Wells Fargo Banking Scandal- Why culture matters

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.

Please answer the below Questions:

1. What should business leaders take away from this scandal?

2. What could Wells Fargo have done differently to avert this cultural meltdown?