Sample Ethics Essay Paper on Wells Fargo Scandal

Wells Fargo Scandal

Deontological ethics asserts that leaders are required to perform their duties according to the moral principle. Wells Fargo’s leadership moral rule was to support the interest of shareholders, personnel, as well as other stakeholders by preventing unduly dangerous behaviors. Wells Fargo officials did not accomplish this task. The first sign of widespread unethical practices appeared from a 2013 unhealthy “pressure-cooker” sales culture, which made employees create more than 2 million accounts without clients’ consent. The firm gained $5 million from fake accounts in the five years the practice was rampant. The top-down spread of aberrant inducements resulted in widespread unethical practices in the entire organization, from the leadership to personnel.

Since individuals do not often abide by deontological ethics, the agent-principle dynamic is innately defective. The leadership’s reward systems focused on aligning the interest of managers and shareholders through stock dividends. Unluckily, it developed its aberrant enticements, which were not properly moderated by clawback stipulations. The “pressure cooker” sales philosophy arose from the CEO John Stumpf’s “eight is great” sales targets (Partnoy & Eisinger, 2013).

One ethics-diminishing aspect that compelled workers at Wells Fargo to change their behaviors was the aggressive sales goals enforced. The workers were made to work overtime without pay to attain the target, causing them to engage in unethical activity. This action was against the utilitarian theories of ethics, which assert that an individual should act in a way that profit many people, irrespective of personal emotions or the societal limitations like laws (De Colle & Werhane, 2008). The leadership did not act in a way that could make employees comfortable and satisfied with their work.

Wells Fargo committed several mistakes that included failure to admit the problem immediately and not having sufficient controls to discover the fraudulent accounts. However, what is unique about the issue is that very many workers engaged in the wrong act. Wells Fargo set unrealistic goals, which made the organization’s business strategy susceptible to corruption. Another issue is that the officials at the top mainly developed these goals instead of involving several other workers to make them feel that their goals were significant. If Wells Fargo was sincerely dedicated to the best interest of its clients, then the personnel needed to have goals, which could have manifested that mission rather than excessive impractical sales goals (Fisher, 2009).

Another mistake was closely tying goals to remuneration or job security, considering that the current workers regard culture and career growth more than recompense and allowances. The leadership created perverse prospects to dispose of workers who failed to deliver and cause others to opt for questionable practices to attain the expectations. About 5,300 workers believed that is was right to cheat and betray their clients to acquire bonuses at a bank that was among the respected in the United States. Such prevalent behavior shows that Wells Fargo had a bad culture driven by the individuals as well as organizational greed and the expectations that workers and leaders knew could not be attained rightfully (Partnoy & Eisinger, 2013).

In his statements, Wells Fargo CEO John Stumpf made it look as if the workers responsible were betrayers who ignored the organization’s code of ethics. However, it seems the fraud happened in bunches, as groups of workers rationalized their actions. This is evident in the CEO’s testament that branch managers were dismissed, indicating that all branches were possibly infected by deceitful. A complaint filed against Wells Fargo asserts that the workers shared with each other the trick utilized in the scheme. They utilized a shorthand similar to a video game hack: “gaming”, implied creating accounts without consent, “Sandbagging” denoted postponing clients’ demands, “pinning” meant creating PINs without consent, and “bundling” meant compelling clients to open many accounts over their objections (Tayan, 2016).

John Stumpf further termed his bank culture as BT, which is a model of reasoning and acting with the client in mind. It was the tendency of doing the right things in a right way. Nevertheless, the company’s history portrayed a different picture. Wells Fargo was founded in 1852. The bank was the first stagecoach express that transported valuable goods from gold mines. It amalgamated with Norwest in 1998. Even if the Norwest name was eliminated, its culture still existed. Before both banks combined in 1997, Norwest introduced a product campaign known as “Going for Gr-Eight”. In a conversation with Fortune Magazine in 1998, the then CEO Dick Kovacevich elucidated that his bank engaged in “selling money” using several financial tools, such as ATM cards, loans, and credit cards. All the financial tools were regarded to be consumer products that were not different from perhaps the bread sold in a bakery. Kovacevich stated that the departments were the “stores” while the bankers were the “salespersons” mandated with “cross-selling”. That was a “business model” and “a religion (Partnoy & Eisinger, 2013).

Wells Fargo personnel did not consider how their actions affected clients in terms of overdraft dues or credit scores. Even if they cared, they could justify the effects as beyond their control. They assumed that Wells Fargo algorithm evaluated the overdraft charges and the credit rating groups decided over credit ratings. The employees concentrated on the respects where their activities were inoffensive and overlooked the downstream effects of their actions. Stumpf was also guilty of such kind of self-delusion by stating that at first, he believed that the actions were not harmful since empty accounts were automatically closed after a particular period. (Fisher, 2009).

