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Companies whose reputations are questionable due to unethical practices marred the American business environment. Wells Fargo is one of the American giant banking companies which has suffered the wrath of unethical business practices. Wells Fargo operates by selling services to clients, and it offers to check accounts, saving accounts, mortgages, and safety deposit boxes. The company began its operations in 1852 as an express service provider, and over time, the company has evolved to become one of the largest retail financial institutions globally.
Wells Fargo is the fourth-largest bank in the United States. The bank admitted to participating in heinous acts that involved fraud in its sales practices. The bank was fined 4.5 billion dollars which it agreed to pay the United States Department of Justice and the Security and Exchange Commission (SEC), and other state agencies (Nasir et al., 2021). The problem which led to the unethical practices began when the bank management applied pressure on the company employees to aggressively sell their services to boost sales and revenue to meet certain quota goals. The pressure on the employees led to dishonesty among them, who then decided to create fake million accounts in the clients names without their knowledge or consent (Witman, 2018). The company staff in its branches started to act inappropriately by using their details in the forms to ensure that customers did not discover the scam, which was carried out to meet the target set by the bank management.
The company employees were accused of moving the customers money from their existing accounts to the new accounts. The bank achieved this through pinning a technological practice where they set the customers pin to 0000 this enables the branch employees to control the customers accounts without their knowledge. Ultimately, most of the customers became aware of fraudulent acts that the companys employees orchestrated, and they began to query the fees imposed on them through accounts they were not aware they owned. The tons of complaints against the bank attracted the attention of the regulatory bodies, who decided to intervene. This fraud by the bank began to gain a lot of attention in 2016, and the regulatory bodies jointly fined the company 185 million dollars. The company was further charged and had to deal with a civil and criminal lawsuit, and they had to pay 2.7 billion dollars in fines which did not include the recent penalties (Tayan, 2019). The banks chief executive officer was forced to resign as the scandal intensified. Despite the success most organizations have achieved through fraudulent business acts, most organizations have suffered ethical and legal ramifications because of these malpractices.
Legal Ramifications
The bank participated in bank fraud, which is defined as using dishonesty to obtain money or asset from the bank, other financial institutions, or those who deposit their money in such institutions. It can be summarized that bank fraud may involve activities that deliberately defraud a financial institution and the depositors of such institutions. The fraudulent act against the institutions may take the form of attempts to receive assets, money, securities, credits, or properties through false information and tricks (Mah et al., 2020). In the United States, several categories of bank fraud can be prosecuted under federal law. The U.S Secret Service Agency is the entity tasked with investigating any fraudulent acts within the financial sector and ensuring that the financial institutions in the country are secured. The agency also plays an important role in investigating identity thefts, online payment system fraud, indirect bank deposits, counterfeiting, and issues revolving around forgery and alterations.
Forgery is one of the bank frauds which frequently occurs in the financial sector. It takes various forms, such as when a person changes the information on the face of the check to alter the information. The information on the check can be altered by either adding a zero to the actual amount with an attempt to increase the amount (Mah et al., 2020). Forgery can also take the form of a person attempting to mimic the authors of the check by forging their signatures. Wells Fargo was involved in impersonation, which also qualifies as financial fraud, where they impersonate their clients and open fake accounts to meet the sales and revenue target. Bank fraud is considered a federal offense in the United States, attracting severe penalties against the perpetrators. The perpetrators usually face fines and prison, depending on the facts on the charge sheet.
Ethical Ramifications
The company always forms business ethics based on its internal culture, but they are not laws. Most companies use ethics to screen their employees during recruitment and after employment. Business ethics provides a ground for shared values and acceptable behavior among the employees and management within an organization. Ethical behaviors promote teamwork since it ensures that the company employees work toward a common goal. They are not common among businesses as each organization has its own goals and ethical values. When the company fails to enforce ethics or an organization has unclear ethics, the behavior of the company employees can become unethical, resulting in a damaged reputation, and the company may lose its ability to enforce its policy. Fewer efforts may be put towards achieving the company goals when there is no ethics.
