As the aftermath of Wells Fargo’s fraudulent-account scandal continues to unfold, this much seems certain: To regain trust going forward, Wells Fargo executives must revamp its entire corporate culture from the ground up, in which employee concerns are heard and valued, not swept under the rug.

Recent headlines tell only part of the story, skimming the surface of an ocean of whistleblower harassment and retaliation complaints that reveal a toxic and pervasive achieve-sales-goals-at-all-costs culture that went on for years. Ultimately, the global banking and financial services holding company admitted to terminating 5,300 employees for opening over two million unauthorized accounts, even as senior executives refused any responsibility.

To date, the culmination of such egregious conduct has resulted in the bank paying a total of $185 million in fines to various authorities. CEO John Stumpf has called it quits. Certain cities and state treasurers have suspended their investment activity with Wells Fargo. Enforcement agencies are launching investigations left and right, and class-action lawsuits on behalf of both employees and customers affected by the scandal are already in the works.

In comparison to its size, however, the reputational and financial harm suffered by Wells Fargo is trivial. Rather, the central lesson here—the same one that compliance officers hear time and time again—is what happens to a company when regulatory compliance obligations and corporate policies are overshadowed by a culture poisoned by senior management’s ignorance or indifference.

During congressional testimony in which a panel of livid senators drilled Stumpf about Wells Fargo’s corporate culture, U.S. Senator Bob Menendez (D-N.J.) put it most poignantly when he said, “This isn’t the result of 5,300 bad apples. This is the work and result of sowing seeds that rotted the entire orchard.”

When asked by Senator Tim Scott (R-S.C.) whether Wells Fargo has a culture in which employees feel empowered and are encouraged to come forward, Stumpf replied that all employees are encouraged to speak up. “If something is being asked of them that they think is not right, not consistent with our values and our culture, they’re asked to raise their hand. They’re asked to go to a manager’s manager,” he said.

Nor does Wells Fargo tolerate retaliation against employees who report their concerns, Ruben Pulido, vice president of corporate communications at Wells Fargo, said in a prepared statement. “Our non-retaliation policy makes clear that no team member may be retaliated against for providing information about suspected unethical or illegal activities, including fraud, securities law, or regulatory violations, or possible violations of any Wells Fargo policies,” Pulido said.

If employees believe that they, or someone else, has been retaliated against for reporting an issue, “they should report it as soon as possible” to Wells Fargo’s ethics line, an HR adviser, or their manager, Pulido added. “Wells Fargo will take measures to protect team members from retaliation,” he said.

As any good compliance officer knows, though, actions speak louder than words.

“This isn’t the result of 5,300 bad apples. This is the work and result of sowing seeds that rotted the entire orchard.”
U.S. Senator Bob Menendez (D-N.J.)

Wells Fargo employees who reported concerns about fraudulent and unlawful sales practices encountered a “hostile, retaliatory, vindictive” working environment, says Yosef Peretz, who was the first attorney to file a whistleblower claim on behalf of a Wells Fargo employee—six years ago. Bank employees were treated more like “mafia members: ‘We are going to take care of you for not obeying the Code of Silence,’ ” Peretz says.

The first whistleblower harassment and retaliation complaint filed in 2010 in the U.S. District Court for the Northern District of California on behalf of bank employee Yesenia Guitron concerned the same allegations that haunt Wells Fargo today. Specifically, the complaint alleged that Wells Fargo bankers, as well as its branch and regional managers on a nationwide scale, were pressured to meet “unreasonably aggressive and ambitious” daily sales quotas and faced disciplinary actions if they did not.

These daily quotas were not based on any analysis of competitive comparisons, the local market, or each bank’s type of clientele. “It was a one-size-fits-all-requirement,” Peretz says. As a result, many bankers were tempted to cheat, because managers were putting a huge amount of pressure on them to meet those daily quotas, he says.

Just two months into her job, when Guitron noticed fellow bank employees opening fraudulent accounts, she took all the measures that Wells Fargo said it encourages: She first went to the regional manager, “who refused to intervene,” according to the complaint. That’s when she began using Wells Fargo’s ethics hotline to report the illegal sales activities, which were supposed to be handled by the Wells Fargo Investigation Unit. In the end, no investigation was ever conducted.