However, Wells Fargo endeavored to operate an ethical business, despite its major mistake. For instance, the firm evaded several traps as well as risky investments that overwhelmed many larger banks in 2008 and 2009. Many years ago, Wells Fargo noticed that its cross-selling was inadequate. Cross-selling denoted acquiring clients who utilized one service, for example, checking, to run other services like savings and credit cards. Cross-selling was not a bad practice, as several banks do it. Therefore, Wells Fargo established a certain technique of fostering cross-selling, which was to engage its workers in informing clients about other services and products. For workers to embrace the program, the firm adopted the treasured tactic of offering incentives to workers who thrived in cross-selling. This was the beginning of their problem. Workers reacted to these enticements by cross-selling and creating fake accounts using the details of existing Wells Fargo clients. A number of clients discovered it but others did not and paid dues on accounts they were not aware of (Quirk, 2013).

Established in 1852, Wells Fargo as well as its logo ‘red stagecoach’ focused on inducing the values of upfront innovators and a humbler time. Wells Fargo proudly distinguished itself from its New York-based banks following the financial catastrophe and frequently publicized its caring culture. People believed it, ranking the brand much more reliable compared to any of its peers in the same category.

Stumpf’s financial reward was also based on the attainment of the aggressive sales targets, which were much higher than those of their rivals. They were required to open 7, 500 new accounts per quarter in every branch against their rivals’ target of 300. Huge personal financial benefits can be alluring for a CEO even when founded on impractical, scam-prompting incentive plans for the entire workers provided they are ready to avoid the moral principles entailed (Kouchaki, 2016).

The fundamental principle in Wells Fargo’s circumstance is honesty, which implies not forging reality for benefits. The counterfeiting at Wells Fargo, from the CEO to workers, was because of pretension that developing illegal savings, checking as well as credit card accounts were similar to real sales. The price they expected to receive was the incentive payment from fake sales. The incident presents an open deception, which any person with the basic knowledge of ethical principles could not consider it a challenging managerial moral problem but just an obvious moral breach (Tayan, 2016).

Situation Analysis on the Current Environment and the Company Leadership

The elements that promote a hostile environment include unreasonable prospects put on workers, an approval of doubtful practices, and hesitancy to complain because of fear of reprisal. Wells Fargo’s workers, particularly those in the retail banking section, believed that they were anticipated either indirectly or openly to ignore some principles in matters of attaining targets for new accounts. Some workers revealed that whenever they sent their concerns to the organization’s “ethics hotline” as well human resource department, they were exposed to reprisal or hostility form leaders and colleagues instead of inspecting the matter. This indicates that officials fostered and supported unethical, illicit behavior and applied fear in implementing it. They developed a poisonous environment where several workers in retail banking supposed that the end-goal of attaining quotas was vital than the methods of doing it (Quirk, 2013).

The high-pressure sales environment pushed workers to open 2 million false accounts. Former workers complained of a devastating culture of fear and frequent coercion by the executive. The workers were compelled to meet extreme sales targets, some by breaching the rules. These were signs of hazardous cultural dynamics in Wells Fargo. The virtue ethical theory judges an individual by his/her personality instead of an act that may diverge from his/her usual behavior (De Colle & Werhane, 2008). The theory considers an individual’s morals, reputation, and incentive when assessing a rare and irregular behavior that is regarded unethical. From this theory, the employees’ act of fraud was not because of their personality, and they should not be regarded unethical. The leadership was unethical for setting unrealistic sales targets. Therefore, besides addressing the sales culture, the firm is required to handle crucial management issues to avoid another scandal. Workers illustrated a pressure-cooker environment whereby they risked being dismissed if they failed to attain the impractical sales targets. They stated that the pressure characterized working for Wells Fargo and openly resulted in rampant fraud. Wells Fargo is an illustrative example of a culture that had misaligned inducements, procedures as well as values (Kouchaki, 2016).

Examination of the culture and attitudes of bankers indicate that there is a weakness amongst senior leaders at Wells Fargo and restrictions in raising issues among different positions. Notwithstanding five years of clear and persistent warnings, the leadership team as well as the board of directors were slow to realize the extent and intensity of the fraud and to tackle it appropriately. Stumpf’s statements indicated that a board of committee came to know about the fraud in 2011. They held a meeting about in 2013 and 2014 the time the media became aware of the issue. Despite the fact that about 1000 workers were dismissed every year since 2100 for this behavior, the board seriously dealt with the issue in 2015. Stumpt admitted having discovered the fraud in 2013 when the number of forged accounts was multiplying. The business unit had failed to find a solution after two years of determinations. Trumpf called the consultants to examine its effect on clients after another two years (Fisher, 2009).

In analyzing what caused the leadership to take long before reacting to the issue, Stumpf’s remarks indicated that the team declined to believe the sales deception. The leaders believed that the only impact on customers was financial: incorrect fees. The firm thought that several workers were merely infringing customers’ trust by stealing identities, faking signatures, and secretly transferring money, and the damage was not sufficient to trigger the board’s involvement (Quirk, 2013).

The leadership exclusively made decisions at the top without seeking employees’ opinions. Their decisions dictated procedures, altered rules, and created new standards, which were to be adhered to without illustrating why or seeking reactions from employees who were individuals responsible for executing the directives.

