In my Social Impact MBA program, I took a course called “The Triple Bottom Line.” We examined how corporations really move past different corporate social responsibility (CSR) crises. I chose to examine Wells Fargo and how it created and reacted to the Ghost Account Scandal.
Reputation before the crisis
The San Francisco-based Wells Fargo bank was host to one of the most egregious scandals to rock the finance world. This scandal is noteworthy because rather than being on the receiving end of a scandal, executives and management caused it internally. Founded in 1852, Wells Fargo set itself apart from other big banks as “the bank of the real economy.” I.e., its major business was retail banking for everyday folks, not trading or investment banking for sophisticated investors” (Mclean, 2017). However, nearly 20 years ago, company executives went against the code of ethics and “…pressured rank-and-file bank personnel to aggressively cross-sell products to enhance sales and revenue to meet certain quotas” (Agnes, 2016).
This bank went from being trusted by everyday Americans to drawing national outrage for having created millions of savings and checking accounts without customer approval. When one thinks of fraud, one thinks of having one’s identity stolen by a random stranger sifting through one’s mail. Not by one of the largest banks of the United States. Simon Zadek’s lens of examining degrees of corporate responsibility will be used to analyze how Wells Fargo reacted to internal and external outcry from employees, customers, and the broader American public over time.
2008: The Early signs
Reports of employees opening ghost accounts date back as early as 2002. In 2008, personal banker and single mother Yesenia Guitron of the St. Helena, CA branch, decided to work at Wells Fargo during the financial crisis because she needed work. Although internal employee guide books like the Wells Fargo Code of Ethics warned of termination if employees manipulated sales, the opposite was true. In 2008, the St. Helena branch manager expected employees to meet their daily sales goals of a whopping 8 products a day. The math didn’t add up because of the small town size, so gaming (manipulating sales) was inevitable (Mclean, 2017).
As a native Spanish speaker, Latinx clients would complain to Guillon in Spanish about mail regarding unauthorized “ghost” accounts. Guitron reported these gaming instances to her branch manager, and her concern was brushed off as having “a misunderstanding.” She was fired (Mclean, 2017). The fact that Wells Fargo executives and management pressured lower-level employees to engage in fraudulent activity is revelatory of the level of this crisis as one that didn’t happen to Wells Fargo, but was caused by executive’s greed.
exposure in the la times
Employees like Guillon kept suing Wells Fargo, and in 2013, L.A. Times reporter E. Scott Reckard, wrote an article titled “Wells Fargo’s Pressure-Cooker Sales Culture Comes at a Cost,” which exposed top-down pressure to open ghost accounts in order to game the system (Mclean, 2017). Low employee morale, ethical breaches, customer complaints and labor lawsuits drew the attention of Mike Feuer, the then Los Angeles city attorney. The company’s response to national attention was minimal by the time the news story broke, giving Feuer time to investigate the scandal.
In 2015, Feuer gathered enough evidence from former employees and customers to file a civil enforcement case against Wells Fargo. In 2016, Wells Fargo paid a combined $185 million penalty to the Consumer Financial Protection Bureau, the Office of the Comptroller of the Currency, and the City and County of Los Angeles to settle charges from all three of “fraudulent conduct . . . on a massive scale” (McLean, 2017). They are still paying these fines.
initial company response and consequences
After news of fines became public, a “Wells Fargo spokeswoman said that while the bank readily admits that it created questionable accounts, it does not agree with other findings by its banking regulators, namely that the bank’s culture and business model fostered such behavior” (Corkery, 2016). Instead of owning up to the company-sanctioned fraudulent activity, Wells Fargo’s crisis response approach was to “…scapegoat their employees and frame it as a “sales practice” crisis, rather than a problem that spans the depth of their corporate culture” (Agnes, 2016).
Due to the decentralized structure and corporate culture that former CEO Kovacevich (until 2017) encouraged, this happened (Mclean, 2017). As CEO, he encouraged cross-selling in order to pump up sales, so gaming was normalized.
Kovacevich’s successor, John Stumpf, repeatedly denied wrongdoing and defended company practices. In an internal email, he applauded the fact that only “…around 1% of our people lose their jobs [for] gaming the system…This is not systemic.” This minimization only highlights the fact that the 1% are only those who were caught, and they were usually the lowest level employees, not executives. (Mclean, 2017). Stumpf’s reaction to growing media attention was to downplay any notions of a scandal.
In 2016, The bank paid $185 million in fines and this wake up call caused Wells Fargo to shift from defensive to complaint by hiring an independent consultant to review its sales practices. Stumpf settled the investigation without admitting to any of the suspected misconduct (Corkery, 2016). Instead of prioritizing employees and clients as major stakeholders, executives manipulated them and lied to them.
