What If… Wells Fargo Was Motivated by Ethics Instead of Profits?
September 20, 2016
I love being a business ethics teacher—there is never a shortage of current events to provide examples for my classes. But recent revelations about Wells Fargo’s cross-selling practices make it just too easy. (By way of full disclosure, I have been a customer at the bank for well over ten years, after it acquired the small regional bank with which I had banked for several years. My wife and I currently have a joint checking account, overdraft line, and two lines of credit.)
Wells Fargo, in addition to being one of the largest and most profitable banks in the USA, has also long been considered to be an ethical player in the financial services industry. But it now appears that this reputation is ill deserved. According to surfacing details, more than 5,000 retail banking employees fraudulently created some two million customer accounts over the past five years, and maybe longer. The falsely created accounts created fee income for the bank, and garnered incentive pay for the individual employees. The bank has agreed to pay $185 million in fines, and has already reimbursed customers at least $2 million in fraudulent fees.
The impetus for the widespread fraud appears to be Wells Fargo’s emphasis on cross selling (essentially getting customers to open multiple accounts). Corporate goals mandated eight separate accounts for each customer, compared to an average of three per person for large American banks. Wells Fargo has averaged six accounts per customer for the past five years, doubling the national average and showing how effective its goals and incentives have been. Many former Wells employees report fearing the loss of their jobs if they did not meet the sales goals imposed on them.
Clearly, Wells Fargo’s cross-selling strategy was successful, at least in the short run. It is one of the largest, most profitable, and highly valued bank in the country. However, its reputation has suffered significant damage, and its longer-term prospects are being called into question.
Why did this happen and how can other firms avoid similar issues? There surely is no simple answer to this question—Wells Fargo is a huge, complex organization with complicated operations and management systems. But one thing seems abundantly clear—the bank’s growth and profit goals overrode its ethical intentions. Intentional unethical behavior is, I believe, exceedingly rare in American business. But all too often, business success is measured by a singular criterion, profit. Excessive focus on a particular, (relatively) easily measured objective hardly ever leads to the best outcome, and as author Alfie Kohn has observed, invariably leads to cheating. One business ethics professor says, “Incentive to perform is frequently indistinguishable from incentive to cheat.”
What if Wells Fargo employees were at least as highly motivated to do the right thing as they are to create profit for the corporation? What if we, as investors and customers, actually demanded ethical behavior from our corporations? As we have seen countless times before, the unethical behavior is a direct result, not of faulty ethical judgment, but from a clear lack of moral motivation. Other goals supersede doing the ethical thing.
And to bring this story full circle, I must also admit that I don’t follow my own advice. My wife and I still have all our accounts at Wells Fargo and are unlikely to change banks.