Introduction
Many companies have well-established corporate cultures, defined as beliefs, values, and behaviors dictating how employees and management interact and handle business operations. Everything good about a company comes from a culture built over a long period. However, corporate cultures may also cause scandals that cost firms financial and reputational damages. Wells Fargo has a reputation for sound management practices emphasizing cultural values. However, the corporate culture is deemed to have contributed significantly to the cross-selling scandal.
Company Background
The corporate structure of Wells Fargo Bank is highly decentralized, as each division operates under weak central control. Since the cross-selling scandal, changes to the organizational structure have been implemented. The new structure comprises the Wells Fargo chief executive officer (CEO), who also serves as the bank’s president, a chief operations officer (COO), and five lines of business CEOs.
The five lines of business are consumer and small business banking, commercial banking, corporate and investment banking, wealth and investment management, and consumer lending (Wells Fargo, 2020). Each business line handles core operations and reports to the COO, who then reports to the CEO. Below the business lines are multiple functions dealt with by senior and mid-level management in charge of line workers. The lines of business also reflect the company’s scope of operations.
Wells Fargo Bank’s financial position remains strong as the firm continues to improve efficiency. Its financial statements for the 2022 financial year indicate that the bank generated $13.2 billion in net income (Wells Fargo, 2023). The financial position was significantly affected by a $7 billion operating loss used to address historical issues within the company.
Revenues generated in 2022 also declined 6% from the previous year. However, Wells Fargo Bank’s overall financial position remains strong, and the company is poised to withstand most external shocks as it has done in previous crises. The company’s business model is that of a retail banker offering banking services to individual consumers. The five business lines also represent the niche markets the firm’s business model targets.
Scandal
Wells Fargo’s cross-selling scandal came to light in 2013 when rumors started circulating that the company’s employees in Southern California used aggressive tactics to achieve daily cross-selling targets. News reports indicated that the firm fired around 30 employees for opening accounts and issuing cards without customers’ knowledge. In 2016, Wells Fargo agreed to pay $185 million to settle a lawsuit against it by regulators and the county and city of Los Angeles. In the process, the company admitted that workers had opened approximately two million accounts without clients’ authorization for five years (Tayan, 2019). The fine paid by Wells Fargo is considered smaller than what other financial institutions pay to settle violations.
However, the scandal had a huge impact on the company’s reputation. The cross-selling scandal has been blamed on the company’s practices of setting daily targets, which exert immense pressure on workers. Wells Fargo assigned quotas to branch managers, and if the branch failed to meet the quotas, the shortfalls were carried over to the following day’s targets. The incentives offered to employees to meet the targets included bonuses between 15% and 20% of salaries, whereas the tellers received up to 3% (Tayan, 2019). Therefore, the employees worked under the pressure of both the targets and the incentives, making it easy for them to violate the company’s ethical codes.
Corporate Culture
Wells Fargo has always insisted that it was committed to building customer relations, which is deeply embedded in its sales culture. The foundation of its culture is the vision and values that outline the company’s desire for lifelong relationships as opposed to transactions, growing the same business, and pushing products. However, its culture before the scandal can be described as an overbearing sales culture that exerted immense pressure on employees to achieve set targets.
The scandal occurred despite Wells Fargo constantly warning employees against such practices. The employee handbook expresses that splitting customer deposits and opening multiple accounts to increase incentive compensation violates sales integrity (Tayan, 2019). Senior management also received incentives with protections that emphasized best practices, risk reduction, and corporate culture. However, the effectiveness of the company’s culture in alleviating violations seems inadequate, especially when the sales culture takes precedence over everything else. An independent report of the scandal blamed the corporate leadership, especially the CEO, for the commitment to the company’s sales culture.
Conclusion
Wells Fargo prided itself on being committed to a corporate culture that prioritized long-term customer relationships over sales and transactions. However, the same company had implemented a sales culture that pressured employees to achieve targets often deemed unachievable. The result was a cross-selling scandal, in which employees were forced to open fake accounts for customers without their approval. The scandal cost the company a significant fine and a slight decline in share value. However, reputational damage is considered to be greater than financial consequences.
References
Tayan, B. (2019). The Wells Fargo cross-selling scandal. Harvard Law School Forum on Corporate Governance. Web.
Wells Fargo. (2020). Wells Fargo announces organizational changes. Wells Fargo Newsroom. Web.
Wells Fargo. (2023). 2022 annual report. Wells Fargo & Company.