The leadership judgment was flawed, answerable officials were elusive, and accountability was vague. The former CEO John G. Stumpf maintained his position for several weeks after the first expose, pronouncing common positions of corporate pablum while expecting that the media coverage would end. After his abrupt and unanticipated resignation in October, the board has been scrambling behind the scenes, finding a way of navigating out of the scandal. The leadership reacted to the issue by declining to acknowledge that there was a systematic problem. They held power, desperately avoided the issue, and transferred the blame. When “operational issues”, such as dangerous sales targets assist in developing the belief that effective leaders should push workers aggressively, it is difficult to eliminate it even after removing the sales targets (Tayan, 2016).


Description of Dilemma(s) and How the Issue Was Resolved

Just as several banks on Wall Street, Wells Fargo compensates a practice known as cross-selling whereby banks sell their various products to existing clients, for example, mortgages, credit cards, home equity loans, as well as checking accounts to attain targets, and increase profits and stock price. Thousands of workers who were poorly paid submitted to the sales tension with the expectation of receiving incentive payment. Therefore, they created 1.5 million unsanctioned deposit accounts and made 565, 000 credit applications without consent to attain the goals. The ethical theories based on rights affirm that the rights created by society are safeguarded and offered the highest precedence. Rights are regarded ethically correct and valid since they are approved by many people (De Colle & Werhane, 2008). It was a right of clients that accounts could not be opened without their consent. However, Wells Fargo’s personnel violated this right, and the action is termed unethical.

Despite the fact that several banks accounts were regarded empty and closed automatically, workers used to transfer client’s money to the new account, generating overdraft charges and damaging credit scores. The targets materialized when supervisors warned salespersons who did not attain them. Those who did not embrace the unlawful strategy were demoted or sacked. Incentives count so much when they are very striking or leading in the workers’ mind. Moreover, it is difficult for a worker to assume the warning of being sacked or humiliation before other workers. The fraud happened mainly with the clear endorsement of supervisors. This illegal practice produced $26 million in fees and aided several workers in meeting sales quotas and receiving bonuses (Quirk, 2013).

In trying to solve the problem, the firm dismissed 5,300 workers and some managers and lost its greatly esteemed CEO, John Stumpf. The retail bank sales targets were also removed. A large number of workers was dismissed because of its actions. However, the senior managers were responsible for that, and the overlooking culture at the bank was still in place. The leaders stressed that they were not aware of the activities of employees who worked under their leadership. Besides, they asserted that the workers shocked them and the culture reinforced their actions. This scandal portrayed the negative image of the bank and revealed the unlawful and unethical behavior and worrying fundamental issues (Partnoy & Eisinger, 2013).

In most cases, leaders are praised for all successes, but they try to avoid being accountable for failures that take place. Rather, they fault workers, the system as well as the company. Through making leaders answerable to unethical behavior, a company communicates to the entire firm and society the significance of ethics. For example, Carrie Tolstedt, a senior executive of retail banking at Wells Fargo was penalized only $67 million. In contrast, junior workers were harshly punished by losing their jobs. Accountability in leadership develops trust and fosters ownership in a company contrary to a regularly held perception that accountability implies individuals being under continuous investigation. When utilized properly, accountability enhances workers’ confidence in themselves as well as their leaders (Tayan, 2016).


Clear moral values, for example, honesty, make the appropriate, self-interested, win-win strategy simpler. Wells Fargo’s CEO could have prevented the deceitful incentive schemes as well as the forged accounts disaster by adopting this strategy from the beginning. For workers to comprehend their organization’s tactics and anticipations as well as changes created in an entire year, directors and their reports should have regular, continuous discussions concerning their goals. For Wells Fargo, the conversations occurred five years later, which was too late and the workers had already been fired.

Firms need to utilize information surrounding worker’s goals often, which include goal attainment, social acknowledgement, and who they are working with, as ideas for performance discussions. They need to concentrate on examining and offering real-time feedback regarding the goals set by workers. Regular conversations at Wells Fargo could have enabled managers to offer feedback to their workers and modify expectations accordingly. The current banks, which plan to change their cultures and enhance employee engagement need to develop the right goals and create appropriate performance conversations.

Altering the company’s culture that tolerates immoral activities is not an easy task. Termination of Stumpf, managers as well as front-line workers who decided to adopt the plan was the first right step. Individuals anticipate that Timothy Sloan, who succeeded Stumpf and was a long-term Wells Fargo worker, understands the moral principles and can transform the bank’s culture. Adopting the former CEO John Allison’s model of BB&T will help him develop a strong ethical culture founded on rational values.


De Colle, S., & Werhane, P. H. (2008). Moral motivation across ethical theories: What can we learn for designing corporate ethics programs? Journal of Business Ethics81(4), 751-764.

Fisher, L. E. (2009). Target marketing of subprime loans: Racialized consumer fraud & reverse redlining. JL & Pol’y18, 121.

Kouchaki, M. (2016). How Wells Fargo’s fake account scandal got so bad. Fortune. Retrieved from:

Partnoy, F., & Eisinger, J. (2013). What’s inside America’s banks? The Atlantic2. Retrieved from:

Quirk, W. J. (2013). Good Fences Make Good Bankers. The American Scholar82(2), 29.

Tayan, B. (2016). The Wells Fargo Cross-Selling Scandal. Retrieved from: