Wells Fargo Fake Account Scandal - Case Study Example

Communication Management: Wells Fargo Fake Account Scandal Name Institution Professor Course Date Introduction High-quality communication skills are essential when dealing with media and the public. Excellent communication skills ensure accurate and informative message. Public administrators or company leaders use media outlets to keep the public informed about issues that are crucial to them. Company leaders use the media to address issues affecting them. For instance, scandals that maim a company’s image or reputation require good public speaking. Public speaking entails a process of designing and delivering a message concerning a given subject matter. Effective public speaking entails comprehension of the speaking goals and audience, selection of components for the speech that will keep the audience engaged and skilful delivery of message. One of the most common challenges that managers face is communication management skills particularly during a scandal. Lack of effective communication management skills during scandals makes firm to fail to regain public confidence. This essay focuses on the Wells Fargo fake accounts scandal. Drawing on communication management theories, the paper describes the incidence and provides an assessment of the way in which the company addressed the scandal. In the contemporary world, people are regularly bombarded with good and bad news. Everywhere in the world, people are exposed to numerous news concerning scandals from the media. For instance, in 2016, the public was exposed to the news that Wells Fargo employees had created fake accounts in the names of their customers. The company’s executives sought to fuel growth by mounting pressure on its workers to hit sales quotas. In response to this, employees deceptively opened fake customers’ accounts. Although most of the fake accounts were closed before clients could notice, some customers were hit with linked fees that affected their credit ratings. Following the scandal, the bank was compelled to return over 2.6 million dollars in the fraudulent fees and pay over 185 million dollars in fines to the government. Besides, the high fines, the scandal negatively affected the firm’s image and reputation. The government and the media spent so much time condemning the company for its swindle. The scandal did not only destroy the reputation of the firm, but also led to job loss for many of the company’s employees including CEO John Stumpf (Matthews & Heimer 2016). Evidently, the company fired 5, 300 employees over the two million fake accounts. The phony accounts were created since 2011 with clients paying fees for these accounts. The employees involved in the scandal created fake pin numbers and email addresses in order to enrol clients in online banking. As a result, the accounts earned Wells Fargo unwarranted fees besides allowing the firm’s employees to increase their sales figure and make more money at the expense of their customers. The fraud accounts allowed the employees to hit their sales target and obtain bonuses. The scope of the Wells Fargo scandal was shocking to its customers and the public. An assessment conducted by a consulting firm concluded that the employees of the bank opened over 1.5 million unauthorised deposit accounts (Belvedere, 2017). The involved employees moved money from the existing accounts of their clients into the fake accounts without the consent or knowledge of the customers. As a result, clients were charged for overdraft or inadequate funds given that there were no sufficient money in their original accounts. In addition, the involved employees also submitted 565,443 applications for credit card accounts devoid of their customers consent or knowledge. Approximately, fourteen thousands of the fake accounts incurred increased fees amounting to 400,000 US dollars that included overdraft-protection, interest charges and annual fees (Belvedere, 2017). As a result, the bank was slapped with a big penalty of 185 million dollars besides 5 million dollars to refund clients. Although the image and reputation of the firm was greatly hurt, the basic earning power of the company was not hurt in any material way. However, the scandal was a bad news for the firm and its stakeholders. The bank as a result, faced more lawsuits and government investigations. The board of the directors of the bank decided to get money from the then CEO John Stumpf and Carrie Tolstedt, the former head of community bank unit. This is because investigations into the scandal demonstrated that the CEO and the head of the community bank unit were in full knowledge of the unethical conduct. More so, the two initiated an incentive system that induced the wrong thing. Analysis Corporate scandal triggers public analysis concerning organisational practices. Scandals invoke conversations concerning systemic change besides problematising a company’s authenticity as communication agents. A corporate scandal is a major social issue that can be addressed through effective organisational communication. In the modern society, the future of any company is critically dependant on how shareholders view the company. According