Until recently, many business enterprises and business leaders focused solely on making and maximizing the profits of their owners. Some companies conducted their activities with a total disregard for ethical standards and values. However, there has been a radical change in the importance of ethical practice in the global corporate environment over the last 20 years (Sroka & Szántó, 2018). Firms have to resolve ethical dilemmas systematically and follow existing decision-making steps to resolve difficult issues effectively. However, despite the growing importance of business ethics and resolving ethical dilemmas systematically, some companies are still tempted to engage in ambivalent and misleading communication when resolving the moral predicament, which in turn threatens their corporate image and legitimacy.
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Systematic Resolution of Ethical Dilemmas
Business enterprises, and particularly their executive management teams, engage in unscrupulous practices when faced with ethical dilemmas. Thummes (2018) observes that “in their effort to attain legitimacy, corporations are tempted to resolve ethical dilemmas that arise from conflicting stakeholder expectations by ambiguous and misleading communication” (p.111). Thummes (2018) further cautions that such malpractices may jeopardize the company’s efforts to become a legitimate business. Therefore, this paper discusses systematic steps toward resolving Wells Fargo’s dilemma.
Gather Relevant Facts and Identify Key Problems
The first step in the systematic resolution of ethical and management dilemmas is collecting relevant facts about the case or event. Zeni et al. (2016) and Schwartz, M. S. (2016) consistently emphasize the need to gather helpful information about the issue at hand to avoid the risk of jumping to conclusions and making assumptions without reliable evidence. The consultant can include the client (Wells Fargo Board) to gather facts about the scandal. For instance, the consultant may engage the board to share its findings on the root causes of indecent sales practices.
One major fact about the Wells Fargo case is the violation of customers’ terms of privacy. In a surprise move in 2016, the company admitted to having opened staggering 2 million fake accounts without the consent of its customers (Cavico & Mujtaba, 2017). Their employees forged the customers’ information, including their signatures, opened accounts, transferred money between the accounts, and charged overdraft fees. The company took these decisions without the customers’ consent and knowledge. Another critical point in the case is the unprecedented pressure on employees to hit sales quotas. Supervisors in the firm pressured their team members to engage in malpractices linked to unrealistic sales targets.
Identify Affected Parties
Several parties were affected by the Wells Fargo fake accounts scandal and its unsystematic resolution of the crisis. The staff was one of the key stakeholder groups that were hit hard by the vice. The benefit-based compensation strategy aggravated the unethical behaviors by incentivizing staff members to pursue shortcuts to earn a bonus. The immense pressure to commit shady sales practices, coupled with retaliation against disclosure of misconduct, led to unprecedented lays and turnover. The management team, led by CEO John Stumpf, was at the center of the case because of its role in the cultural, structural, and leadership issues that led to improper sales practices.
Furthermore, company owners and shareholders suffered financial losses as a result of the scandal. For instance, Wells Fargo was fined a total of $185 million due to creating unauthorized accounts. Further actions were taken against the company limiting the growth of its assets until the board of directors fixed all the governance and management risks that faced the company. A further $1B fine was imposed on the company by the CFPB and OCC for the fraud committed by their car loans department against its customers. Sroka and Szántó (2018) explain that demonstrating a high level of ethical conduct positively impacts its corporate image and overall success. In this case, the financial institution suffered reputational damage. Lastly, customers suffered because the sales practices compromised the privacy of their accounts and personal information. The consultant may involve the client at this point by asking the board, managers, staff, and customers how the scandal impacted them.
Consider Fundamental Ethical Issues and Principles Involved
Today, companies have to ensure that their strategic decisions and actions are ethical and particularly contribute to their corporate social responsibility in business practice. Organizations can have a positive reputation only if it fulfills their obligations towards their stakeholders, including employees, customers, business partners, the environment, and society. In this case, Wells Fargo failed to demonstrate its responsibility to its customers, employees, regulatory authorities, and society by creating fake accounts and cultivating a toxic organizational culture. The firm breached several principles such as trustworthiness, respect, responsibility, fairness, caring, and citizenship. Corporate leaders with integrity value strive to make the right decision and value their customers, employees, business partners, and the society in which they operate.
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Consider Internal Procedures
The fake accounts scandal demonstrates the absence of robust organizational policies and procedures for sales practice and the resolution of dilemmas. If they exist, then there is widespread disregard for their value when making critical business decisions. This gap manifests in the cultural, structural, and leadership flaws attributable to unscrupulous sales practices. Most importantly, the scandal points to the absence of an ethics code in the financial institution. The inexistence or failure to recognize the code means that the management and employees lack a framework and a standard for making a proper decision, especially in the sales department. Accounting for this code is vital for decision-making because it enables managers and employees to exercise moral discernment and make ethical choices (Mahajan & Mahajan, 2016). Having an ethics code and adhering to its principles and values would have enabled CEO John Stumpf and his leadership team to avoid improper sales practices and subjecting workers to immense pressure.
Consider and Evaluate Possible Courses of Action
As a consultant, this point provides another excellent opportunity for incorporating the client in the systematic resolution of the public relations crisis. This step involves finding possible ways of addressing the dilemma. Some possible solutions are creating an ethics code, training employees on ethical behavior, and promoting ethical behavior by rewarding individuals who model proper conduct. Each of these approaches has unique benefits and limitations concerning cost and time requirements, and impact. The consultant may use various tools, such as a cost-benefit analysis to determine the most viable solution.
Implement the Best Solution
Creating an ethics code would be the best course of action. However, the management should communicate the code to employees and customers regularly and emphasize its benefits. Moreover, the code must include clear policies and procedures for reporting suspected and actual violations and be periodically updated and reviewed. Consistent with Mahajan and Mahajan (2016), accounting for this code will guide managers and sales agents and help them make proper decisions about behaving and acting in varied situations.
One of the most challenging tasks for many business leaders today is making proper decisions. Most of the decisions and actions managers have to make today involve an ethical component. As depicted in the Wells Fargo fake accounts scandal, failure to resolve ethical dilemmas systematically and strictly adhere to established decision-making steps can lead to severe financial loss and reputation damage. Every business enterprise must institutionalize and demonstrate high moral principles and practices to achieve business success and improve its corporate image. Therefore, organizations and their personnel must understand and apply established ethical decision-making models and recognize their ethics codes to improve outcomes.
Cavico, F. J., & Mujtaba, B. G. (2017). Wells Fargo’s fake accounts scandal and its legal and ethical implications for management. SAM Advanced Management Journal, 82(2), 4. Web.
Mahajan, A., & Mahajan, A. (2016). Code of ethics among Indian business firms: A cross-sectional analysis of its incidence, role and compliance. Paradigm, 20(1), 14-35. Web.
Schwartz, M. S. (2016). Ethical decision-making theory: An integrated approach. Journal of Business Ethics, 139(4), 755-776. Web.
Sroka, W., & Szántó, R. (2018). Corporate social responsibility and business ethics in controversial sectors: Analysis of research results. Journal of Entrepreneurship, Management and Innovation, 14(3), 111-126.
Thummes, K. (2018). In the twilight zone between veracity and lying: A survey on the perceived legitimacy of corporate deception in reaction to ethical dilemmas. International Journal of Strategic Communication, 12(1), 1-24. Web.
Zeni, T. A., Buckley, M. R., Mumford, M. D., & Griffith, J. A. (2016). Making “sense” of ethical decision making. The Leadership Quarterly, 27(6), 838-855. Web.