According to the Axios reputation poll, Wells Fargos reputation has suffered a lot. Thus, it is viewed as the least ethical big company in America. In 2017 the company was ranked among the lowest in the Axios Harris poll (Reimsbach, 2020). This was due to the incidence of fake accounts created by the company employees between 2011 to 2016 without the authorization of the account holders. The series of scandals that surfaced from the issue damaged the reputation of the bank and that of the chief executive officer. In 2017 polls, Wells Fargo scored 38.9 percent in ethics, which is the lowest in the polls history (Reimsbach, 2020). The company embarked on activities that aimed at rebuilding its reputation in 2018, and by 2021, the company showed improvement and scored 63 percent in terms of reputation ahead of Facebook.
Consequences on the Financial Sector
The unethical act by Wells Fargo has a direct negative impact on the financial sector. The financial sector is the heart of any sector in the economy. Trust guides it as a virtue, and customers trust the banks and other financial institutions with their money. The banks also trust the customers with the money in terms of loans, believing they will pay (van Der Cruijsen, de Haan & Roerink, 2021). The investors also trust the broke dealers believing that they will find them the best deals with the best interest and get the best prices but not the highest commission for the broker. Without trust as a pillar in the financial system, it may collapse.
The government plays a critical role in enhancing the trust within the sector, while the private sector, such as Wells Fargo, is supposed to build and maintain the trust within the industry. The government develops laws and regulations which ensure that proper actions are taken against those who violate them. The financial fraud that the bank committed resulted in losses incurred by the banks shareholders and creditors, which negatively impacted the proper functioning of the capital market (van Der Cruijsen, de Haan & Roerink, 2021). Fraudulent acts by a single company within the financial sector tarnishes the reputations of the other players within the sector, thus, affecting the confidence of various investors and hurting all the businesses.
Resolving the Issues
According to the United States Department of Justice, the bank admitted they used a lot of pressure on employees to meet unrealistic sales and revenue targets. This act led the employees to impersonate their clients by opening millions of fake accounts in their names. Under pretense, the employees misused customers personal and private information to achieve their mission. The acts by the employees to acquire employee information under pretense led to a lot of legal consequences against the organization. The Comptroller of the Currency (OCC) office charged the banks senior managers for their role in the sales scandals. The banks chief executive was also blocked from working in the bank and was fined 17.5 million dollars by the OCC for his active role in the scandal.
As a result of the legal consequence, the bank also had to agree to SEC, where it agreed to set up funds worth 500 million dollars which was included in a 3 billion dollars settlement to aid in the compensation of the investors who were duped by the fake accounts created by the bank for them to believe that Wells Fargo community banking was strong as it appeared. The 3 billion dollars lawsuit settlement was also meant to cover the companys admission that the false accounts harmed the clients credit ratings (Nasir et al., 2021). Apart from the compensation and the legal settlement, the bank took a step further. They hired an independent consultancy firm to aid the investigation, review the accounts opened between 2011 and 2016 and identify any potentially unauthorized accounts.
The bank also compensated the clients the fee they charged on the fake accounts opened without their consent. The company refunded 2.6 million dollars. Within five years, the company terminated around 5300 employees who contributed to the scandal (Elson & Ingram, 2018). The company further eliminated the product sales targets and redesigned the new incentives to be used by its branches. The newly developed incentive emphasizes customer services and therefore eliminates the cross-sell metrics. The company also introduced new steps for opening new accounts, which included the verification process for the new accounts, and also trained personnel and customers on how to control the accounts to prevent violations.
Opinions
Setting unrealistic goals by companies, the same action that Wells Fargo took for its employees to meet the company revenue and sales goal, aggressive, motivates unethical behaviors among the employees. However, the companies cannot abandon goal setting and goal-focused performance metrics as they help motivate the company workers to perform optimally. Without goals, the employees performance will go below the companys expectations. Wells Fargo is one of the companies that has attempted to abandon sales goal setting or use performance metrics after the scandal surfaced. This did not go well with the company as the method failed to motivate the employees (Lilly et al., 2021). Most researches indicate that for attainable goals, performance metrics and goal setting can help employees to uphold ethical behaviors within the organization as they conduct businesses for the company. For the company to achieve its targets, the managers need to ensure that their goals are intertwined with ethical policy.
It is important to note that when employees at the lower levels within the company are forced to meet unrealistic goals by the company, as Wells Fargo did with middle managers, the companys middle managers persisted in continuous use of force on junior employees since they get compensated for any goal achieved. This hurts the employees while building the managers (Lilly et al., 2021). In some organizations, the middle managers are not rewarded with monetary gifts, but they use their subordinates to build their careers whenever their juniors are successful. Therefore, they resort to any activities that will portray them as very successful by compelling the junior staff to achieve the unrealistic goals set by the senior management. They resort to unethical activities such as forcing the junior staff members to open fake accounts in the name of their customers without their knowledge or by presenting false data by using other organization data as their own to prove that they are trying to meet the goals.
