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Wells Fargo Report Released

The Circumstances That Led to the Wells Fargo Cross-Selling Scandal Are Coming Into Focus

Wells Fargo Report | Institute For Enterprise EthicsThe Independent Director-sponsored report on Wells Fargo's cross-selling scandal has been received, accepted and communicated to the public by the board and its Chairman, Stephen Sanger. Early reporting, by the Wall Street Journal and the New York Times, reveals a number of important clues as to how this happened to such an otherwise very well respected company. We anticipate much more to be revealed from the report and subsequent legal proceedings in the near future, but even now we can learn some important indicators and enablers (in no particular order or priority) of how this calamity came to be.

The report identifies and describes:

  • An “insular and defensive” operating unit

  • An operating unit head who was “’scared to death’ of taking a step that could hurt her unit’s sales figures”, was “at times controlling”, who also evidenced “no serious concern about the effects of improper sales practices on Wells Fargo customers."

  • An operating head who set sales goals she acknowledged were unreachable.

  • An operating unit head who ignored signs that some managers and employees were cheating to meet (sales goals).

  • An operating unit head who “resisted and rejected the near unanimous view of senior regional bank leaders that the sales goals were unreasonable and led to negative outcomes and improper behavior.

  • A structure of autonomy that “granted broad authority to shake off questions from superiors, subordinates or lateral colleagues.”

  • Warnings from Regional Managers that sales goals “were unreasonable and bad for customers.”

  • No independent reporting to corporate headquarters or board of directors for the risk, compliance or human resource functions in the operating unit.

  • Misleading and incomplete reports and presentations to the board of directors by the operating unit head.

  • Failure of some top Wells Fargo retail banking and risk executives who knew the firm had a problem with its strategy of cross selling to escalate issues to corporate headquarters or the board.

  • Alleged retaliation against other “whistle-blowing” executives.

  • A CEO who “ignored growing evidence that the (cross selling) problem was pervasive."

  • Slow and cautious action by the CEO in refusing to believe a long well-known and trusted executive was not reliable or fully honest.

  • Decentralized organizational structure was fast acting with the market, but slow and less than wholesome in reporting to the corporate headquarters.

  • Autonomous operating divisions encouraged to “run the business like you owned it” but with insufficient oversight for early detection of potential risks.

  • A board culture that should have been faster and more forceful in removing an operating division head.

For more on this issue and an in person interview with Stephen Sanger, Chairman of the Board of Wells Fargo, watch this NYT/CNBC clip.

 
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