaults and vehicle repossessions for up to 27,000 customers. The bank would have to obtain the OCC's approval before it appointed executives and board members and before it awarded them payment for the duties they performed. The amount of compensation customers would be awarded would be determined later, and it would be separate from the penalty. On top of this ne, in May 2018. the company reached a preliminary $480 million settlement in a securities fraud class-action suit for opening as many as 3.5 million fake retail banking customer accounts. Union Investment. 3 European asset man- agement rm, was the lead plaintiff appointed by the court in the case. It claimed that by engaging in the fraud the bank and its current and former executives and directors were able to falsely state and artificially inate the rms stock price from 2014 to 2016. The bank denied the charged but chose to settle in the interests of employees and investors in order to put the issue behind it. In December 2018. the company announced a $575 million settlement with the 50 state attorneys general and the attorney general for the District of Columbia regarding its practices. Sloan, CEO at the time, said that the agreement under scored a \"serious commitment to making things right\" and building \"a better bank."\" Under the terms of the agreement. the company had to respond to ongoing cus- tomer inquiries and maintain a website detailing its remediation efforts. It also had to provide regular reports to the states on its progress in paying people back. Why did the cross-selling scandal happen at Wells Fargo? How did social pres- sure and organizational factors (Chapters 4 and 6, respectively) inuence individual Cases 393 I rAnJ. 1 v uobnn employees' actions? Based on this case, what do you learn about whether it pays to be good"or \"pays to be bad" (Chapter 7)? What should Wells Fargo do next? Use the weight-ofreasons framework in formulating your answer. What is the issue, and what are the facts and the options and consequences? Which stakeholders should it prioritize in assessing the consequences? What principles should the bank apply, and what actions should it take in the short- and the long-term? What will it take for Wells Fargo to build an ethical organization? What lessons must it learn from its experience? Whole Foods: Conscious Capitalism\" The business model that John Mackey, the charismatic founder and longtime CEO of Whole Foods, maintained he adhered to was \"conscious capitalism.\" Now that Whole Foods was a part of Amazon, to what extent should it continue to adhere to the tenets of this model? Whole Foods had to protably grow and at the same time pursue a sustainability agenda. It had to increase the size of its market while enhancing its image for making the world the better. The positive image that Whole Foods tried to project did not always match the reality. Ittouted its dedication to natural foods and proudly displayed the many envi- ronmental awards it had won on its website and elsewhere, but it had been heav- ily criticized for the hyperaggressive way it had expanded, leveling smaller health food chains and cooperatives. The most comprehensive and objective assessment group in the realm of social responsibility, CSRHub, rated Walmaxt as doing sub stantially better than both Whole Foods and Amazon in 2019. CSRHub evaluated 12 indicators of employee, environment, community, and governance performance and aggregated and normalized this mformation to create a broad and consistent set ofndings, The sources on which it relied included socially responsible investing rms, NGOs, government agencies, and many lists of best and worst rms. Whole Foods had to prove to that it was truly a socially responsible company, but so did its parent Amazon (see again the case on Amazon in Chapter 7). What approach should Amazon take to Whole Foods' social responsibility now that it was a part of Amazon? Whole Foods' Acquisition by Amazon When John Mackey of Whole Foods rst met Jeff Bezos, CEO of Amazon, in 2017, he recalled that it felt like he was \"falling in love." Amazon's acquisition of Whole Foods for $13.7 billion had come at the urging of activist investor Jana Partners. Shareholder activists wanted a. takeover of Whole Foods because of a failure to live up to its potential for serving shareholder interests. Its samestore sales were down, and they had been falling for some time. The company no longer was a unique providcr of healthy food products. It faced tough competitive challenges from both mainstream grocers like Kroger's and upstarts like Sprouts Farmers Market. Even Walmart could claim to have a full line-up of the type of items Whole Foods stocked, but at substantially lower prices. Walmart, the world's largest grocer, had more than l,600 organic items on its shelves. It was a leading seller of organic milk and sold its own organic fresh