Read this and answer the questions at the end. Beginning in $2013,$ the Los Angeles Times published multiple news articles that accused Wells Fargo, specifically the Community Bank $($the part of the bank dealing directly with consumers$)$ of illegal sales practices. These practices involved "selling" customers products they did not want or need, never consented to$,$ and sometimes didn't even know about; opening unauthorized accounts without customers permission or consent: moving money between customer accounts $($some$-$times without authorization$)$; and even making up false customer email accounts and forging customer signatures. The harm to customers was real and could include. among other things, increased fees and the misuse of personal information.The media attention resulted in a lawsuit filed by the LACity Attorney in $2015$ alleging illegal sales practices at multiple Los Angeles Wells Fargo branches. The scandal erupted in the national media in $2016,$ after the consumer financial protection bureau together with the LA City Attorney and the Oftce of the Comptroller of the Currency fined the bank $$185$ million. To explore what went wrong, Wells Fargo hired an external law firm to assist an independent board committee with an investigation into the scandal. The firm conducted $100$ interviews and searched over $35$ million documents in their assessment ot how issues of corporate structure and culture as well as individual actions contributed to the injuries inflicted upon Wells fargo customers and the extraordinary damage to Wells Fargo's brand and reputation Their report was published in $2017.$ Cross$-$selling, a strategy aimed at selling each customer multiple bank products $($checking accounts, savings accounts, credit cards. loans. etc.$)$ had been extraordinarily profitable for the hank for vears. The Community Bank's leadership embraced a sales model that emphasized annual sales volume and sales growth while acknowledging that the ever$-$increasing goals were largely unachievable. The Community Banks leadership imposed these goals despite anticipating that only half of the branches would be able to meet them.Although sales goals were the resPonsibility of the Community Bank's executives, the CEO, John Stumpi contributed. An optimistic executive by nature, Stump was deeply committed to the sales culture, and he created the mantra "eight is great"; he regularly told front$-$line employees that they shouldeach sell eight different products to each customer because, as he said in a $2010$ annual report, "Eight rhymes with Great esthis despite the fact that the average number of different products held by individual customers in the banking industry was two to three. Imagine being an employee faced with that daunting goal! The report highlighted the problematic role or the culture in the scandal and. particularly, pointed to theperformance management system that focused on meeting sales goals above all. Carrie Tolstedt, the Community Bank CEO, had created a scorecard system, updated daily, to keep track of performance in relation to sales goals. Managers $($branch managers or district managers$)$ were under a lot of pressure to have their people meet these goals. For example, daily and monthly "Motivator" reports placed pressure on managers who in turn put pressure on their front$-$line employees.Those managers whose salespeople failed to meet sales goals could not earn incentive compensation and risked poor performance reviews. Everyone was measured, ranked, and rewarded in compensation and promotions based upon how they performed relative to the goals that were set at the top and pushed down through layers of management. And, those who received accolades and rewards, those who tolstedt held up as role models or who were promoted to management positions, were the top sellers. The pressure $($and shame if you failed to perform$)$ on employees was enormous. in one exemplary case. employees identified a district manager who showed them how to disguise unnecessary accounts that they were opening for family members so that the computer system would not catch them. In a few locations, the pressure was particularly intense. with managers checking on employees' sales multiple times a day. The improper sales practices can be clearly traced to employees' desperate attempts to achieve the sales goals that had been set and to the pressure that had been placed on them to do so$,$ Interestingly, large numbers of employees were regUlarly terminated for sales integrity issues often referred to as gaming the incentive compensation system$).$ In fact. the report estimated around $5,300$ such terminations between $2011$ and $2016.$ And, at the same time that all of this was happen$-$ing, employees were also receiving sales integrity training that taught "that manipulation and dishonesty were inconsistent with Wells Fargo's core values. and compromised Wells Fargo's integrity as an institution entrusted with its customers' assets." Carrie Tolstedt $-$ the community banks executive, identified the community bank as a sales organization, an identity and ethos that drove management actions and reactions.For example, management continued to increase the sales goals for the number of products employees were expected to sell to customers despite regional leaders complaining that the goals were getting too high and leading to inappropriate sales practices. There was evidence that the number of what they called "low$-$quality accounts" $($ those that were canceled, inactive, or where activity was low$)$ was growing. Management tolerated this. again as simply a by$-$product or a competitive sales organization $($it fit With their sales organization identity$)$ They ignored the fact that front$-$line salespeople were under such extraordinary pressure to meet the sales coals with the risk of severe criticism or even ter. mination if they did not. The message was clear$-$ sell sell sell$($or risk being terminated$)$Regardless of the warning signs that something was ter$-$ribly wrong $($e$.