In today’s world, navigation apps have turned getting around into a breeze. A few taps, and boom—you're on your way. But here in Kenya, especially in rural areas, we have an old-school hack: white chalk arrows. When you’re hosting guests, you mark out their path, a little breadcrumb trail to your home. These chalk marks are at the mercy of nature, slowly fading under the sun or washing away with the rain. Oddly enough, that's how ethics sometimes vanish within organizations. Bit by bit, they get worn down—barely noticed until one day you look up and realize the trail has disappeared completely, and no one can quite remember when or how it happened.
An investigation was initiated in September 2016 by the Board of Directors of Wells Fargo Bank, assisted by Shearman & Sterling LLP. Three and a half million fake bank accounts had been opened by staff in the retail sales department. This took place between 2011 to 2016. However, the Board’s report noted that unethical behaviour was observed as early as 2002 when a surge in sales practice violations was unearthed. Other key findings highlighted a harsh performance management approach, a decentralized leadership that resisted change, weak oversight and delayed recognition of the problem's seriousness by both senior management and the Board.
Despite remedial actions, the issues persisted, and by 2004, cases of sales manipulation surged from 63 in 2000 to 680 in 2004. Terminations linked to these practices also spiked, rising from 21 in 2000 to 223 in 2004. In the face of mounting evidence connecting these issues to sales incentives, Wells Fargo Bank’s leadership hesitated to institute substantial reforms, opting instead for increased training, detection measures and punitive actions to manage risks, indicating a reluctance to overhaul the existing model.
The sales model was characterised by extremely high-pressure conditions to attain sales targets at all costs. A sense of fear was instilled, ensuring staff didn’t dare miss their targets. Ultimately customer satisfaction was not a consideration as the culture encouraged employees to sell unwanted or unneeded products to customers. The 2017 board report charged that the top leadership, “...were unwilling to change the sales model or recognize it as the root cause of the problem, resisted and impeded scrutiny or oversight from corporate risk management and the Board when forced to report, minimized the scale and nature of problems.”
The heat was cranked up by 2010, with employees fearing termination, missing out on opportunities to earn bonuses and risking poor performance reviews. In a period of 5 years, employees opened millions of unauthorized accounts, credit cards and other financial products in customers' names without their consent. These unethical practices involved forging signatures, manipulating customer data and transferring funds between accounts without authorization. Ultimately, 5,300 Wells Fargo employees were fired because of their involvement in these deceptive practices.
Beyond the failures of the senior management team, the Board of Directors erred in oversight, insight and foresight in several critical ways. Firstly, their failure to recognize and address unethical behaviour dating back to 2002 demonstrates a lack of insight into the root causes of systemic issues within the organization. This allowed the unethical behaviour to fester and the gradual decay would come to a head in 2011. To improve their insight, the board could have implemented comprehensive reporting mechanisms, engaged in ongoing dialogue with management and stakeholders and prioritized diversity in their composition. These actions would have enhanced their understanding of organizational risks, operations, and culture, enabling more informed decision-making.
Despite early indications of sales practice violations, the board did not take sufficient action to mitigate risks or reform the sales model, indicating a failure in oversight. The reforms would include promoting transparency, accountability, and ethical leadership throughout the organization by conducting a comprehensive review of the sales model and incentive structures to identify areas of potential risk and misconduct. Thereafter, the board could have actively engaged with senior management to prioritize ethical behaviour and customer satisfaction over aggressive sales targets. Finally, establishing a robust whistleblowing framework that encourages employees to report concerns about misconduct, unethical behaviour or legal violations without fear of retaliation.
Additionally, their reluctance to implement substantial reforms in the face of mounting evidence connecting issues to sales incentives highlights a lack of foresight in anticipating and addressing potential risks. By prioritizing short-term gains rather than actively engaging in discussions about culture and reinforcing desired behaviours, the board missed an opportunity to positively influence and shape the culture of the organization to better navigate future challenges effectively. Finally, the board could have engaged in regular discussions with management about emerging risks and strategic decisions that may impact the organization's risk profile ensuring the organisation is in the right strategic direction as it concerns risk management.
Just like your favourite pair of jeans, ethics can fade over time if there is no effort to maintain an organization’s core values. Can an individual uphold these standards without oversight? Is senior management truly living and breathing the culture they want to see across the company? And is the board actively ensuring those standards stay intact at the top? The truth is, we all have a role to play. Letting ethical slips slide is the fastest way to let them settle into the very fabric of an organization. Catch them early, or risk integrity fraying at the seams.
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