At Wells Fargo’s annual shareholder meeting in April, shareholders voted to re-elect all 15 of the bank’s directors—but barely. In a sign of discontent over aggressive sales practices that have cost the bank U.S.$185 million in fines to date, Wells’ chairman was re-elected with only 56 percent of the vote and its head of the risk committee scraped through with only 53 percent. Compared to the 95 percent or more considered normal for corporate elections, the vote was seen as a “stinging rebuke” to the scandal-ridden bank.

The meeting follows a report by Wells’ board, which found that the root cause of the sales practices scandal was the distortion of the bank’s sales culture and performance management system. This, “combined with aggressive sales management, created pressure on employees to sell unwanted or unneeded products to customers and, in some cases, to open unauthorised accounts,” the report stated. In response to these findings, the bank expanded a class-action settlement to customers affected by the scandal as far back as May 2002.

Transparency International UK has published a guide, Incentivising Ethics, on designing and implementing incentives systems to encourage good and deter bad behaviour. The guide sets out the following five key principles, which can help us to better understand what went wrong at Wells and how to fix it.

Ensuring strong culture and values. Establish a strong tone at the top, and demonstrate commitment to ethical business conduct through actions that are consistent with tone at the top.

What emerges from the Wells Fargo report is a clear failure of leadership, from the bank’s former CEO and Chairman, John Stumpf, down to the business-unit level. This was exacerbated by a decentralised structure that gave excessive autonomy to the business units, creating a “culture of deference” and a set of leaders resistant to outside scrutiny and oversight.

The tone from the top at Wells was clear: All leaders, including Stumpf, placed a heavy emphasis on sales targets, manifested through various slogans and campaigns such as “Eight is Great”, in which employees were encouraged to get customers to sign up for eight products per household, and “Jump into January,” which aimed to motivate employees to achieve and exceed January sales goals.

Despite senior leaders being aware of sales misconduct issues, they were reluctant to view them as a systematic issue, either seeking to downplay them or even frame them positively. When informed that the bank fired 1 percent of its staff for sales integrity violations, Stumpf interpreted this as evidence that the vast majority of employees “got it right.”

Risk assessment. Take a cross-functional approach, involving HR, ethics and compliance, and the risk function, to identify and manage risks created by incentives.

Wells’ various functions were highly decentralised, reporting directly to the business units, and had limited scope to investigate wrongdoing. Staff from HR, legal, and internal audit were all aware of sales misconduct to varying degrees, but were focused on handling individual cases and did not see it as their role either to seek out root causes or escalate issues to central management. This was seen as the responsibility of the business as the “first line of defence.”

Wells Fargo’s April 25th annual shareholder meeting vote should be a wake-up call to Wells’ board and senior management. The report is at pains to point out that the board was kept in the dark about the issues at the bank until 2014, when they were finally classified as a “noteworthy risk” and subsequently misled by management reports.

Designing ethical incentives. Align incentives and company values, set achievable targets, emphasise intrinsic-over-extrinsic reward and never reward behaviour that breaches the company’s principles, regardless of performance, even if they have met or exceeded their targets.

Wells Fargo had an aggressive sales culture that focused obsessively on sales targets. Sales targets were so prominent that some managers evaluated employees on sales performance alone, and many employees saw meeting their targets as the only way to keep their jobs, let alone get ahead in the organisation.

The community bank received frequent pushback about the unachievable targets it set for the regions, but to no avail. The problem was compounded when employees, fearing for their jobs, “gamed” the system to meet their targets, only to have them raised again the following year.

Embedding ethical incentives. Use training and communications to reinforce the primacy of ethical behaviour over achieving targets, listen to staff and give them opportunities to consider the ethical implications of their work.

While Wells did have compliance training, the message was undermined by the persistent emphasis on sales. Further, some employees actually reported receiving training in fraudulent practices from managers, while managers from regions with aggressive sales cultures (and high levels of misconduct) were sent to train others on boosting their sales performance.

The report creates an impression of a frenzied work day, beginning with a “morning huddle” focused on sales goals and punctuated by regular public updates on individuals’ sales figures. In this context, it appears employees and managers were given no space or encouragement to reflect on the implications of their actions, contributing to a widespread assumption that there was no harm to customers, and were not motivated to “speak up” about wrongdoing for fear of losing their jobs. 

Monitoring and evaluation. Ensure that internal functions are monitoring for signals that staff may be incentivised to contravene the company’s code, record all breaches and adjust incentive structures as appropriate.

As we have seen, Wells’ internal functions were monitoring for wrongdoing but failed to identify sales integrity failures as a systemic issue. When they did raise concerns, they faced pushback from business unit leaders who downplayed or left out significant information in their own reports to the board and senior management. A 2013 story in the LA Times did lead to some adjustments to sales practices, but progress was slow and it was too little, too late.

Time to act

Wells Fargo’s April 25th annual shareholder meeting vote should be a wake-up call to Wells’ board and senior management. The report is at pains to point out that the board was kept in the dark about the issues at the bank until 2014, when they were finally classified as a “noteworthy risk” and subsequently misled by management reports.

Nonetheless, the board could and should have done more to understand and address the risks caused by Wells’ sales culture. If they don’t act now to restore trust among shareholders, consumers and employees, the bank’s reputation will be irreparably damaged.


Alice Shone is Senior Programme Officer Business Integrity Programme at Transparency International UK.