Explaining the Wells Fargo scandal


Add Wells Fargo to a growing list of companies behaving badly: Earlier this month, federal regulators revealed that the banking behemoth had created more than 2 million bogus bank and credit card accounts, most without its customers’ consent. The incentive was largely financial, as Wells Fargo rewarded many of its employees — especially those in upper management — with bonuses for cross-selling, while top executives saw the value of their stock soar. CEO John Stumpf, meanwhile, told employees that every Wells Fargo customer should have at least eight accounts with the bank.

That comes as no surprise to Harvin C. Moore, an international speaker, author and consultant. Decades ago, while co-owning a sales and loan association in Texas, Moore says he committed fraud to cope with intense financial pressures at his company — and then spent two years in federal prison as a result. Today, the Vistage speaker and author of One Choice Can Change Your Life travels across the nation to talk to business leaders about lessons learned from his experience.

Here, he shares his perspective on the Wells Fargo scandal, the driving forces behind unethical behavior and the big takeaways for business leaders.

How does a company like Wells Fargo get to this point?

If you work backward from the result of the conduct to its inception, there stands the “fork in the road.” When companies or leaders experience pressure or temptation, they are also often presented with an opportunity or activity that can mitigate the pressure or yield to the temptation. They must make a choice from among the various related options.

There are many types of pressure, such as financial, goals and performance, time, statutory and regulatory compliance, competition and ego. In addition, there are groups that can exert these pressures — stockholders and their Wall Street representatives, regulators, customers, vendors, peers and family, among others. When a company or leader yields to the pressure, they make a rationalization to justify the way they’ve dealt with it and undertake an activity. When these three elements exist — pressure, rationalization and opportunity/activity — you have completed what the Association of Certified Fraud Examiners calls “The Fraud Triangle.”

How do leaders typically rationalize these decisions?

The two most common rationalizations are “everyone’s doing it” and “no one will ever know.” Maybe Wells Fargo used one or both. But it might have justified its conduct with “we have to do this” to be competitive or to boost earnings.

It’s probable that, from the CEO down, no one anticipated that the program’s execution could be manipulated — harming the bank and, even worse, harming customers. It’s the ever-present reality of unintended consequences. A program that’s not thoroughly examined before its implemented and/or not effectively monitored will cause problems. Those responsibilities can rest on different individuals throughout the organization, even at the top of the pyramid.

Can you imagine Well Fargo’s CEO John Stumpf using some of those rationalizations to justify his behavior?

Yes. In a giant organization like Wells Fargo, there are levels upon levels of upward reporting, particularly of financial results and goals and performance. With the stimulation of the CEO’s stated goal of cross-selling success, it gets magnified as it progresses down through the organization. Everyone feels the pressure to perform for the accolades and the incentives. But we also know there were those who under-performed and those who felt it was just wrong to pressure your customers. Well, they either quit or complained and were fired.

So the question is, who is monitoring the performances of the individual employees? Not the CEO in a large bank like Wells Fargo. That’s delegated. Yet how far up the chain of command does the knowledge or the “should have known” extend? The CEO might rationalize the revealed conduct by saying he was not the manager who oversaw the improper conduct, therefore it wasn’t his fault. He might even profess that he didn’t know about it. There is obviously much litigation to follow, so we may well learn how this will all play out and be handled by the C-Suite executives. Red flags were missed over the years and no one fixed the problem when it first surfaced years ago. Attaching blame will take quite a while.

Is denial often part of this process?

All white-collar defendants live in denial once they make the rationalization to do what they do. That becomes their reality. But it’s the emperor’s clothes. And I don’t care who you are or what kind of case it is, whether insider trading or Wells Fargo. You believe it because that is your narrative. But someday, some time, reality overcomes it.

Why is it so hard to learn from the mistakes of companies like Wells Fargo?

When people read articles [about these kinds of scandals], they often think it won’t happen to them. They’ll say, “I’m not in that industry” or “I’ll never be in that business” or “I don’t operate worldwide.” What people don’t realize is, a corporation didn’t do that. People did. Secondly, it isn’t a function of the size of the organization. It is a function of the values of the leadership. Because the leader’s values are reflected in the leader’s conduct, and that sets the tone for the culture of the whole organization. That, in my judgment, is not to be delegated.

How would you advise a business leader who’s made a bad decision?

This sometimes comes up in my Vistage programs. Someone will come up to me during a break and share something with me. One of the first things I say to them is, tell your spouse or your significant other. That is critical. Secondly, if it’s really serious, I will say, have you talked to a lawyer? And you’d be amazed by how many people have talked to a lawyer but haven’t told them everything. I tell them, that lawyer cannot represent you unless you tell the truth, the whole truth and nothing but the truth. Do not parse words.

Sometimes people will come up to me and explain a situation they’ve been in and that they wanted to do such-and-such. They will ask me, “Would you do that?” And I’ll tell them, I can’t answer your ethical questions because that’s based on your core values. I don’t know what your values are; you know them and you have live with them. But I’ll ask you one question: Would you take that decision that you just made and share it with your spouse? Or would you share it with your children as an appropriate example of conduct? If there is any hesitancy, then you have a double standard. If you do one thing in the business context and another thing in the family context, that’s a bad thing. That’s going to create stress and friction. You can’t live with two different values systems.

What’s the big takeaway for business leaders?

The big thing to realize is, we make choices all the time but we don’t ever choose the result. So, when we make a bad choice, we may get a bad result. And it can be really bad. I know firsthand that one choice can change your life. But should that happen, you do get to choose your response to it. Learn from the experience. And try harder to make the right choice next time by looking at your moral compass and following it.

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