Rebranding and Zadek’s CSR Lense
According to Zadek’s rating system, the initial company response was a defensive one (Zadek, 2004). The company didn’t have a solid response plan to this crisis because the company’s executives were the problem. The crisis response came from the media and the government which imposed fines on the company. In order to make a real difference in company culture and society, Zadek argues that companies’ responses to crises must include shifting “mind-set from safeguarding [its] reputation to reinventing [its] business” (pg.1, 2008). Initially, Wells Fargo’s executives denied responsibility and minimized the breadth of the scandal instead of confronting the wrongdoing and making immediate structural changes.
Clearly, company executives prioritized preserving the company’s reputation instead of revamping its corporate structure. Wells Fargo’s reaction to employee and client exploitation parallel’s Nike’s reaction to child labor exploitation accusations in the 1990s. Nike’s approach to a CSR crisis was to cover up and deny accusations. “When Nike refused to let Reverend Jesse Jackson tour one of its Indonesian factories, the media jumped all over the story, noting by contrast that Reebok had recently flown an executive to Indonesia just to give Jackson a tour” (Spar, pg. 6, 2002).
While comparing a trillion dollar bank to two sneaker companies may seem illogical, these are all large companies that all have the ability to prioritize accountability over reputation, and thanks to the media, consumers can hold them more accountable.
Since the crisis, Wells Fargo strengthened its social standing, since the only way to go then was up. In 2018, the company launched a marketing campaign emphasizing the company’s acknowledgement of wrongdoing. It showed an optimistic future in which client trusted them again.
Also, for the first time in the bank’s marketing history, advertisements featured employees helping clients. This was an attempt to humanize the bank. They launched the “This is Wells Fargo” campaign in 2019 along with a new logo (Cocheo, 2019). These were surface-level attempts at gaining back client trust. And exemplify the bare minimum at proving their trustworthiness to clients old and new.
The stock price didnt suffer throughout the crisis despite millions in fines. See exhibit A. Colvin states that neither investors nor Wall Street analysts were alarmed by the fact that the company created “2.1 million phony deposit and credit card accounts for unwitting customers,” and that weeks after the scandal broke, then CEO Stumpf called the scandal “inmaterial” when testifying before a House committee (2017). This apathy highlights that the stock market has little conscience and that both investors and analysts alike prioritized sales over ethics.
It would merely rate as “compliant” on the CSR path today, since current CEO Charlie Scharf is focused on complying with the Federal Reserve’s restrictions. In 2018, The Fed imposed an $1.95 trillion asset cap on the bank as punishment for the ghost account scandal, as well as limiting the bank’s ability to borrow money at a time when competitors like Citigroup are capitalizing on historically low interest rates that have arisen since the covid pandemic began (Mashayekhi, 2021).
It’s difficult to say these changes wouldn’t have happened without the crisis. The ghost account scandal came to the surface after over a decade of employee pressure to cross sell. And Wells Fargo only became accountable when the scandal became public. It’s difficult to gauge exactly what the company is presently doing as it’s still facing scandal consequences years later.
Citing legally binding confidentiality constraints imposed by The Fed, Scharf has been reticent about the company’s status in terms of regulation. In a January 2021 earnings call, he said: “I wish I could share with you the specifics of what the plan is…ultimately, it’s up to the [Federal Reserve Board] anyway. I’m just not in a position to put a timeframe around it” (Mashayekhi, 2021).
A month later, Wells Fargo shares closed 5% higher in one day after the Fed accepted Scharf’s proposed overhaul of its risk management and governance structures. This is just one of the several steps that would be required before the asset cap can be lifted, in addition to a “…months-long, third-party review” (Mashayekhi, 2021).
A Minimum Commitment to Corporate Social Responsibility
Even though Wells Fargo deliberately manipulated and lied to employees and customers, especially after studying this scandal, the general public tended to be forgiving once the company revamped its strategy. The response to the ghost scandal crisis was critical to the company’s movement along the path to Corporate Responsibility, although the movement has been slow. Surprisingly, despite causing the scandal, denying it, and doing the minimum to comply with regulations and rebrand itself, the company is still in excellent financial standing.
According to their 2020 4th quarter report, Wells Fargo is still one of the “leading financial services [companies] that has approximately $1.9 trillion in assets and proudly serves one in three U.S. households and more than 10% of all middle market companies in the U.S” (2020, December). It’s astounding that after one of the most egregious banking scandals in U.S. history, Americans continue to trust this institution. Some Americans may not know better, while others are too busy to move their money elsewhere.
