Wells Fargo Scandal - Case Study Example

Wells Fargo

Organizational ethics refer to principles and guidelines that guide organizations' interactions with stakeholders such as the government, consumers, employees, competitors, and the environment. Organizational ethics have a direct on the company culture, performance, and reputation of the organization. Technology development and an increase in internet usage ensure that companies in the contemporary world are constantly under scrutiny. Therefore organizations must maintain high ethical standards. However, there have been recent instances of organizations manipulating their balance sheets, toxic work environments, and unsustainable goals. These unethical practices were vital in ranking the Wells Fargo accounts scandal of 2016 as one of the top five scandals of the year (Matthews & Heimer, 2016). The following essay analyses the ethical issues in the Wells Fargo scandal.

Wells Fargo Scandal.

Wells Fargo is one of the largest banking institutions in the United States. While financial institutions were facing a collapse in the 2008 global economic crisis, wells Fargo was on an expansion drive, acquiring Wachovia (Teo & Kimes, 2019). The bank would go on to tout its good financial situation to offering convenient services to its consumers. The gauge of this success was the number of accounts consumers had. Therefore, wells Fargo would encourage consumers to open several accounts to receive different lines of credit. The company would encourage employees to offer consumers these options. Therefore a consumer with a savings account would be encouraged to open a mortgage account, acquire credit or debit cards, and take loans that often did not need. The company employees were viewed as salespeople and clients as mere customers. Employees had a target of ensuring consumers had a minimum of eight accounts with the bank (Teo & Kimes, 2019). The pressure to deliver would lead to fraud in the company.

The desire to protect jobs by hitting the company goals encouraged mid-tier managers and ground-level employees to carry out fraud. The employees would open accounts with actual customer information without their consent. Part of the efforts to ensure that customers were not aware of the fraud employees would use their contacts. In addition to the fake accounts, wells Fargo would create false checking and savings accounts by manipulating the company technology, allowing them to move funds from genuine consumer bank accounts without their consent. Other malpractices would involve providing homeless people with fees accruing financial packages without regard to their financial status. Also, employees would offer unsuitable insurance policies to consumers. Sadly, some of the whistleblowers would go on to lose their jobs.

Ethical Issues in Wells Fargo Scandal

Unrealistic and conflicting company goals: wells Fargo management gave employees unrealistic account opening quotas that pushed employees into fraudulent practices (Cavico & Mujtaba, 2017). As a result, employees took advantage of consumer trust to open illegal accounts and transact with consumers' consent. Additionally, the company policy of either meet the quota or lose your job is conflicting with the company's steps to prevent fraud. These conflicting policies are indications of gaps between human resource policies and compliance policies. Due to pressure from management, employees had to break banking rules and organization ethics. Organizations have to create realistic company goals.

Inappropriate use of technology: wells Fargo took advantage of existing company technology to access consumer data and create illegal accounts (Kostry, Malloy, Wang, & O’Rourke, 2017). For instance, bank employees had access to personal consumer data, such as names, locations, and birth dates. Additionally, employees have access to the log in details. By changing the login details of consumers, wells Fargo employees could move funds across accounts without clients' authorization. Furthermore, employees would manipulate the company technology to circumvent the company's security measures to use their personal information such as contacts to hide clients' fraud.

Inappropriate office traditions: toxic office practices include manipulating company records, exploiting employees' fears, and seeking bribes from associates and clients. Wells Fargo created a toxic workplace by putting pressure on employees to meet unrealistic quotas (Van Rooij & Fine, 2018). Attempts by employees to have management scale down expectations were often ignored. Additionally, the company took advantage of a poor economy and the fear of losing jobs to force employees to break their moral codes. For instance, employees would dupe clients into opening accounts that they had no financial ability to maintain or require. Also, employees put their careers and reputation at risk by creating illegal accounts. By allowing employees to create false accounts and using the false account numbers to tout the organizations, financial status is an example of the fabrication of company records. The accounts are an inaccurate representation of the company status.

Unethical leadership: poor leadership is an example of unethical leadership (Leasure & Zhang, 2017). In the wells, Fargo scandal management is culpable for the employees’ mishaps. For instance, management’s desire to achieve profits negates the desire for compliance and ethical business practices. Management also ignores employees’ complaints and capitalizes on their fears to make them break the rules. Additionally, prudential financial employees who brought the insurance malpractices to light were fired by the company. Firing employees for doing the right thing encourages other employees to abide by harmful business practices.

