Wells Fargo Banking Scandal Why culture matters (2018) FARGO MR. Wells Fargo Automated Tellers (AP Photo/Eric Risberg) 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 flaunted 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 honour 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 long-time success for the company. Based on the case study provided, analyse the case and provide responses to the following questions, in a report format. 1. When looking at modelling character and values, what values did Stumpf model to Wells Fargo employees? What impact might that have on the culture of Wells Fargo? 2. When we speak about Encouraging Ethical Conduct, what behaviours can leader's model in orderto encourage ethical behaviour in their organisation? 3. Wells Fargo did have some systems in place, like the ethics hotline, to report unethical behaviour but clearly did not work. Why do you think that is? What steps can leaders take to design systems within their organisations that encourage ethical behaviour rather than unethical behaviour? 4. What should Business leaders take away from this scandal? (use two ethical theories tojustify your answer) 5. What could Wells Fargo have done differently to avert this scandal and cultural meltdown