Below is an excerpt from the Sept. 20, 2016, testimony of former Wells Fargo Chairman and Chief Executive Officer John Stumpf before the U.S. Senate Committee on Banking, Housing and Urban Affairs.
We decided that product sales goals do not belong in our retail banking business. Specifically...we are eliminating all product sales goals for retail banking team members and leaders, including those in branches and retail banking call centers, effective January 1, 2017. We are doing this in order to better align with the additional training, controls, and oversight implemented since 2011 and focus on rewarding excellent customer service rather than product sales. We have taken, and continue to take, other significant and meaningful steps to prevent unauthorized accounts from being created.
These steps include:
Working closely with our primary regulator, the Office of the Comptroller of the Currency (OCC), to strengthen our enterprise oversight of sales conduct risk. We have established an enterprise Sales Conduct Risk Oversight Office, reporting into the chief risk officer, and have regularly responded to numerous inquiries and provided regular briefings to our regulators;
Creating a new enhanced branch compliance program that will be dedicated to monitoring for sales practice violations by conducting data analytics and frequent branch visits. Results will be reported to the enterprise Sales Conduct Risk Oversight Office;
Implementing a process whereby, within one hour of opening an account, a customer will receive an e-mail that confirms the opening of the account;
Revising procedures for credit cards, to require each applicant’s documented consent before a credit report is pulled. Consent is manifested by a physical signature or, if the applicant is unable to sign on the PIN pad, by a dual attestation of the banker and the manager or branch designee; and
To further address possible customer harm,we are contacting all customers with open, inactive credit cards to confirm whether the customer authorized the account. If the customer indicates they did not authorize the card, we will offer to close it (if it is still active) and suppress any bureau inquiry.
Source: Wells Fargo CEO John Stumpf testimony

“It was a complete failure of accountability and checks and balances,” Peretz says. If HR is not investigating, and the unit tasked with investigating the same type of complaint is not doing its job, “something is wrong,” he says.

Ultimately, the lawsuit was dismissed in 2012. Peretz says that, although Magistrate Judge Donna Ryu found evidence of unethical conduct at Wells Fargo, she ultimately ruled that Wells Fargo had justification for the termination. Guitron lost the case on appeal in 2015.

In December 2011, Peretz filed a second whistleblower complaint, that one with the Whistleblower Protection Program administered by the Department of Labor’s Occupational Safety and Health Administration on behalf of former Wells Fargo general manager Claudia Ponce de Leon. In that lawsuit, Ponce de Leon alleged she, too, was retaliated against for telling managers about the fraudulent account openings. Peretz says that case is still pending—although, it may not be for much longer.

A Sep. 26, 2016, letter to U.S. Senator Elizabeth Warren by Labor Secretary Thomas Perez gives Ponce de Leon’s case new ammunition. In that letter, Perez said that he has “directed enforcement agencies within the Department to conduct a top-to-bottom review of cases, complaints, or violations concerning Wells Fargo over the last several years.” To expedite this review, the Labor Department has established a working group consisting of other federal agencies, he said.

Fresh lawsuits continue to surface. In September 2016, a class-action lawsuit was filed in the Superior Court of California County of Los Angeles on behalf of thousands of other former Wells Fargo employees.

“Wells Fargo’s employees who did not engage in unfair, unlawful, and fraudulent conduct to meet quotas were all similarly, systematically, and routinely demoted, terminated, and made an example of, so that all other employees would learn that they must engage in these fraudulent actions in order to meet the unrealistic sales quotas or else lose their jobs,” the complaint states.

Lessons learned

Despite years of warnings, Stumpf maintained in congressional testimony that senior management, including himself, did not learn of the thousands of unauthorized accounts until 2013. Prior to that time, the internal audit and compliance departments within the business unit dealt with reported complaints within the regional banks, Stumpf claimed.

A failure of checks and balances, indeed.

In response to regulatory scrutiny, Wells Fargo said it has since taken steps to remediate its policies and procedures, including eliminating all product sales goals for retail banking employees and management, effective Jan. 1, 2017. But even those efforts will be in vain if Wells Fargo does not also commit to change its corporate culture.

Clearly, Wells Fargo still has much to learn—valuable lessons that apply to all ethics and compliance officers at multinational companies. For example, middle management and senior executives alike should make it a habit to publically recognize and reward employees who act with integrity, while disciplining those who act illegally or unethically, even if they’re high performers.

Ongoing ethics and compliance training and communication is also essential. As cases like Wells Fargo bluntly demonstrate, it’s not just about reinforcing to employees that they have multiple avenues for raising issues, but more importantly it’s about demonstrating the efficacy of those avenues.

The same can be made about having a central point of control to track whistleblower complaints; funneling them into the compliance or HR department, for example, is only effective if those complaints are actually heard and investigated.

If ethics and compliance officers are to learn anything from the toxic corporate culture of Wells Fargo, it’s that internal whistleblowers should be treated seriously and as valuable allies—not enemies—of a corporate compliance program. Had Wells Fargo realized that from the get-go, it would not be in the regulatory hot water that it’s in today.