The senior managers set unrealistic goals, which prompted middle managers to innovate methods that the junior staff could use to conduct unethical activities within the organization and apply pressure on them to implement these unethical methods. Employees at Well Fargo were aware that their behaviors were unethical and felt uncomfortable about it. Some of the employees tried to raise the alarm about the issues, but they were dismissed by the organization and lost their jobs. This was wrong, as the company could have investigated the claim a stop it from spreading. Instead, they discouraged many willing to help the organization uphold its policy.
For the company to ensure that they are ethical in all their operations, they should consider their ethical values for guidance and then make decisions on goal setting based on their ethical values. This requires the company managers to think about achievable goals carefully. This kind of system that upholds ethics will convey a lot to the employees about how they can succeed in the organization and get rewarded with either compensation or promotion (Lilly et al., 2021). Suppose the company only focuses on numbers to determine success, as Wells Fargo did. It allows the managers and employees to devise any method to achieve the desired number at the expense of ethics.
Conclusion
Wells Fargo scandals constitute bank fraud, defined as using dishonesty to obtain money or asset from the bank, other financial institutions, or those who deposit their money in such institutions. Bank fraud may involve activities that deliberately defraud a financial institution and the depositors of such institutions. The fraudulent act against the institutions may take the form of attempts to receive assets, money, securities, credits, or properties through false information and tricks. In the United States, several categories of bank fraud can be prosecuted under federal law. The unethical act by Wells Fargo has a direct negative impact on the financial sector. The financial sector is the heart of any sector in the economy. Trust guides it as a virtue, and customers trust the banks and other financial institutions with their money. The banks also trust the customers with the money in terms of loans, believing they will pay. Setting unrealistic goals by companies, the same action that Wells Fargo took for its employees to meet the company revenue and sales goal, aggressive, motivates unethical behaviors among the employees. However, the companies cannot abandon goal setting and goal-focused performance metrics as they help motivate the company workers to perform optimally.
Without goals, the employees performance will go below the companys expectations. Wells Fargo is one of the companies that has attempted to abandon sales goal setting or use performance metrics after the scandal surfaced. When employees at the lower levels within the company are forced to meet unrealistic goals, as Wells Fargo did with middle managers, the companys middle managers persisted in continuous use of force on junior employees since they get compensated for any goal achieved. This hurts the employees while building the managers. In some organizations, the middle managers are not rewarded with monetary gifts, but they use their subordinates to build their careers whenever their juniors are successful. Therefore, they resort to any activities that will portray them as very successful by compelling the junior staff to achieve the unrealistic goals set by the senior management.
References
Elson, R. J., & Ingram, P. (2018). Wells Fargo and the unauthorized customer accounts: A case study. Global Journal of Business Pedagogy, 2(1), 607-639.
Lilly, J., Durr, D., Grogan, A., & Super, J. F. (2021). Wells Fargo: Administrative evil and the pressure to conform. Business Horizons, 64(5), 587-597.
Mah, S., Datta, P., Dooner, M., Kohler, B., & Pricinovskis, A. (2020). Financial Institutions Fraud. Am. Crim. L. Rev., 57, 787.
Reimsbach, D. (2020). The Mediating Role of Reputation in the Relationship Between Non-Financial Performance and Financial Performance. Web.
Tayan, B. (2019). The Wells Fargo cross-selling scandal. Rock Center for Corporate Governance at Stanford University Closer Look Series: Topics, Issues and Controversies in Corporate Governance No. CGRP-62 Version, 2, 17-1.
van Der Cruijsen, C., de Haan, J., & Roerink, R. (2021). Financial knowledge and trust in financial institutions. Journal of Consumer Affairs, 55(2), 680-714.
Witman, P. D. (2018). What Gets Measured, Gets Managed The Wells Fargo Account Opening Scandal. Journal of Information Systems Education, 29(3), 131-138.
Nasir, M., Simsek, S., Cornelsen, E., Ragothaman, S., & Dag, A. (2021). Developing a decision support system to detect material weaknesses in internal control. Decision Support Systems, 151, 113631.
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