I teach an MBA course titled The Legal and Ethical Environment of Finance. I fear that I may have to retitle it The Illegal and Unethical Environment of Finance. The finance sector seems to be a cesspool in so many ways, unfortunately.
I had no sooner finished reading a horrifying article about Deutsche Bank’s role in helping Russians funnel money offshore to evade taxes and hide corruption, after paying more than $9 billion in fines in recent years for other wrongdoings, when I saw the headline come across the internet: “Wells Fargo Hit Over 1.5 Million Fake Accounts.”
It seems that Wells Fargo Bank employees — some 5,300 of them, at least — have been creating fake accounts and applying for credit cards in their customers’ names without the customers’ knowledge. This generated fees for Wells Fargo and compensation for the employees, but was rather costly for the bank’s customers. Wells Fargo was fined $185 million by regulators, including the Consumer Financial Protection Bureau.
As I teach in my class, it is often in an employee’s best interest not to do what benefits his or her employer. At some level, many employees may conclude that their own interests would be best served by doing as little as possible to keep their jobs and continue to collect their paychecks. In order to address this conflict, employers often do what Wells Fargo did — create incentives in an attempt to align employee interests with the employer’s interests.
Unfortunately, human nature is such that if incentives can be gamed with little chance of detection, they probably will be. The managers at Wells Fargo should have heeded this advice, because the problems it warns of came to fruition at Wells Fargo.
According to The New York Times: “Wells Fargo is famous for its culture of cross-selling products to customers — routinely asking, say, a checking account holder if they would like to take out a credit card. Regulators said the bank’s employees had been motivated to open the unauthorized accounts by compensation policies that rewarded them for opening new accounts; many current and former Wells employees told regulators they had felt extreme pressure to open as many accounts as possible.”
This scandal was quite predictable, given human nature and the impact of social and organizational pressures in the workplace. It is well known that one of the most intractable problems in the workplace is to hit the right compensation balance that will encourage hard work and activity that advances the employer’s goals without creating both the incentive and the opportunity for corrupt behavior that games the incentives.
Wells Fargo must go back and try again. It missed rather badly this time, and it missed while recklessly pressuring employees to cross-sell products and services that its customers probably neither wanted nor needed.
The bank must also work on its culture. This was clearly a widespread problem and not just 5,300 “bad apples.” People take their cues as to proper behavior from those around them. Wells Fargo has a lot of places it can start to make improvements.
Robert Prentice is chair of the Business, Government and Society Department in the McCombs School of Business at The University of Texas at Austin. He is the faculty director for Ethics Unwrapped, a free educational video program on ethics.
A version of this op-ed appeared in the San Antonio Express News, Fort Worth Star Telegram and the Austin American Statesman.
To view more op-eds from Texas Perspectives, click here.
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