Could help to answer on Analyze the environment, industry and firm by looking for the main causes to the problem and solutions that the company developed of case study " Wells Fargos Sales Culture Fails The Company"

Wells Fargo's Sales Culture Fails SALES PRACTICES AT WELLS FARGO The Company Norwest merged with Wells Fargo in 1998; the bank How do you sell money? This is a fundamental chal- retained the Wells Fargo name, and Kovacevich took lenge for retail banks, and Richard Kovacevich had a the helm as president and CEO. He saw revenue growth solution. He saw banks as stores, bankers as salespeo- as the bank's most important goal and cross-selling as ple, and financial instruments as consumer products. the way to achieve it. 127 Bankers could earn between Much like a deli worker asks if you'd like to upsize that $500 and $2,000 in quarterly bonuses for hitting sales combo or add dessert to your order, a banker should targets, and district managers could increase their anencourage you to add a credit card, savings account, or nual compensation by up to $20,000. According to forloan to your portfolio. Kovacevich called it "cross- mer Wells Fargo worker Scott Trainor, "If you could selling," and he based it on the fact that customers with sell, you had a job." 28 several accounts are much more profitable to a bank The strong sales culture transformed Wells Fargo's than customers with a single account. How many ac- bottom line, as evidenced by a 67 percent increase in counts should a customer have? Eight, according to the the bank's stock from 2006-2015. 129 Unfortunately, the "Going for Gr-Eight" initiative he launched as CEO of culture had a dark side. Steven Schrodt, who worked at Norwest in 1997. Why eight? Because, Kovacevich said, a Wells Fargo branch in Lincoln, Nebraska, before re"It rhymes with GREAT!126 signing due to severe sales pressure in 2012, remembers 318 managers encouraging those who hadn't reached sales employees who worked at Wells between 2004 and goals to open accounts for their family members and 2011 told NPR the fraud was pervasive and that managfriends. Other former employees describe searching for ers were heavily involved. One former banker recalled potential customers at retirement homes and local bus sitting at a conference table with her managers in a winstops. 130 dowless, locked room and receiving a "formal warning" Bankers who grew tired of asking friends, family, to sign. Her managers told her that bankers who didn't and strangers for business adopted more covert tactics. meet sales goals were not team players, and poor team One former Wells Fargo employee recalls the day he members would be fired and forced to carry the mark discovered a high-performing co-worker's secret for- on their permanent records. 140 mula. A customer had applied for a home equity loan For bankers who did play by the rules, the outcome and somehow also ended up with a $20,000 personal was bleak. "They ruined my life," says Bill Bado, a forline of credit. "So then I realzed how he was doing all mer Pennsylvania branch worker. 141 Bado repeatedly his loans, because he was basically tagging on other refused to open fraudulent bank accounts and credit loan products in the same application so they wouldn't cards, made calls to bank's ethics hotline, and even sent really notice when they signed the documents."131 an e-mail to HR about his supervisors pressuring him Problems started to emerge in 2009. At this point, to engage in unethical RSPs; just over a week after Richard Kovacevich was gone, John Stumpf was presi- e-mailing HR, Bado was terminated for excessive tardident and CEO, and Kovacevich's sales culture was ness. Another former employee lost her job after e-maildeeply embedded. To investigate potential problems in ing Stumpf directly about the fraud; Stumpf has claimed retail sales practices (RSPs) in the bank's branches, he doesn't recall the e-mail. 142 Wells Fargo established an internal task force in 2012. The task force concluded that the unethical behavior AFTERMATH was due to a small set of "rogue" individual branch Stumpf resigned from Wells Fargo in October 2016 , workers. 132 Wells Fargo subsequently fired more than and Timothy Sloan took over as CEO. Sloan immedi5,000 "rogue" bankers between 2013 and 2016.133 ately discontinued labeling branches "stores" and overWELLS FARGO ADMITS TO FRAUD: hauled the bank's incentive compensation plan, shifting BLAMES PROBLEM ON WORKERS, the focus to customer satisfaction and drastically reducNOT CULTURE organization to fully centralize the bank's risk and HR In September 2016, the Office of the Comptroller of functions, consolidating "much of the vast risk-control the Currency (OCC), the Consumer Financial bureaucracy into a new office of ethics, oversight, and Protection Bureau (CFPB), and the Los Angeles City integrity, accountable to the board's risk committee." 