Wells Fargo was the darling of the US banking industry, with some of the highest returns on shareholders’ equity and increasing stock prices. Top management applauded the company’s lead in “cross-selling”, or the sale of additional products to existing customers. “Eight is great”, which means eight Wells Fargo products for every customer, was the CEO John Stumpf’s favorite saying. 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 targets was too intense with 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 unethical sales practices. CEO John Stumpf claimed that the scandal was the result of a few bad employees who did not honor the company’s values and that there were no financial incentives to commit unethical behavior. The Board of Directors initially stood behind the CEO but soon after accepted his resignation and took 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 management 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 claims: 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. 2. What stakeholders were concerned, and how did their expectations differ from the company’s performance and Did they have the power to influence the company and How so?
Wells Fargo was the darling of the US banking industry, with some of the highest returns on shareholders’ equity and increasing stock prices. Top management applauded the company’s lead in “cross-selling”, or the sale of additional products to existing customers. “Eight is great”, which means eight Wells Fargo products for every customer, was the CEO John Stumpf’s favorite saying. 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 targets was too intense with 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 unethical sales practices. CEO John Stumpf claimed that the scandal was the result of a few bad employees who did not honor the company’s values and that there were no financial incentives to commit unethical behavior. The Board of Directors initially stood behind the CEO but soon after accepted his resignation and took 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 management 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 claims: 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.
2. What stakeholders were concerned, and how did their expectations differ from the company’s performance and Did they have the power to influence the company and How so?
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