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Wells Fargo: An article based analysis

Research · December 2018

DOI: 10.13140/RG.2.2.18452.65924

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POLYTECHNIC UNIVERSITY OF THE PHILIPPINES

GRADUATE SCHOOL

MASTER IN COMMUNICATION

In Partial Fulfillment of the Requirements in

Organizational Culture and Communication Policy

Submitted by:

Bien Justine S. Cruz

Submitted to:

Prof. Kristine Viray

November 2018

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I. Introduction

Banking is one of the biggest industries in the world. It provides services like

handling cash, providing credit, and other financial transactions. Most people rely on

banks to keep track of their financial records and to keep their money savings safe.

Banking industry is indeed one of the key drivers of economy because it provides

financial help for families and businesses to invest for the prospective future. Banks

get their profit from the amount of interest on loans that people acquire from them.

Given with this idea, the reputation of the banking industry has been well established

all throughout the centuries. However, just like any other business, and given the

fact that they are one of the most trusted industries, they still suffer from different

issues and crises. (Amadeo, 2018)

Wells Fargo Co., a reputable bank that was founded by Henry Wells and William

Fargo. It known as one of the most prestigious banks in the United States, and since

the day of its establishment; on the 18th of March, in year 1852, it has gained a

mount full of success. At the beginning, the original plan of the founders is to serve

the west part of America. The image of a six-horse carriage rushing and making

business across the American West is forever linked in the name of the company.

Wells Fargo offered banking services in terms of buying gold and selling paper bank

drafts that are considered well as gold at that time. They also manage to deliver

goods that are valuable with haste. Then after, the reputation of the company hastily

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and steadily increased making them one of the most popular and trusted banks in

the history of the United States. (History of Wells Fargo, 2018)

1860’s has been a successful period for Wells Fargo, for it earned of what they

thought an everlasting fame and its corporate symbol which was dubbed as the

“grand adventure of the overland stagecoach line”. Since then, Wells Fargo

continues to grow as a bank, taking over the west with the use of the fastest means

to carry business and transactions to its stakeholders. Wells Fargo was able to add

another milestone combining all the major western stage lines. They were also able

to put and establish their service from California to Nebraska, and from Colorado to

the regions of Montana and Idaho. In 1869 they started to conduct business by the

use of rails and they became the United States’ first nationwide express company.

By 1910, Wells Fargo was able to associate 6,000 locations, and by 1918, Wells

Fargo was able to embed its presence up to 10,000 communities across the United

States, however due to the eruption of the World War 1, Wells Fargo’s bank

branches diminished, until there is one left located in San Francisco. (History of

Wells Fargo, 2018)

With the great significant events happened that abolished the different branches

of Wells Fargo, the reputation of the company was never tarnished. They continue to

persevere to continue business across the globe and making it successful even

more. They have achieved greater heights by adapting to new developments in

technology and creating new ways of banking, applying new and different concepts

that would satisfy customers’ demands and needs. In fact, in 1980s Wells Fargo

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expanded its business and became the 7th largest bank in the United States. On the

same year, Wells Fargo was able to launch their online service program which helps

them establish their business and their scope within the online community, making

the customers more satisfied. In 1990s Wells Fargo was able to regain its abolished

branches throughout the Western, Midwestern and Eastern states of America. In the

contemporary, Wells Fargo still strives to achieve its goals by making full efforts to

match the customers’ needs. With their Vision and Values being embedded with

every employee, they are certain that they will achieve their Goals towards a brighter

future. So far, Wells Fargo has been committed to their customers and continued to

do it until the announcement that shook the world in September 2016. (History of

Wells Fargo, 2018)

This study relied on the publicly available information particularly the Wells Fargo

website (www.wellsfargo.com), progress report of Wells Fargo (pdf file), the Sales

Practices Investigation Report by the Independent Directors of the Board of Wells

Fargo & Company (pdf file), and other online resources, such as; articles and

journals, that are related to the issues and crises that the company had

encountered.