$g$.,$ the number of sales integrity$-$related allegations was increasing dramatically, the leadership of the Community Bank failed to change the cross$-$selling sales model that had been so successful at producing the desired sales numbers and the Community Bank's bottom line$).$ In fact, as far back as $2002,$ the Community Bank's leadership knew that sales practices were problematic when almost an entire branch in Colorado was terminated for "gaming the system in a mass termination event.Tolstedt in fact created a task force to focus on sales practicesat that time with its stated goal being to $"$ develop recommendations that will minimize sales integrity problems and clarity roles and processes when they do occur. The task force created training for both managers and employees that included What they called "Rules of the Road for everyday sales scenarios, aCode of Ethics. information regarding appropriate and inappropriate sales activity, and information about how to ask questions or report issues. They also began to track the quality of sales and the number of low$-$quality accounts. And these turned out to be increasing over time. So$,$ management knew about the problem, but didn't appear to consider the harm that was being done to customers and ultimately to the banks reputation. They also interpreted the fact that $1$ percent of sales staff were being fired for these violations as good news because it meant that only a small percentage of bad apples were involved, and that they had designed an effective system to root out those bad actors.The Community Banks leaders remained unwilling to make fundamental changes to their sales model, believing instead that focusing on training and on detection and punishment of wrongdoers would be sufficient. They were afraid to meddle with the performance system because they worried it would have a negative effect on sales. It was only around $2011($almost $10$ vears later$)$ that lawyers finally began to recognize that the root cause of the sales integrity issues was the sales pressure, and after more mass terminations vet another task force was convened. But the project was not met with much urgency by management. The problem was obviously continuing because the head of HR for the Community Bank led yet another project to study sales integrity. This project team concluded that the rating system for employees was creating sales pressure and fear of job loss in employees, leading to innaproproate private conduct, terminations, and voluntary turnover. The team recommended that the bank stop raising sales goals and con sider changes to the incentive plan, but only minor changes were made. The high turnover was tolerated as to be expected because turnover is traditionally quite high in a retail sales environment $($but not in similar banking environments$).$ Once again. the retail sales identity colored decision making. The main things accomplished by the project team were to implement enhanced ethics training and introduce new monitoring tools $($e$.$g$.,$ the Quality of Sales Report Card$).$ These may have done some good because, in $2012,$ The head of Corporate Security noted an increase in hotline reports related to sales integrity matters as well as increases in confirmed fraud.By $2013($when the scandal hit the news$),$ headquarters HR became more involved out of reputational concerns and a desire to finally get to the root cause of sales practice problems. A group called Enterprise Risk Management Assessments $($ERMA$)$ began to assess the "risk culture" in the Community Bank despite acknowledging that culture was a "squishy concept" and could not be easily assessed. The group concluded, initially, that the risk culture in the Community Bank was strong. By $2016$ the assessment of the risk culture $($conducted in $2015)$ had dropped"needs improvement" with a focus on problems with salespractices. The overall culture assessment, however, was assessed to be "satisfactory" because changes were said to be underway. Audit was also aware of problems but did nothing to evaluate the root causes of those problems. Many of those involved in risk and audit decided that they did not really have any responsibility over the Community Bank and let things slide. These attitudes can be traced to the bank's structure. The bank's structure was highly decentralized and deferred to the lines of business to make their own decisions. Tolstedt and other unit executives had been told by the CEO Stumpt to$"$run it like you own it$"$ and they did. Stumpf and Tolstedt hada long$-$standing working relationship. stumpt admired Tolstedt and her many contributions to Wells Fargo over many successful years at the bank. This all created room for Tolstedt to operate with a great deal of autonomy as leader of the community bank.There was a culture of deference to Tolstedt. even among her senior leaders, as people understood she had strong support from the Wells Fargo cEO. She was also notoriously controlling, resistant to criticism, hearing bad news, and corporate oversight. In fact. leaders at the CEO level AND the community bank level were reluctant to hear bad news so it was difficult for the frontline. employees or managers to express their concerns. When concerns were expressed about sales practices, they were mostly dismissed or addressed with codes. training. detection and punishmentrather than addressing the root cause. Tolstedt did not work well with other parts of the Wells fargo organization including the Board of directors $.