to Tripathi (2009), globalisation, public activism and the major accounting scandals have reinforced the belief that the future of a firm depends on how its stakeholders view it. Scandals affecting firms call for effective corporate communication. With regard to Wells Fargo scandal, there was sufficient information concerning the counterproductive effect of the incentive system implemented by the CEO and the head of community banking unit. However, the two leaders failed to act on the information provided ultimately leading into the scandal. The incentive program initiated by John Stumpf rewarded unethical conduct of the employees. The employees were judged and rewarded based on the number of their extra financial products sold to every customer. Evidently, the employees got rewarded, paid and graded based on the system that was indeed incentivising the wrong conduct. The second biggest mistake made by the firm was to keep quiet or rather hide the information regarding the scandal. From credible sources, the former CEO got wind of the scandal but did nothing about it. According to Shen (2016), John Stumpft, the CEO knew about the systemic issue as early as 2012, but he took no substantial action. Failure to act and communicate about the scandal was the biggest mistake that the firm made. It is interesting to note that the CEO got wind of the bad behaviour by the firm’s employees but he did nothing about (Bryan, 2017). The CEO underestimated the public reaction. He and other upper management members of the bank were warned about the widespread fraud before it exploded in the media. The top managers failed to act as soon as the learned of the scandal. In fact, an unnamed employee was transferred after bringing into light the illegal activity (Shen, 2016). The management seemed to encourage the unethical activity and made it appear like a normal sales practice. However, the lack of action from the management side made the behaviour so rampant that it led to reputational and professional damage, shareholder lawsuits, government scrutiny, consumer fraud and regulatory sanctions. There lacked proper communication management skills amid the CEO and the members of the upper management before eruption of the scandal. It is worth noting that communication is crucial to success in the workplace. Evidently, effective communication is essential for the growth of a firm. It helps managers to undertake the fundamental management functions with communication skills forming the foundation of any business activity. Communication entails a processing of exchanging information (Mazzei & Ravazani, 2015).When the CEO and other top managers received warning about the fraudulent behaviour of the employees, they kept the information to themselves and failed to share it with the employees and parties involved to avoid reputation damage. In reality, when all units of a firm communicate smoothly, the overall productivity and workflow can improve (Mazzei & Ravazani, 2015). Had the CEO and his top managers communicated as soon as they received the formation about the fraudulent activity, their customers’ confidence and their relationship with the firm would not have been lost. Remember that clear and open communication creates a sense of transparency that leads into development of trust. Keeping the stakeholders in the dark creates tension and resentments. According to (Galota, Pirvulescu & Criotoru 2015), open communication lowers feelings of cluelessness and uncertainty concerning the position and activities of a firm. Management of scandals calls for more than contrite press release or the hypocritical appearance on news channels. News concerning scandals goes viral in a flash and firms must be ready to act in response to scandals decisively and swiftly using all platforms available for communication with the public. With respect to the Wells Fargo fake accounts scandal, the firm’s management took long to bring the issue into limelight and address it amicably. The initial management communication issues aggravated the evils in the firm. In the communication field, a manager is in a position where he can evaluate people and events and establish effective and swift solutions. The manager can investigate issues, communicate the results and make realistic decisions. The CEO lacked effective communication skills to safe the firm from the negative public backlash. After the fake account scandal reached public domain, Wells Fargo sincerely apologised and took full responsibility of the unethical behaviour by its employees, “We regret and take responsibility for any instances where customers may have received a product that they did not request," ( Egan CNN , 2016). The organisation acknowledged s its mistakes, “At Wells Fargo, when we make mistakes, we are open about it, we take responsibility, and we take action," (Egan CNN, 2016). Although the scandal presented communication mismanagement from the side of the top bank managers, the response following the explosion of the scandal was a positive one. The firm did not evade responsibility. Wells Fargo employed bolstering and corrective action strategies to address the effects of the fake accounts