143 Attorney publicly fined Wells Fargo \$185 million for And yet, in spite of Sloan's efforts, another scandal was opening millions of bank accounts without customers' brewing. knowledge. 134,135 The bank openly admitted to the Earlier in 2016, executives at Wells Fargo had realfraud, but executives noted that Wells Fargo had offi- ized that hundreds of thousands of car loan customers cial policies in place in their Sales Quality Manual re- had been charged for unnecessary auto insurance. 144 quiring customers' consent "for each specific solution An internal report revealed that the costs of the gratuor service" and expressly prohibiting bankers from itous insurance resulted in auto loan defaults for more opening multiple accounts to increase incentive com- than 270,000 customers and the repossession of appensation. 136 In an interview with The Wall Street proximately 25,000 vehicles. 145 Federal probes into the Journal, CEO Stumpf maintained "there was no incen- insurance debacle shed light on yet another slew of intive to do bad things" adding "the 1% that did it wrong, ternal issues with compliance, controls, and board overwho we fired, terminated, in no way reflects our culture sight of operations at Wells Fargo. 146 In a report nor reflects the great work the other vast majority of released in October 2017, OCC regulators slammed the people do." 137 Former workers tell a different story. managers at Wells Fargo Dealer Services (the bank's While there was "no shortage of internal publica- auto loan unit) for ignoring customer complaints, failtions advising Wells employees on how to conduct ing to monitor contractors, and general laziness in rethemselves, including the Wells Fargo Code of Ethics sponding to problems that had been unfolding since at and the Wells Fargo Team Member Handbook,"138 the least 2015. 147 pressure inside branches was so intense that formal In July 2017, Wells Fargo publicly admitted it became guidelines did little to deter underhanded sales tactics. aware of the auto insurance scandal a year prior. In an interview with NPR, one former employee said Interestingly, when the Senate Banking Committee bankers at her branch were expected to sell "a ridicu-_ asked, as part of the September 2016 hearings related to lous amount of products" and that pressure and fraud RSP fraud, if executives were "confident that this type occurred even at the bank's headquarters. 139 Former of fraudulent activity does not exist" in other areas, OrganizationalCulture,Structure,andDesignCHAPTER8319 the bank insisted problems were limited to individual 3. What do you think regulators should do to encouremployees in the community banking division. 148 age permanent change in Wells Fargo's culture and Senator Sherrod Brown has since alleged that Wells prevent similar problems in the broader banking Fargo "pure and simple lied to this committee-and lied industry? to the public" in failing to disclose the auto insurance problems during the 2016 hearings. 149 Sloan has main- Application of Chapter Content tained there are fundamental differences between the RSP and auto insurance scandals, with only the former 1. Using the competing values framework as a point being fueled by sales incentives. 150 of reference, how would you describe the organi- Wells Fargo has experienced substantial losses in zational culture under CEO Kovacevich and under rankings, reputation, and bottom line. 151 Federal regulaCEO Sloan? Provide examples to support your tors continue to impose severe penalties and restricconclusions. tions reflecting concerns with the bank's ability to 2. How do you think new branch employees learned the manage potential operating risks. 152,153 culture at Wells Fargo? FOR DISCUSSION 3. Describe how Wells Fargo can use the 12 mecha- Problem-Solving Perspective nisms for culture change to drastically improve its 1. What is the underlying problem in this case from the culture. regulators' perspective? 4. Is Wells Fargo's structure more organic or mechanistic? Explain. 2. What role do you believe Wells Fargo's executive lead- 5. What is the most important lesson from this case? ership played in the RSP and auto insurance Discuss. scandals