Cameron Little, Johns Hopkins University:
Wells Fargo’s recent malpractice is just the latest ethical blunder in the banking world. Reports say that the financial institution opened around two million accounts without their clients’ consent. Apparently, management had pressured branch employees to, without permission, circulate their clients’ credit card information and even to craft email addresses for nonexistent people. Only once these ‘imaginary clients’ were enrolled in banking services could Wells Fargo employees meet their sales goals. In response to these allegations, Wells Fargo has fired 5,300 employees and has paid a fine of $185 million. These reparation efforts are a good first step, but there are major flaws in management’s handling of this fiasco.
CEO John Stumpf has failed to truly accept responsibility for his company’s letdown. Placing much of the blame on specifically the fired employees, Stumpf will not acknowledge his bank’s sell-or-be-replaced mentality. The culture of Wells Fargo has put many employees in a lose-lose situation, for many believed that they had to act unethically to keep their jobs.
To Stumpf’s apparent disagreement, Wells Fargo’s employee misconduct stems from systematic pressures to sell at all costs. Setting goals are a necessity for any business; however, financial institutions must act with care and with the client’s best interest in mind. The implications of Wells Fargo’s illicit practices are vast and only add to the negative depiction of the financial sector as well as institutions that are “too big to fail.”
Wells Fargo’s culture is toxic for its competition inasmuch as themselves. As the employees felt pressured to either meet sales targets or be fired, other financial institutions must have felt the impetus to keep up. Unethical behavior seemingly became acceptable within the Wells Fargo system, so the same message was received by other banks. The situation is very similar to an issue found in many professional sports. Because of steroid and other performance enhancing drug usage, many athletes feel that they must use PEDs to be able to compete. Furthermore, without proper regulation, such as drug tests and penalties for failures, athletes would be inclined to gain an edge on their competition. The same runs true for banks. Wells Fargo must be punished so that the financial industry as a whole does not normalize such an environment. A culture in which banks cannot trust that all parties are following the rules is one doomed to turn on itself and, ultimately, implode.
Wells Fargo’s actions will make many investors and, more importantly, citizens, even more disbelieving of the financial system. Many have grown quite skeptical of big banks after the Great Recession, and this latest incident just adds insult to injury. If Wells Fargo wants to retrench its fiduciary credibility, its leadership must accept full responsibility for this incident and make sure that the general public sees a concerted effort to address the firm’s issues. Amidst today’s market uncertainty, investor confidence is crucial in maintaining economic stability. Wells Fargo has to give a clear message that nothing like this will happen again. Not only for the sake of keeping its own clients, but for the American public and all that participate in its economy.
A call for more regulation has been warranted by the recent banking incident, which is unfortunate. Capitalism and markets work at their best when businesses operate ethically and through proper competition where the best brand prevails. However, something must happen or an agency has to step in when businesses cannot play the game fairly. Wells Fargo’s inappropriate sales tactics cannot go unnoticed and will unfortunately harm institutions other than itself. The implications of Wells Fargo’s mistake go far beyond just hurting itself and will create many negative externalities for their competition and clients.
Irresponsibility on the part of a leading financial institution is unacceptable and must be punished as such. Wells Fargo’s leaders and executives must right the ship by accepting responsibility and being tough on themselves. Furthermore, regulating bodies must be better and find ways to prevent and stop unethical practices in the banking world as they always harm so many non-acting parties. The economy needs institutions that respect themselves, their clients, and their competition, so that we can move to freer markets and a more trustworthy system.