scandal. According to Weber (2011), bolstering strategies are used in responding to incidences that threaten a firm’s image. Given that Wells Fargo reputation was damaged by the scandal, the firm used measures that endeavoured to develop its image through telling the stakeholders about the past and present good works of the company. The firm dismissed the perpetrators of the crisis and agreed to compensate the affected customers besides paying a fine of over 185 million dollars. In addition, the firm restored the situation and implemented strategies that would prevent similar incidences in future. Buffett asserted that Wells Fargo’s systems to flag fraudulent conduct are better compared to those of its competitors (Belvedere, 2017). Dardis & Haigh (2009) assert that corrective action strategies allow firms to make amends for wrong doing and take steps to prevent recurrence of the mistakes in future. Through corrective action strategies, the firm communicated its actions of dismissing over 5, 300 employees who were involved in the scandal and implemented feasible systems to prevent reoccurrence of such incidences. Drawing on classic theories of communication, communication includes a message sender and a receiver. With respect to the Wells Fargo incidence, the communication issues that triggered the explosion of the sandal include failure to listen to the warning presented, hierarchy problems and poor management of communication. When the CEO and other top managers were warned about the unethical conducts of the firm’s employees, they failed to act and offer their response to the sender. As a result, there was a communication disconnect between the source of information and the receiver. However after the scandal was exposed to the public, action was taken with dismissal of thousands of people including the CEO. The effects demonstrated leadership inefficiencies and lack of communication management skills. Drawing on the Wells Fargo scandal, leaders must invest time in ensuring effective communication management and promote a trust and transparency atmosphere. The receivers should acknowledge sources of information and they should surpass the normal channels of communication besides taking proactive measures to gather information from varying communication channels. Integration of informal and formal communication channels is essential as it aid in getting concerns from subordinates (Adler, 2012). Listening is paramount as it only though listening that leaders can comprehend issues affecting the firms they lead. Conclusion Management communication entails the sharing of information in an effortlessly comprehendible manner. It involves all the communication that managers must do in order to be effective in their workplace. Management communication holds four different parts, which include the communicator, the message, the receiver and the response. Drawing from Wells Fargo’s fake accounts scandal, the scandal should have been prevented had the CEO and top managers listened and acted on the information provided by an employee from one of the regional branch. The fact that the CEO failed to act or respond to the message demonstrates ineffective communication management. To avoid or overcome the effects of such crisis, managers should view communication as purposeful and conscious choices that lead to right information, to the right people at the right time. References Adler, G.(2012). Management communication: Financial times briefing. UK: Pearson. Belvedere, M.(2017). Warren Buffest says the fake account scandal at Wells Fargo hurt its reputation. CNBC. Retrieved from http://www.cnbc.com/2017/05/08/warren-buffett- says-fake-account-scandal-wells-fargo-hurt-reputation.html. Bryan, B.(2017). Buffett: Wells Fargo made 3 huge mistakes during the fake account scandal but one dwarfs all the others. Yahoo Finance. Retrieved from https://finance.yahoo.com/news/buffett-wells-fargo-made-3-145340690.html Dardis, F. & Haigh, M. (2009). Prescribing versus describing: Testing image restoration strategies in a crisis situation. Corporate Communications: An International Journal, 14, (1), 101-118. Galota, G, Pirvulescu & Criotoru, I.( 2015).The importance of the management communication process. Internal Auditing & Risk Management, 10 (1) 77-83. Matthews, C.,& Heimer, M.(2016). The 5 biggest corporate scandals of 2016. Fortune. Retrieved from http://fortune.com/2016/12/28/biggest-corporate-scandals-2016/. Mazzei, A & Ravazani, S.( 2015). Internal crisis communication strategies to protect trust relationships: A study of Italian companies. International Journal of Business Communication, 52 (3), 319-337. Shen, L.(2016). Wells Fargo former CEO may have been warned of phony account fraud as early as 2007. Fortune. Retrieved from http://fortune.com/2016/10/18/wells-fargos- former-ceo-may-have-been-warned-of-phony-account-fraud-as-early-as-2007/. Tripathi, P.S.(2009). Communication management: A global perspective. India: Global India Publications. Weber, M.(2011). Corporate reputation management: Citibank’s use of image restoration strategies during the U.S banking crisis. Journal of Organisational culture communications and conflict,15 (2), 35-55. Read More