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II. Significant Issues and Management

A. Issues

Issues and crises are inevitable in every business, but what happened to Wells

Fargo was surely as alarming and devastating because the issues have tarnished

their reputation as a dependable bank. In September 2016, Wells Fargo has

announced that there are “improper sales practices” that happened in the previous

years. Wells Fargo has admitted that they have committed a grave mistake

particularly the issue with the unauthorized opened customer accounts that reached

up to millions, records of the bank that were falsified by agents, signatures of

customers that were forged, and the manipulation and transfer of assets between

accounts that resulted to the charging overdraft fees. These malpractices are done

without any knowledge and consents from the customers. (Premachandra & Filabi,

2018)

Another issue that Wells Fargo faced was the issue of auto insurance practices.

In between the years 2012 and 2016, it was declared that Wells Fargo also had

charged customers an superfluous auto insurance that reached up to 800,000

accounts of people who were loaners. This incident led 274,000 clients to

delinquency that also brought another issue which was the illegal vehicle

repossessions of approximately 20,000 accounts. Some of Wells Fargo’s customers

also suffered from different inappropriate charges like, credit damage that has

something to do with unauthorized insurance policies that were added to customers’

accounts, incurred insufficient funds charges and many more. The revelation of

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these issues was an indication that the scandal was not a one-time, big-time

happening in the bank’s practice but perhaps, it indicates that these practices were

more of a systemic and has been embedded in the company’s organizational

culture. (Premachandra & Filabi, 2018)

The brand of Wells Fargo has been supported by 3 major objectives:

 Relationships that lasts a lifetime;

 Expertise and Guidance to help customers make confident

decisions; and

 Going the extra mile to do what is right.

The three pillars are securely designed to deliver the best services for the bank’s

customers, however the said objectives have not become successful. The issues

that Wells Fargo faced had become an avenue for researches particularly in

Organizational Culture. The scandals, the management and the issue management

are the factors that has to be researched upon and analyze to promote necessary

changes in the said company. Wells Fargo has to address these aspects for them to

prevent substantial reputation damage and to avoid further struggles in the years to

come.

Premachandra & Filabi (2018), mentioned in their study that the structural,

procedural and behavioral practices of Wells Fargo is a fitting case study from which

organizations from the same field and other fields can learn lessons on how to

proactively prevent such large-scale lapses. (Premachandra & Filabi, 2018)

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 Hence, this study focuses on how Wells Fargo manages to apply remedy in

these issues, the manner of implementation and an analysis of these elements to

further discuss different factors that affects the organizational culture of a well

founded company.

B. Issue Management

The issues stated above were addressed by Wells Fargo in their Sales Practices

Investigation Report that was published in April 2017. This report was conducted by

independent counsel Sherman & Sterling LLP on which they have analyzed the

practices of the bank including sales and other transactions that were reasons

behind the “ethical failures” and demeaning issues of the company. Independent

counsel Sherman and Sterling LLP conducted a research, and the results were

found based on over 100 consultations and document reviews that were not going

down 35 million apiece. With the findings that they managed to brought out, they

were able to determine the causes of violations and were able to provide

counteractive measures to secure the banks future and to address problems that

may cause the total demise of the company. (Sales Practices Investigation Report,

2017)

According to the report, Wells Fargo has also publicly announced through their

website that they have ensured progress into making steps for the better

management of the company. Since October 2017, Wells Fargo has done rapid

changes in the structure of the company. They have started restructuring their

company by announcing on October 12, 2017 that they are employing Mr. Mike

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 Roemer as the Chief Compliance Officer (A 27-year financial services veteran). He

is a former Group Head of Compliance for Barclays, and has proven his worth while

staying in the said company. Roemer has assumed position by the month of January

2018. (Wells Fargo Staff, 2018)

In November 2017, they have announced that they have adjusted the positions of

some people in the company and given them new roles that will suffice the needs of

the company. One of them is Mr. Joe Rice, who by that time served as the head of

the Recovery and Resolution Program Office within Wells Fargo’s Enterprise

Finance & Information Technology group and was given the task to be the head of

the Commitment to Customer Center of Excellence. This new assignment for Rise

will focus on the company’s Community Banking, Lending and Payments, Virtual

Resolutions & Innovation businesses. (Wells Fargo Staff, 2018)

Another announcement was made in November 2017 as part of the restructuring

program of Wells Fargo. This pertains to the Three New Independent Directors that

assumed the position on the very first day of 2018. These people are; Celeste A. Clark,