$ she tightly controlled the information that the Community Bank reported to the board and the company's risk management committees.Tolstedt never voluntarily alerted the board to any of the sales integrity issues or to the number of terminations for sales integrity violations. The Community Bank's presentations to the board were seen by many as overly general, incomplete, and even mis$-$leading. By $2015.$ many board members felt Tolstedt was intentionally understating the problems that she helped to create. Overall, because of the organizations structure, centralized corporate oversight and control was sorely lacking. For example. corporate$-$level Human Resources did nothing to track or address employee actions related to sales practice issues. The Board of Directors also failed in their oversight responsibility and made no effort to search for the root cause of the problem. The board learned that sales practices had been identified as a significant risk only in $2014,$ and they were advised by management that corrective personnel action was being taken against those who broke Wells Fargo's rules and that this approach was working. The corrective action involved terminating employees for sales practices violations. This management approach followed the "bad apples notion that the problem could be blamed on errant individuals rather than something systemic. As a result of the scandal and the law firm investiga$-$ton, among other actions, Wells Fargo's Board ultimately separated the Chairman and CEO jobs, fired five senior executives including Tolstedt$)$ of the Community Bank as well as Stumpt. the CEO of Wells Fargo. Stump and Tolstedt were also requiredcompensation. The board altered the organizationalStructure. ov centralzing oversigntarunctions suchas risk and human resources management with those in the Community Bank now reporting to Risk and HR at the corporate level rather than to the CEO of the Community Bank. The board also reformed the performance management systemsales goals and changing incentive compensation to focus on customer service. retention and relationship bunGingsales. More compensation became base pay, and. as new employees had lower sales goals for the first few months of their employment. They also established regular reporting to the board by a new Notice of Ethics, Oversight and Integrity, which combined what was formerly Global Ethics and Integrity,Internal Investigations, and sales practices and complaint over$-$sight. The Board's Risk Committee expanded its responsibilities to include oversight of that office and to receive reports regarding customer and hotline complaints. Each unit's risk and human resources concerns now report to the related corporate office rather than to the units management. which should free them to report problems more easily. The bank also now has a system that sends an email to a customer after a new account is opened to confirm the customer's authorization. Wells Fargo has added centralized monitoring and controls to augment its oversight of sales practices. Monitoring includes a third$-$party "mystery shopper" program and additional local, regional, and corporate oversight: the increased quality assurance efforts will involve bet. were $15,000$ and $20,000$ site visits each year and an additional $600$ conduct risk reviews. Finally, the bank is evaluating its methods of assessing employee engagement and satisfaction and has even reached out to rehire former employees who were fired because of sales practice issues. In $2020,$ Wells Fargo reached a $$3$ billion settlement with the U$.$S$.$ Department of Justice and the Securities and Exchange Commission, acknowledging the misconduct by thousands of its employees that affected millions of customeraccounts over more than a decade. Please answer the questions after reading this: $1.$ how ethically aware were Wells Fargo executives and how ethically aware should they have been? Explain. $2.$In terms of ethical leadership, how would you characterize the leadership of the Community Bank prior to the scandal? Of Wells Fargo overall? What messages were they sending? How about sales managers. $3.$Evaluate the performance management system before and after the scandal came to light. Can you identify problems? Were they fixed? $4.$ Employees were disciplined $($over $5,000$ of them$)$ for violating the formal rules, and management saw that as a solution to the "bad apples" problem they had. What do you think about these "bad apples"? What is your reaction to management's solution $($firing $5,300$ employees$)?$ Do you have recommendations for what they should have done differently if you think they should have reacted differently? $5.$ Can you identify a number of red flags of cultural misalignment? $6.$ Why do you think the board moved to centralize control functions? Was this a good move? Why or why not?