Charles Scharf, the third chief executive of Wells Fargo in just four years since the firm’s 2016 crisis, told Congress in March 2020 that “there’s much the bank needs to do to fix its cultural problems, and isn’t expecting it to be done until 2021” (Marketwatch, 2020 ). The company paid $3 billion in February 2020 for past illegal sales practices, in addition to $1.2 billion in fines also previously paid. Moreover, the company was still restricted by the Federal Reserve to grow past a $1.95 trillion asset cap until it fixed its cultural problems (Truong, 2020). What happened at Wells Fargo in 2016, and before, and why are issues still lingering with this once name-brand firm?

Wells Fargo: Flashback

Wells Fargo was founded in 1852, offering banking and express services to individuals in California. By 1905, banking had been established as a separate division within the company. Wells Fargo continued to grow throughout the decades by acquiring other banks in the United States. In 2015, the company was a diversified banking and financial services firm with over $1.8 trillion in assets.

Wells Fargo had a reputation for sound management. In 2013, American Banker named then Wells Fargo CEO John Stumpf as “Banker of the Year,” and Carrie Tolstedt, head of the retail division, was named to the “Most Powerful Woman in Banking” list. In addition to its strong management, Wells Fargo was also known for allowing collective decision making among senior leaders. One former executive even stated that “no one person runs Wells Fargo and no one person ever will” (Tayan, 2019). Although Wells Fargo used collective decision making, all senior leaders were individually responsible for ensuring that proper practices were followed in their divisions.

The Vision and Shortsightedness

Wells Fargo’s vision is to “satisfy our customers’ needs and help them succeed financially” (Tayan, 2019). According to CEO Stumpf, vision is key to its culture: “[Our vision] is at the center of our culture, it’s important to our success, and frankly, it’s been probably the most significant contributor to our long-term performance” (Gujarathi and Barua, 2017).

However, in 2013, rumors circulated that Wells Fargo employees in Southern California were engaging in aggressive tactics to meet their daily cross-selling targets (Tayan, 2019). Cross-selling was how the firm deepened relationships in the community. The practice consisted of selling other financial services and products to existing customers rather than recruiting new ones. Cross-selling was cheaper than recruiting new customers and allowed Wells Fargo to increase its current customer retention rate.

Richard Kovacevich, the CEO of Wells Fargo before Stumpf, referred to cross-selling as “needs based selling” and said that it was Wells Fargo’s most important strategy. When Stumpf became CEO, he continued to place emphasis on cross-selling and developed incentives to do so. Financial incentives offered to employees for cross-selling were significant. Branch employees could earn up to $2,000 per quarter while district managers could receive up to $20,000 a year in bonuses (Gujarathi and Barua, 2017). 

Senior management had placed so much emphasis on cross-selling that quotas were implemented for the number and type of products to be sold by employees (Gujarathi and Barua, 2017). To ensure that cross-selling quotas were met, branch managers pushed down hourly quotas to employees and routinely monitored their progress to meet those quotas. Failure to meet goals could and did result in employees being publicly chastised by senior leaders. Widespread pressures to meet unrealistic sales targets that were adopted and enforced in financial statements by senior managers contributed to Wells Fargo’s crisis. An employee wrote to the chief executive’s office and another senior leader in 2013, saying, “I was in the 1991 Gulf War. . . . This is sad and hard for me to say, but I had less stress in the 1991 Gulf War than working for Wells Fargo” (Merle, 2020).....

Questions for Discussion

1. What went wrong at Wells Fargo that led to the crisis that was exposed?

2. Who was to blame, and why?

3. What was “unethical” as well as illegal about the practices of Wells Fargo’s officers?

4. What changes were recommended to get the company back on track?