, Theodore F. Craver, Jr., and, Maria R. Morris, The new faces have different functions

in the company particularly the following according to the article that Wells Fargo has

posted on their website. “Clark will serve as a member of the Corporate Responsibility

Committee, while Craver will join the Audit and Examination Committee, and Morris will

serve as a member of the Risk Committee.” These changes had a huge impact in their

succession planning and refreshment process. (Wells Fargo Staff, 2018)

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 Another Press Release was made by Wells Fargo on December 2017, stating

that they have launched a new council that the sole purpose is to “provide insight

and feedback to the Board of Directors and senior management from the

perspectives of their customers, team members, shareholders, and others.” The aim

of this move by Wells Fargo is to broaden and to deepen their perspective and to

understand important and current concerns focusing on its relevance not just for the

company but to its shareholders. Elizabeth “Betsy” Duke (Chairman of the Board)

stated, “The formation of the Stakeholder Advisory Council is part of our commitment

to continued engagement with our stakeholders to obtain their feedback.”… “The

council consists of representatives of stakeholder groups especially important to the

company, including groups focused on consumer rights, fair lending, the

environment, human rights, civil rights, and governance. It is important that the top

leadership of our company hears directly from our stakeholders, and we look forward

to benefiting from the council’s diverse perspectives and experiences, particularly

with respect to our commitment to our customers and communities.” (Wells Fargo

Staff, 2018)

As the year gone by, Wells Fargo has continued its way to reshape its company

and to regain its reputation. On January 2018, they have announced that Sarah

Dahlgren will join the company effective on March 12, 2018. Dahlgren was a partner

of Wells Fargo in the Risk Practice at McKinsey & Company. Dahlgren assumed the

position of risk officer who will directly report to Mike Loughlin (Chief Risk Officer).

Since then Wells Fargo has been consistent with their reforms employing different

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people with diverse knowledge in finance and risk management. They also keep

their customers updated with the use of their website and other forums. Since then,

Wells Fargo has become more transparent with all of their efforts and movements so

people could keep track of their actions. One example is when Wells Fargo had

announced on April 20, 2018 about the consent order agreements with the Office of

the Comptroller of the Currency (OCC) and the Consumer Financial Protection

Bureau (CFPB) to address issues that were released regarding the “interest rate-

lock extensions on home mortgages and collateral protection insurance (CPI)” that

were placed on certain auto loans. (Wells Fargo Staff, 2018)

Wells Fargo has not become all-talk with their promises to their consumers. As

part of the movement to correct all damages, Wells Fargo had announced on June

14, 2018 the $142 million class-action settlement, also known as Jabbari v. Wells

Fargo Bank, N.A. that was approved by the U.S. District Court for the Northern

District of California for all customers who claimed that “Wells Fargo had opened,

without their consent, a consumer or small business checking or savings account or

unsecured credit card or line of credit, or enrolled them, under certain

circumstances, in Identity Theft Protection services, in each case between May 1,

2002, and April 20, 2017.” (Wells Fargo Staff, 2018)

With the help of the government and the continuous actions of the new

management of Wells Fargo, the company has been moving forward making strong

progress. Wells Fargo has claimed that since 2016 they have made significant

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 changes with regards to their management and sales practices and was able to

settle amendments for the issues and crises they have faced. (Wells Fargo Progress

Report, 2018)

III. Critique on Issue Management

This analysis will focus on two major factors: Leadership and Organizational

Culture. To define the factors, this study used the Ethical Culture Model (ECM)

designed and conceptualized by Trevino and Nelson to provide an in depth analysis and

discussion on the different aspects of Organizational Culture and how Leadership take

effect on managing crisis.

A company’s Vision and Values statement are often times being challenged by the

reality that surrounds the organization. (Premachandra & Filabi, 2018) In achieving

harmony in an organization, all members including the executives must live upon the

own vision and values statements of the company. It is an ongoing process and there is

no shortcut or and easy method for it. It takes a lot of collective effort to achieve

success and achieving it is just the start of every organization’s ethical journey. The real

deal is on how to make it stable and to maintain it so the reputation of the organization

will be as steady as the culture of the company. The ethical culture of an organization is

determined by how perceptions are formed coming in both customers and employees.