Response to the Wells Fargo Scandal

Investigation: wells Fargo undertook an internal investigation into the scandal to identify loopholes and complicit employees. As a result, thousands of fraudulent accounts keep coming to light. Also, the employees complicit in the fraud were laid off in and U5 notifications sent to other banks, notifying them of the employee’s role in the fraud. The company has also been before the senate banking committee to explain the sources of the fraud and measures it is taking to avoid similar mistakes in the future (Howard).

Culture change: the company is instituting culture changes in its operations. For instance, to minimize pressure on employees, the company is doing away with sales quotas at the branch level. The company hopes this step will reduce pressure on employees while encouraging them to e ethical and transparent in their operations. The company is also creating measures to protect whistleblower employees and be more responsive to their needs. For instance, to avoid retaliation against employees, the company now allows a third-party review of retaliation claims by employees, developing an internal committee to probe and resolve ethical issues that come up in the company and emphasis on consistent review of complaints across the company. Additionally, there has been employee turnover at all cadres to introduce a new corporate culture.

Fines: wells Fargo has paid fines to several state and national agencies as repercussions for its employee’s actions. For instance, the Consumer Financial Protection Bureau in September 2016 fines the company 100 million dollars for opening accounts without consents and an additional 2.5 million dollars in compensation to customers. Also, 50 state attorneys generally received a 575 million dollars settlement for the company's role in issuing illegal mortgage fees and illegal creations of accounts (Veetikazhi & Krishnan, 2018).

Media influence: the company was quick to acknowledge fraud among some of its employees. The company put up advertisements in influential newspapers, taking the blame for the employee’s fraud. However, the company did not acknowledge creating a toxic environment for employees. This attempt to shift blame for a toxic environment appears to have been an attempt to save face.

Analyzing Wells Fargo’s Response

Wells Fargo took ethical and social responsibility for the accounts debacle. The company needed to acknowledge the scandal within the organization rather than covering up. This step is crucial in encouraging transparency internally and with its stakeholders, such as consumers, employees, and the government. Furthermore, the company was efficient in communicating the extent of the scandal and its guilt. After the scandal goes public, the company places advertisements on leading newspapers, acknowledging its mistakes and highlighting its measures to resolve the matter. However, the attempt to shift blame for the low working environment was socially and ethically unacceptable. Shifting blame indicates that the company is unwilling to take responsibility for all actions that led to the scandal.

The company’s response to the scandal highlights social and ethical responsibility. The company takes the scandal as an opportunity to create a suitable working environment for employees. The company suspends branch level sales quotas and lays off some employees who are culpable of the fraud. Moreover, the company institutes an internal investigation into the conduct of its employees and management. Additionally, the company reviews its ethical reporting procedures to ensure the company is responsive to the employee and consumer complaints. This step ensures that in the future, employees will receive protection from retaliation. Wells Fargo has also been cooperating with government agencies investigating the scandal. Cooperating with legal institutions in investigations and complying with their punishments indicates that the organization is submissive to the state laws.

Actions by Wells Fargo That Would Have Prevented the Scandal

Creation of a suitable working environment: before the scandal wells, Fargo should have ensured that employees have a conducive working environment. Therefore, employees should have achievable goals that do not place undue pressure on them. Additionally, the organization should ensure that the ethics response line is active. As a result, employees with ethical questions would have their queries probed efficiently. The reporting process should also protect employees' identity to avoid the possibility of retaliation attacks from fellow employees and management.

Bridge gap between human resource and compliance department: the accounts scandal took place due to the gap between human resource and compliance departments, which allowed employees to engage in fraudulent behavior regardless of legal outcomes. Therefore, the HR department should have been more proactive in informing employees of their roles and rights within the organizations while the compliance department vets all employee actions. Employee rights include protection from retaliation, securing employees their jobs despite whistleblowing, and offering employees medical help for hose under pressure. Creating a clear communication line between the two departments and putting them under a single leadership would increase synergy and cooperation, hence avoiding the scandal.

Creating achievable company goals: the company should have made achievable goals for all cadres of the organization. For instance, employee representatives and management should have been working together to determine the company targets. This step would ensure that employees have realistic and useful goals. To enhance the decision-making process, the company would seek a third-party's services to review its performance and vision, hence creating a reasonable plan for stakeholders in the organization.

