Wells Fargo suffered from a major banking scandal due to the existence of unethical behaviors in its management practices, as well as employee decision-making priorities. This can be attributed to the fact that the modern day business environment is characterized by high pressure due to the provision of high-performance targets from the senior management. Despite high pressure and unrealistic targets, it is not necessary to violate professional ethics through actions such as opening millions of fake accounts and charging them unreasonable interests, managers implementing manipulative sales practices, the bank manipulating transactions to maximize overdraft charges, and workers participating in discriminatory lending among customers from minority groups. These activities are the ones defining unethical behaviors in Wells Fargo leading to the corporate scandal that was coupled with massive financial losses as fines and compensations.
Employees in the modern day business environment are under high pressure due to the provision of high-performance targets among employees. More workers are seeking ways to increase their productivity to avoid missing their baselines. Missing performance targets means loss of bonuses or employment to another person willing to do the same job but at higher productivity levels. This was the case at Wells Fargo where employees had to participate in unethical business processes in order to meet their expectations. Such corporate scandals raise issues associated with ethics, as well as outcomes of unethical practices.
Wells Fargo Unethical behavior
According to Crane & Matten (2013), ethics is core to any business as it guided the formation of decisions despite the existence of contending interests. Some decisions have indicated their lack of concern for ethical provisions leading to the current corporate scandal. Using deontological ethical framework, workers are supposed to make decisions according to existing laws rather than personal perceptions. Deontology is a rule-based process that ensures that ethical behavior is upheld in every situation that other people are set to benefit from individual actions. This was violated when workers engaged in ethical misbehavior that has generated turmoil in Wells Fargo.
The misbehavior involved employees opening multiple fake accounts in order to meet the performance targets set by their managers. This can be attributed to the fact that retail banking managers pressured their juniors to sell multiple accounts to their millions of customers. However, no customer needed these accounts even though they were charged in interests. In fact, some bankers have provided information that they had to engage in such unethical behavior due to unbearable pressure to meet high sales goals. In spite of the fact that it was unethical, employees had to engage in fraudulent activities to secure their jobs through sufficing their performance goals.
On the other hand, it was unethical to charge customer fees on fake accounts. More than 5 million dollars had been charged on two million accounts indicating the existence of fraudulent behavior. It was wrong to charge customers on fake accounts without their knowledge only to discover it when the scandal was announced. Professional ethics provide frameworks that guide decision making in such circumstances so that performance pressure does not influence poor behavioral patterns. In the end, even though their actions were justified, they were unethical and required punitive measures as per regulatory requirements.
Some workers tried to highlight the existence of unethical behaviors within the organization only to suffer consequences that included getting fired. They tried to do the right thing as per their professional requirements only to realize that unethical practices were deeply ingrained up to the management level. Managers were complicit of the occurrences, and they were the people entrusted with enforcing ethical structures. It was an unethical behavior to victimize people who were trying to do the right thing by reporting incidences violating their professional expectations. It meant that the whole organizational management did care about sales goals and not customer interests or organizational wellbeing (Duska, 2017).
Frontline workers like tellers and customer care specialists were also required to use predatory activities to increase revenue collection by the bank. Loan interviewers, customer service representatives, and tellers were for instance required to exploit customers by enticing them to take credit cards and sub-prime loans, that they could have otherwise worked without. Reinforcing such behavior required the bank to implement a system of rewards and penalties so that employees could work for incentives while avoiding punitive measures. These put employees under pressure to generate certain outcomes without regard for ethical consequences of their actions.
In the article by Askew, Beisler, & Keel (2015), it is the same predatory pressure that led to the blatant discriminatory lending that occurred in 2011 and 2012. Wells Fargo and Bank of America were involved in charging additional fees on Hispanic and African American loan borrowers as compared to white customers of similar qualifications. Being minority customers, they were led into more riskier and expensive subprime mortgages. Discrimination of customers according to their demographics was unethical because they had the right to be treated equally; rather, than being led to packages that charged them higher than their similarly qualified counterparts.
The discovery of discriminative tendencies is what qualifies Wells Fargo as having unethical organizational behaviors in its management structures. Steering customers to unequal financial processes violate the utilitarianism; whereby, every business activity is supposed to maximize the utility of its stakeholders. Instead, the management allowed predatory activities against unsuspecting customers creating conditions necessary for the corporate scandal that ensued. Ethical behavior in banking requires proper advice to customers regardless of their demographic attributes. In this case, this did not occur showing how far Wells Fargo engaged in unethical behaviors causing customers to lose confidence in American banking system.
The bank also engaged in manipulative financial practices to increase its revenue collection from client accounts. Performance pressure from senior management forced workers to take actions that maximized overdraft charges on savings accounts. In this case, when savings account balances drop too low, the bank is entitled to large overdraft fees for every transaction. Benefiting from this situation required the banks to intentionally process largest debts despite their chronological order so that accounts could reach the zero balance faster. Failure to follow customer payment dates was unethical since the bank intentionally processed transactions to force customers to incur unworthy charges.
Wells Fargo was further accused of allowing debit card transactions to go through despite having zero balances on their respective savings accounts. Regulations outline that transactions should not occur if their respective accounts are null to protect banks from financial losses. Regardless, Wells Fargo intentionally allowed these transactions to take place so that customers could incur overdraft fees. It was unethical behavior for the bank to allow zero balanced accounts to conduct transactions with a sole intention of exploiting clients through overdraft fees. It was, in fact, violating ethical constructs in relation to fair financial practices (Polito, 2016).
Subsequent lawsuits have shown that Wells Fargo implemented manipulative sales practices as long as they sufficed high revenue margins. The bank created incentive programs that issued hefty rewards to employees with partisan interests towards the company, but not their customers in mind. Sales quotas encouraged employees to manipulate prime clients to subprime loans and at the same time falsifying their income information without their knowledge. In other words, the bank rewarded quantity over quality by encouraging workers to skip fundamental processes meant to protect borrowers. These activities are the ones that contributed to the corporate scandal at Wells Fargo.
Wells Fargo suffered from a major banking scandal due to the existence of unethical behaviors in its management practices, as well as employee decision-making priorities. Even though the modern business environment is characterized by high pressure and unrealistic targets, it is not necessary to violate professional ethics despite the existence of contending interests. Employees opened millions of fake accounts and charged them unreasonable interests, managers implemented manipulative sales practices, the bank manipulated transactions to maximize overdraft charges, and workers participated in discriminatory lending among customers from minority groups. These activities are the ones defining unethical behaviors in Wells Fargo, leading to the corporate scandal coupled with massive financial losses, brand reputation, and lowered customer confidence.
- Askew, O. A., Beisler, J. M., & Keel, J. (2015). Current Trends Of Unethical Behavior Within Organizations. International Journal of Management & Information Systems, 107.
- Crane, A., & Matten, D. (2013). Business Ethics: Managing corporate citizenship and sustainability in the age of globalization. London, UK: Routledge.
- Duska, R. F. (2017). Unethical Behavioral Finance: Why Good People Do Bad Things. Journal of Financial Service Professionals, 25-28.
- Polito, K. (2016). Beyond Business Ethics: What Riding The Wells Fargo Wagon Was Like. New York, NY: Prentice Hall.