With the culture being embedded in the system of an organization, it becomes the drive

that helps an individual and a group come up with ethical decision making and behavior

depending on the circumstances they are exposed in. However, maintaining new sets

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values are challenging for big organizations such as Wells Fargo for it has to undergo a

long series of processes. Ethical behavior and decision making involves dynamic and

complex sets of elements which can lead an individual or a group to perform the right

thing in any given circumstances. (Premachandra & Filabi, 2018)

The Ethical Culture Model of Trevino and Nelson describes such complexities. It

encompasses complex systems that considers both the “formal” and “informal systems”

of an organization. This model postulates different levels and series of connections

between the said elements the “formal” and “informal systems”. By doing so it

determines the organization’s strengths and weaknesses appertaining to its ethical

culture. This theory states that in any given circumstance, if ethical integrity is prioritized

and being performed by all members of the organization making it prominent at the

formal level, the messages can be passed through informal levels with clarity and

precision, thereby influencing people to function as set by their daily norms within the

workplace of the organization. The implementation of such ethical climate must be

sustained by active engagement of the managers and senior leaders at all times.

Premachandra & Filabi’s research (2018) illustrates the allignment of the formal and

informal structures that lies within Wells Fargo to provide an explanation on what

happened with the issues.

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 Wells Fargo’s rankings in Fortune and Barron’s list as of 2015 was quite high.

Fortune recognized the bank as its 22nd most admired company on that particular

year, while Barron’s put it as the 7th in terms of its reputation as one of the most

esteemed company globally (Colvin, 2017). However the damage in the reputation

of Wells Fargo was huge and sudden. The Harris Poll recognized Wells Fargo’s

corporate reputation based on a survey conducted in 2017 and was ranked 70th

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going to the 99th position having the highest drop ever measured by the said poll.

Speculations have been made and many observers viewed the incident negatively,

tagging Wells Fargo as “Morally Bankrupt”. (Geoff Colvin, 2017)

The Investigative report made by Wells Fargo had indicated the following:

 A misalignment of the Vision and Mission Statements and the

actions being done by the members and leaders of the

organization.

 A high pressure in getting high quantity of sales, leading people to

aggressive sales behavior compromising the quality performance

management systems.

 A decentralized corporate structure compromising accountability of

individuals who work in the organization.

 A lack of leadership not recognizing the duties and responsibilities

of a leader.

 A vague transactional approach in problem solving.

These problems were conceived in the ECM model by Trevino and Nelson

showing the problems in the culture of the organization.

The reforms and remedial that Wells Fargo had implemented are the following:

 Reorganization of Leadership, replacing people from the old system

with new ones with high potential and vast number of experiences.

 Reestablishing sales goals.

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  Revamping incentives for employees and improving the

performance management systems.

 Centralizing corporate structure and increasing accountability of

each individuals in the organization.

 New sets of Values, Mission, Vision, Goals and Objectives.

In the scope of ECM model, the reforms will now be examined by looking deeper

into the concepts being presented in the model particularly the Formal Systems and

Leadership.

A. Formal Systems

According to the bank’s investigative report the primary reasons of

the organization’s issues in ethical business handling are the harsh sales

incentive programs and the tough performance management methods.

The competitive atmosphere created by the company among individuals

became the huge problem for it creates a significant amount of pressure

that resulted to outperforming colleagues and shaming of those who fell

short. Goal setting is not a bad thing in a company, especially when the

aim is to motivate employees, however research shows limitations in this

kind of management.

“Goals Gone Wild”, a paper by Ordóñez et al’s in 2009 discussed

some disadvantages of goal setting in an organization. The research

exposed that this way of managing people could lead to an unharmonious

relationship among peers and can result to risky and unethical behavior.

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Ordoñez et al stated in their study that goal-setting, “narrow focus that

neglects non-goal areas, a rise in unethical behavior, distorted risk

preferences, corrosion of organizational culture, and reduced intrinsic

motivation”. The researchers also highlight the importance of surveillance

in order to achieve success. In Wells Fargo’s case, the unattainable goals

were the cause of risky behaviors by the individuals, thinking the

individualistic financial benefits and job security. Imposing a high focus on

sales also destabilized the mission of Wells Fargo, which is customer

centricity.

Another factor is the reward system in Wells Fargo, an individual

employee would be more motivated if he/she was being assessed not just

by measuring the quantity of work but also the quality of it. An example

would be complementing monetary goals that can be measured by

different indicators such as ethics, behavior, camaraderie and compliance.