In the same report, they list out their Corporate Responsibility rankings. They are #1 Bank for Communities and Environment (2019) (The EPA’s Green Power Partnership National Top 100). The #2 Top Company for Philanthropy (2020) (DiversityInc). Also ‘Outstanding’ Community Reinvestment Act Rating). And The Office of the Comptroller of the Currency 100 Best Corporate Citizens of 2020 (3BL Media) (2020, December).
I want to point out that despite these cherry picked awards, company executives caused this scandal. Getting caught by the American legal system is the only thing that prompted change to happen.
Lessons Learned as a Former Stock Broker
I had seen the “Wagon Wheel” episode about the ghost account scandal on Netflix’s “Dirty Money,” so I was familiar with the details of the scandal. My previously held beliefs after watching this episode were that Wells Fargo benefited from its long lasting reputation as the “golden child” of banking, yet a few people in positions of power decided to take advantage of this reputation without the belief that they would be caught for defrauding clients.
As a past Charles Schwab broker, we prided ourselves in differentiating ourselves from Wells Fargo or Bank of America. During my stock broker training, Schwab staff emphasized the importance of transparency with clients. We were trained to not seem as if we are pushing products into clients. Rather we learned to suggest solutions after asking open-ended questions.
Schwab staff taught us the importance of prioritizing client trust. Trust is something that is gained over a lifetime, but can be lost in an instant. With that in mind, I felt as if I could be trusted to do the right thing. Each day I was exposed to hundreds of clients and their confidential financial information. Schwab is known as a relatively trustworthy brokerage firm in comparison because of what it doesn’t do wrong rather than what it does right.
As a former Schwab employee and experiencing how strict our compliance standards were, I feel my money is safe there. I worked in an open-design call center. My manager and teammates were constantly listening on my calls, as was the compliance team. Recorded calls were available to be played back at any time in order to protect us and our clients. I truly felt as if Schwab was on the client’s side. Because of this intentionality, I trust this firm more than I would ever trust Wells Fargo. And for that reason, they have my business. I’m sure millions of other non-Wells Fargo clients feel similarly.
Applications in my money coaching business
Earning client trust is huge, as is transparency. As a money coach working with mostly BIPOC and LGBT folks who have not been raised with a deep understanding of the financial system in the U.S., I take personal responsibility for them feeling safe enough to invest their money carefully without fear of being exploited or defrauded by the very financial institutions that we’re all supposed to trust. Wells Fargo pushed workers to sell “…new products to existing customers…often with little regard for a customer’s actual needs” (Williams, 2020). I took my relationship building learnings from Schwab and apply it to my money coaching. I encourage open conversatoins and ask a lot of questions to understand my clients. Then, I offer solutions tailored to their unique circumstances.
I used to offer one-off, hour long money coaching sessions with mostly BIPOC and LGBT folks via zoom. Now I’m more interested in quality over quantity. I’ve shifted to a six month program. This allows me to build deeper relationships and be a consistent, trusted resource for building wealth.
I could easily be lying about my experience in the finance world and tricking people into letting them manage their money. This is how I can see that Wells Fargo’s employees were so easily able to convince clients to open accounts they didn’t need. Once trust is established, it’s easy to take advantage of a client, especially if the employee is not only unsupervised but encouraged to lie. Managing money is scary. It is daunting, and the language around money can feel very overwhelming. People look to the financial experts for help.
Now, that I’ve learned the language of finance, and now my goal is to empower others to work past that fear and to finally understand the language of money and to understand how current events affect our finances. For example, when people ask me why interest rates are so low, I bring up that it’s not their banks that have lowered interest rates, it’s the Federal Reserve that sets them. Interest rates have been at historical lows since covid, and I’m aware of this because working as a stock broker made me realize how interconnected the government’s actions are with how money functions in this country.
The ghost account scandal rocked the finance world. The Feds are still watching and monitoring Wells Fargo today. This CSR crisis is reflective of the fact that if a company culture that doesn’t bring the best interests of its clients to mind, consequences will eventually happen that will limit the company’s growth and that will cause people to lose their trust. However, this scandal also highlights that an extremely profitable company that manipulates its clients won’t easily lose investor support-at least it didn’t in this case.
Zadek’s lens of examining degrees of corporate responsibility revealed that this company went from the defensive phase to the compliant phase. Wells Fargo paid millions in fines and revamped its advertising to attempt to regain client trust, but it didn’t do much more than that, and a large portion of Americans still bank with them. Wells Fargo is an example of what a company should not do in a major CSR crisis.
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