In the C-Suite: Anatomy of a Scandal at Wells Fargo

January 5, 2017

If you’re looking for a case study in how to avoid, manage or recover from a corporate crisis, then don’t look at Wells Fargo. It’s hard to find anything that the company’s leaders did correctly.

When analyzing how executives of companies get their organizations into crisis situations, certain words commonly pop up: insular, entrenched, unethical, insensitive. Every one of those terms applies to Wells Fargo.

Leaders of the San Francisco-based company seemingly looked the other way while outrageous wrongs were being committed against its customers and employees. They included:

• Opening more than two million unauthorized deposit and credit card accounts over five years

• Collecting thousands of dollars in fees through some of those transactions

• Creating a high-pressure atmosphere that many employees say caused them to take illegal and/or unethical actions and resulted in serious damage to their health

• Minimizing the situation and blaming “rogue” employees when the scandal broke

• Failing to tell its own board that it had fired 5,300 employees —1 percent of its workforce — before regulators made the fact public

Perhaps worse, Wells Fargo stonewalled many questions from legislators and inquiries from news media about sales practices that eventually led the bank to agree to a $185 million fine and regulatory enforcement action.

The company’s first mistake was to ignore explicit and repeated warnings over five years and even some earlier employee warnings. Some employees reported the practices to incoming CEO John Stumpf as early as 2005. He didn’t take any action.

Then, according to Stumpf, a board committee became aware of the fraud “at a high level” (his words) in 2011. There still wasn’t any action.

The Los Angeles Times detailed Wells Fargo’s questionable sales structure in 2013. No indication of any action.

The city of Los Angeles filed a lawsuit against the bank in 2015, alleging that it pressured employees to commit fraud. Still, there wasn’t any sign of any remedial action beyond the ongoing firing of employees. Many of their stories are sad and poignant.

Angie Payden, who worked for the bank in Hudson, Wis., from 2011 to 2014, told The New York Times that she was forced to commit a number of unethical actions, including opening travel checking accounts for customers by convincing them that it was unsafe to travel without a separate checking account and debit card, and coercing customers to open credit card accounts to use as overdraft protection for their checking accounts when they were already struggling to keep their checking accounts balanced.

Other employees told similar stories of high anxiety created by constant pressure from management to sign up customers by any means necessary or lose their jobs. Ex-workers also claimed that the bank targeted immigrants who spoke little English and older adults with memory problems.

The pressure was relentless. As one employee told the Times: “They would grill us every day; it was nonstop badgering and berating. It was verbal and mental abuse.” Another said, “We would have conference calls with regional presidents and managers coaching us on how to word our selling points so the customer can’t say ‘no.’ I felt like a cheat.”

A lack of preparation

It was clear when Stumpf was called to testify before congressional committees in September that the going would be rough. The task was daunting. He would need to stay cool under heavy fire from outraged senators. He would have to show contrition, apologizing for Wells Fargo’s wrongdoing and outlining positive steps he had taken to make restitution to victims and fix the problems. While this was a tough assignment, it was also a chance to restore some public and government confidence in the 164-year-old institution and begin the healing.

The problem at his company was clearly severe and systemic, but the embattled CEO tried to minimize its scope, saying the wrongdoing involved only about 1 percent of the bank’s employees. He gave evasive answers and repeatedly dodged questions, frustrating and angering his interrogators.

He received a blistering interrogation from Sen. Elizabeth Warren (D-Massachusetts), who reportedly told Stumpf: “It’s gutless leadership; you should be criminally investigated.” Other senators were equally outraged by the CEO’s lack of contrition and cooperation.

If Stumpf was prepared for the hearings at all, then he was badly prepared. His testimony, and the comments of angered legislators, only worsened the bank’s predicament.

Encrusted, complacent leadership is often a hindrance to detecting problems and avoiding crises. And Wells Fargo had, and has, such leadership in spades:

• Stumpf, who has since resigned, was at Wells Fargo for nearly 35 years, including nine years as CEO.

• Carrie Tolstedt, who headed the retail unit that was responsible for the bad behavior, had been with the bank for 27 years before being sent off with a golden parachute when the scandal broke.

• The company’s current top management began working at Wells Fargo as far back as 1979. Their average tenure is calculated at 25.7 years.

• Three people have been on the board of directors since the 1990s. The average tenure of board members is almost 10 years, which is well above the industry average.

Here’s the worst part: At this writing, there aren’t any new faces in either Wells Fargo’s senior management or its board; thus, there isn’t any new thinking or any likely call for strong action. A 27-year Wells insider, Tim Sloan, succeeded Stumpf. A much better move would have been picking an outsider without any financial stake in the bank.

The role of the organization’s communications team is critical here. Surely, they became aware of these improper practices at some point. Did they warn top management of how the situation could play out? If so, were the warnings ignored? If not, were they afraid of losing their jobs if they spoke up?

These questions are important to many, but answerable only by a few. We may never know.

A long recovery ahead

Wells Fargo’s recovery problems are compounded by weak statements on its website and in advertising such as:

“We’re making changes to make things right.” (How about a full-fledged CEO apology for making things wrong?)

“We reached settlement over allegations that some of our customers received products they did not request.” (Ah, free products. Harmless enough. Except that they weren’t always free, or harmless.)

“Our goal is to do what’s right for you, our customer, every single day. We recognize that we have fallen short of that goal.” (Fallen short? Talk about minimizing!)

Here are some things that Wells Fargo should do to regain public trust:

• Clean house: Some executives and board members need to go.

• Bring in an outside administrator or monitor, along with a new CEO.

• Listen to outside legal and PR counsel.

• Don’t mince words; start telling it like it is.

Otherwise, the recovery could be quite an extended process.

Virgil Scudder
Virgil Scudder is the author of “World Class Communication: How Great CEOs Win With the Public, Shareholders, Employees, and the Media,” which received an Award of Distinction as one of the best business books of 2012. Email:


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