Business Ethics and Positive Social Change at Wells Fargo

In early 2016, Wells Fargo was formally implicated in a corporate scandal which reflected the failure of its officers and directors to fulfill their duties and responsibilities. The purpose of this paper is to provide an analysis of a case study concerning this ethical scandal involving Wells Fargo to evaluate its business ethics within the context of positive social change. To this end, the paper presents the essential details of the event, its proximate causes and its negative impact on society. In addition, an examination of the causes of the crisis and a discussion concerning what steps might have prevented this scandal are followed by a description concerning what this writer would have done differently to effect positive social change instead of bilking innocent clients. Finally, the paper provides a summary of the research and important findings concerning these issues in the conclusion.

Review and Discussion

Brief overview of Wells Fargo today

Founded in in March 1852 by Henry Wells and William G. Fargo and currently headquartered in San Francisco, Wells Fargo (hereinafter alternatively the company) competes in the financial services sector providing a wide range of banking and other consumer finance services (About Wells Fargo, 2021). At present, the company operates the following business segments:

Community Banking: This business segment provides an array of financial services and products, including credit and debit cards, checking and savings accounts, as well as loans for automobiles, students, and small businesses;

Wholesale Banking: This business unit offers expert guidance concerning potential financial solutions for businesses in the U.S. and abroad;

Wealth & Investment Management: This business unit provides individualized wealth management and investment services as well as various retirement services and products to clients in the United States; and,

Other: Finally, this business unit also offers wealth, investment and management services but provides them through community banking distribution channels (Wells Fargo profile, 2021).

The companys hard-won reputation for responsible business practices and stewardship of its clients financial resources, though, took a major hit in early 2016 when Wells Fargo was implicated in a major financial scandal that continues to adversely affect its operations today and these issues are discussed below.

What are the essential details of the event, and what do you see as the causes of the crisis and/or negative impact to society?

After more than a century and a half of providing high quality financial products and services to a global clientele and successfully surviving the subprime mortgage crisis of 2007 to 2009, Wells Fargo was the third-largest bank in the U.S. and its reputation was solid by year-end 2015 (Witman, 2018). In this regard, a case study concerning the company reports that, By the end of 2015, Wells Fargo was the most trusted bank in the world, and the banks reputation for strategic discipline led pundits to list Wells Fargo as a bank that would stand the test of time (Corporate governance and ethics, p. 233). The event that led to this precipitous decline in the companys reputation involved Wells Fargo employees created approximately one-and-a-half million fake bank accounts as well as issuing more than a half-million consumer credit cards to clients that did not order them (Restrepo, 2017). One Wells Fargo executive conceded that the company simply told its clients that they would be getting a credit card (as cited in Restrepo, 2017, p.1690).

Not surprisingly, the companys admission of such widespread wrongdoing had severe implications, including a fine of $185 million by the federal government as well as another $142 million which was used to settle a nationwide class action suit by clients affected by the companys illegal financial activities. Although the precise internal costs that were incurred by the company to set up and administer these fraudulent accounts remains unknown, the class action suit revealed that Wells Fargo had exacted more than $2.5 million charging its clients fees and fines for these unauthorized accounts and credit cards (Restrepo, 2017).

While regulators, clients...…(2017) concludes that, The magnitude and reoccurrence of these types of scandals brings into question the effectiveness of judicial approaches to corporate governance, suggesting that there is no good mechanism to effectively police director misconduct (emphasis added) (p. 1692).

If you were a leader within this company, what choices would you have made differently to effect positive social change?

Rather than attempting to motivate the companys employees through incentive programs that failed to conform to best ethical practices in financial services organizations and operated according to prevailing norms, I would have used the significant amounts of resources that were directed at this ethical fiasco towards recruiting marginalized Americans that lack ready access to professional banking and money management services. Indeed, the case study emphasizes that, The oddest thing about the scandal and incentive program [was that] other than costing the bank its good reputation, the structure of the quota and incentive system resulted in millions of accounts that contributed nothing to the bottom line (p. 233). Of course, with this type of enlightened but unprofitable business model in mind, I would never have reached the lofty heights of leadership at Wells Fargo in the first place, but the above-described hypothetical positive social change initiative exists along a continuum and multinationals with deep pockets such as Wells Fargo can make a substantive difference in the lives of ordinary people for a veritable pittance compared to their massive revenues.

Conclusion

The research showed that between 2011 and 2015, an incentive program was implemented at Wells Fargo which encouraged employees to open as many new accounts as possible. In response, employees opened thousands of fraudulent accounts and issued unauthorized credit cards to the companys clients which resulted in more than $342 million in fines and class action suit settlements. Although the company had an ethical policy in place during these events, it did nothing to prevent their occurrence and some analysts argue that no ethical policy can prevent the type of unethical business practices that occurred at Wells Fargo…