Hiring a third-party compliance officer: employees could manipulate company technology to access client’s data hence the need for a third-party compliance officer. A third-party would have been neutral in its actions while being devoid of internal pressure to meet company goals. Lack of pressure and neutrality would ensure that the officer ensures compliance at all company hierarchy levels.

Regular reviews of business operations: wells Fargo should have been carrying out regular reviews all of its business operations to ensure compliance. There should have been reviews of the ethical reporting line and the actions that management took to ensure they consider their complaints. Additionally, there should have been reviews of technology used to ensure that clients’ data does not fall into rogue employees' hands. Also, the company should have been doing random thoughts of transactions to ensure consumers are aware of transactions and their accounts. Through these steps, the company would avoid the scandal by identifying unethical practices early.

Responsibility for the Scandal

Wells Fargo’s management is responsible for the accounts scandal. In any organization, management is responsible for all business operations. Management creates the company goals and vision, hires employees, creates a culture, and ensures that the company has adequate resources to achieve the goals. The severity of management functions is the reason why managers receive huge compensations in comparison with other employees. In wells Fargo’s case, management was culpable for all activities leading to the scandal. For instance, despite knowing the company's financial and client capacity, they instituted unachievable goals for their employees without considering the impact of the goals on employees, consumers, and the company.

Management is also culpable for instituting harmful policies in the company. For instance, the managers had the slogan, ‘great eight’ (Glazer, 2016). The slogan would become part of the company policy: employees should ensure customers have at least eight accounts with the company. Harmful policies also constitute the executives’ decision to promote managers who were part of the fraudulent activities in addition to awarding themselves allowances despite knowing that some of the company profits were from fraudulent activities.

Employees are also culpable in the scandal. Employees should have been proactive in ensuring that management was listening to their grievances. Failure by the company to resolve the issues, employees should have approached local leaders and media stations' regulatory bodies to highlight the business operations' malpractices. However, by giving into fear and creating illegal accounts, the employees were contributing to unlawful activity.

Steps To Avoid Similar Scandals In Future

Redefining the brand: wells Fargo should take advantage of the scandal to redefine its brand ad business operations. The company should first communicate its vision and goals and emphasize its strong business points, such as its stakeholders' innovation. This step is essential in regaining consumer support and trust. Consequently, wells should introduce new company products while capitalizing on media attention and attempts to regain consumer trust. As a result, the company will create a new clean reputation without ignoring previous malpractices.

Shift corporate culture: the company should strive to maintain a transparent and innovative corporate culture that places consumers and employees at the center. For instance, the company should ensure that employee complaints receive adequate attention, and employees do not receive condemnation for voicing their opinions. Additionally, employees require access to mental facilities to help them cope with the pressure of working in wells Fargo. On the other hand, the company should hire ethical employees to avoid employing employees who will manipulate client data. The company should focus on providing consumers with suitable products hence increasing their transactions with the company.

Compliance: wells Fargo should be proactive in ensuring that its employees and business activities are compliant with industry regulations. Employees should have regular training on rules. Additionally, the company should ensure new employees have qualifications in ethics while making ethics part of a promotion requirement. The company should involve third-party institutions to review its operations regularly.

Society’s Role in Avoiding Corporate Scandal

Society is critical in avoiding corporate scandals such as the wells Fargo account scandal. For instance, community and stakeholders should avoid pressure on corporate to make considerable profits to measure success. Besides gains, stakeholders should encourage financial institutions to participate in corporate social responsibility activities (Cisneros). Corporate success should also depend on companies' ability to contribute to alleviating social challenges in society by assessing the use of sustainable energy sources and technology. A holistic analysis of corporate influence will reduce the demand for profits, making corporate more humane and accessible to all society members.

In conclusion, Wells Fargo employees' creation of accounts without consumers' consent highlights the wells Fargo scandal. Poor corporate culture, toxic work environment, and unrealistic goals are some of the scandal's unethical behaviors. Due to the scandal, Wells Fargo has been losing market share, put up the internal investigation, received fines, and put measures to create a suitable office environment. To avoid the scandal, the company should have ensured that the HR and compliance departments' gap was negligible, develop an appropriate setting for employees, and be active in responding to employee complaints. However, Wells Fargo management takes blame for the scandal for creating a toxic workplace and setting harmful goals for employees.