Quantifying customer needs through customer satisfaction surveys and

loyalty awards are a must for clients. In line with it rewarding employees

with better customer relations must also be done to create harmonious

relationships amongst members of the organization. Evaluations of every

employees must also be done to ensure that ethical working behaviors are

present within the premises of the company. Eliminating competition and

focusing in one goal must also be practiced by all members of the

organization.

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B. Leadership

Ethical leadership must also be observed in the company.

Leadership has an impeccable role in both “formal” and “informal

systems”. Brown et al. (2015) state that leaders are the key components in

an organization. They must provide guidance and serve as a role model

amongst their subordinates. As per Brown et al. (2015, pg. 120) ethical

leadership is defined as “the demonstration of normatively appropriate

conduct through personal actions and interpersonal relationships, and the

promotion of such conduct to followers through two-way communication,

reinforcement, and decision-making”.

Wells Fargo’s leaders must learn how to take full responsibility and

to take actions once issues have arisen. They must know how to manage

issues and be confident in claiming mistakes so the company would

survive. Strict regulations of accountability must be imposed correctly so

everyone is accounted for every move that an individual has taken. It is

good that the company has taken its actions to a much bigger scale but

the implementations are just the start of their new endeavor. Monitoring

and Evaluating must be firmly established and maintained to ensure the

rebuilding of the reputation of the company.

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IV. Conclusion

Analyzing and addressing the gaps between the informal and formal

systems is a must to deliver quality messages inside and outside the organization.

However, a company must know how to deal with the issues especially if the

problems persist inside the organization. Even with a great start, a grave mistake

can tarnish the reputation of a huge company. The New York Times stressed out in

their article published in July 2017, Wells Fargo will continue to deal with

challenges appertaining to transgression. This brings into question stated by

Premachandra & Filabi, (2018) “whether Wells Fargo is addressing the systemic

issues at the Bank.”

At this point of time, it is critical for Wells Fargo to focus on rebuilding their

reputation by making sure that ethical integrity is ubiquitously salient in the

organization, along with the cultural management shift. The company must align

their goals with their values so that ethical breach will not happen again. However,

the actions taken by Wells Fargo need to be thoroughly be implemented,

monitored, and reevaluated so they could inculcate it in the bank’s culture.

Addressing the issues with ample amount of observation and assessment systems

among all members of the company. Otherwise, any remedies taken will only result

into further repercussions. (Premachandra & Filabi, 2018)

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 References
Amadeo, K. (2018, November 02). The Balance. Retrieved from
https://www.thebalance.com/what-is-banking-3305812

Barron's. (2015). Brand Rankings. Retrieved from RankingTheBrands.com:

https://www.rankingthebrands.com/The-Brand-
Rankings.aspx?rankingID=307&year=951

Brown, M., Treviño, M., & Harrison , D. (2005). Ethical leadership: A social learning
perspective for construct development and testing. In Organizational behavior
and human decision processes (pp. 97(2), 117-134.).

Fortune Staff. (2015). Most Admired 2015. Retrieved from Fortune:

http://fortune.com/worlds-most-admired-companies/2015/wells-fargo-22/

Geoff Colvin. (2017, June 11). Inside Wells Fargo's Plan to Fix Its Culture Post-Scandal.
Retrieved from Fortune: http://fortune.com/2017/06/11/wells-fargo-scandal-
culture/

Independent Directors of the Board of Wells Fargo & Company. (2017). Sales Practices
Investigation Report. California: Wells Fargo.

Premachandra, B., & Filabi, A. (2018). Under Pressure; Fargo, Miscoduct, Leadership
and Culture. Ethcical Systems.Org; Business Integrity Through Research, 1-24.

Wells Fargo. (2018). History of Wells Fargo. Retrieved from © 1999 - 2018 Wells Fargo.
All rights reserved. NMLSR ID 399801:
https://www.wellsfargo.com/about/corporate/history/

Wells Fargo Staff. (2018). Wells Fargo Progress Report. California: Wells Fargo.

Wells Fargo Staff. (2018, October). Wells Fargo Stories: An Online Journal of Working
Together. Retrieved from Wells Fargo Stories:
https://stories.wf.com/betterbank/?cid=intpart_wfcom_1704_0

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