Wells Fargo’s Corporate Culture

“We found a break down in a small number of our team members”, Gary Kishner, a regional spokesman for Wells Fargo, to E. Scott Rechkard, a Los Angeles Times repo­­­rter, October, 2013.

Kishner was speaking about the firing of 30 branch managers in 2013. Rechkard had a hunch there was more to the story. He had a source telling him there was a pervasive culture at Wells Fargo to defraud customers in order to meet sales quotas. The Kishner statement is extremely important because it strongly implies Wells Fargo had done a thorough review, and isolated the problem to “a small number” of employees. Three years later Wells Fargo has fired over 3,500 people and agreed to pay $185 million to both state and federal regulators for opening over 2 million fraudulent accounts. All in the name of meeting sales quotas.

Fact: In October 2013, Wells Fargo agreed to pay Freddie Mac $869 million to repurchase home loans fraudulently sold to mortgage agencies.

“Culture easts strategy for breakfast” Quote attributed to Peter Drucker by former CEO of Merk, Dick Clark

Rechkard and The L.A. Times were flooded after the October story with former and existing Wells Fargo employees wanting to tell their story. Rechkard’s hunch was spot on. So three months later the second article was released and the story exploded. This 2nd article exposed the culture of corruption, and subsequently lead to federal and state investigations. Branch managers were coaching subordinates on defrauding the system to fill quotas, regional managers were conducting multiple conference calls daily to track how the branches were meeting those quotas. Lawsuits were being filed by former employees and customers supporting The L.A. Times articles that fraudulent behavior was part of the culture.

Fact: In April of 2013, Wells Fargo settled a suit with 24,000 customers for over-inflating premiums on force-place insurance.

“I suppose it is tempting, if the only tool you have is a hammer, to treat everything as if it is a nail” Abraham H. Maslow, Toward a Psychology of Being

Years ago Wells Fargo had a vision. To “help” people, they would incentivize their employees to cross sell an average of 8 financial products per customer, but they would not call them products, they would call them “Solutions”. The Great 8 was born. KPI’s were designed, data was organized, training programs were rolled out, and compensation was aligned to ensure the success of the Great 8. It became the culture at Wells Fargo’s branches. In an email from a Southern California district manager in 2011, a dozen branch managers were scolded for not signing up enough customers to the fee driven overdraft protection product the company had been pushing.

Fact: In August of 2010, a California judge ordered Wells Fargo to pay $203 million for deceptive business practices leading customers to pay hundreds of millions of dollars in overdraft fees.

“The environment shapes people’s actions.” B.F. Skinner

John Stumpf, Wells Fargo’s CEO who made over $18 million last year and is believed to be sitting on $200 million in company stock, began speaking this week about the 2 million fraudulent accounts, the need to fire 5,300 people, and the agreement to pay $185 million in state and federal fines because some former employees did not “represent the culture of the company”.

Fact: According to corp-research.org Wells Fargo has been fined or settled law suits over 30 times totaling hundreds of millions of dollars before 2016.

“If you want people to do a good job, give them a good job to do” Frederick Herzberg

The executive, who agreed to take the fall for this corporate failure is Carrie Tolstedt. Tolstedt, the former head of community banking, will get a golden parachute of $125 million by the end of this year according to Fortune Magazine. In July 2016, Tolstedt’s retirement was announced in which Stumpf stated in a press release “A trusted colleague and dear friend, Carrie Tolstedt has been one of our most valuable Wells Fargo leaders, a standard-bearer of our culture, a champion for our customers, and a role model for responsible, principled and inclusive leadership,”

Fact: In August 2016, regulators fined Wells Fargo $4 million for charging illegal fees to student-loan borrowers.

“The highest compact we can make with our fellow is, ‘let there be truth between us forever more’” Ralph Waldo Emerson

Within social settings, most humans will work to minimize their opinions and actions with the goal of bringing about a harmonious environment. Physically, intellectually, and emotionally we need each other to survive, and so we attempt to assimilate. Our brains are wired to do so for both protection and acceptance. It is these human traits which have served humanity well many times over thousands of years. And it is these traits which some prey upon to create unjust cultures.

Fact: During a 2-day investor conference in 2010, Wells Fargo mentioned cross selling 108 times, according to Barclays analyst Jason Goldberg.

“Power does not corrupt. Fear corrupts” John Steinbeck

If we put ourselves inside that Wells Fargo culture, how many of us would have kept our heads down low, and adjusted the ethics bar to meet those quotas. How many of us would have tried to validate our behavior as being acceptable in order to keep our jobs? It is difficult to voluntarily be ostracized, but it is our responsibility. The 3,500 branch employees of Wells Fargo who lost their jobs due to corrupt behavior deserved to be fired. They violated the trust of their customers. We must never forget that. They became willing to set aside their ethics in order to keep their jobs. To assimilate. But we must also acknowledge as truth that their culture was real. It had been designed, and was being actively managed to preyed upon the trust of Wells Fargo’s employees and customers. It was a culture which motivated employees to do bad things in the name of being harmonious. In the name of keeping their jobs. We cannot say the same for those responsible for creating the culture. The executives worth hundreds of millions of dollars, or board members who could not be bothered to ask tough questions to ensure proper corporate governance. They were not required to suffer the culture to pay their bills. They created the culture either directly or indirectly. Their intent is irrelevant. Their responsibility is not. They failed us, yet they will be rewarded with great wealth for their failures. That is the real crime and the central thesis which we need to keep in our minds.

Fact: The following individuals are members of the Wells Fargo Board of Directors; former U.S. secretary of labor Elaine L. Chao, former Fed governor Elizabeth A. Duke, James H. Quigley, CEO emeritus of Deloitte, and Stephen W. Sanger, retired chairman of General Mills.

“The grab for a quick killing is the mark of the worst kind of leadership, for it places immediate profit above the long-term interest of the organization and can lead ultimately only to disaster” Crawford H Greenewalt, former Chairman of DuPont