Wells Fargo Scandal

Show & TellBy: Quin Rowen

The Scandal

• 1.5 million unauthorized retail bank accounts • 565,000 unauthorized credit card applications• 5,300 managers and staff were fired • $185 million fine, $5 million to refund customers*• Carrie Tolstedt, head of retail banking, left Wells Fargo in

July

*according to usnews.com

Background

• Ongoing since 2011• Customers were unaware of these accounts under their

name • Testify before Congress today (CEO)• The latest of many penalties to Wells Fargo

How did this happen?

• Lax internal controls• Excessive incentive programs• Intense performance pressure – meet unrealistic sales

goals

Ethical Issue• Hurt their customers financially

• Acted in their best interest, rather than the best interest of their customers/shareholders

• Friedman- purpose of business to increase profits• “make as much money as possible while conforming to the basic rules of the society, both

those embodied in law and those embodied in ethical custom”• Where can we draw the line?

• Freeman’s Stakeholder Theory- create value without trade offs• Traded increasing the value of their stock by “stealing” their customer’s money• Problem with Friedman- not consistent with the law, usually ignores ethics, resistant to change

• Amartya Sen- Mutual confidence

Solution?

• Larger fines?• Punish executives?

Citations

• http://money.cnn.com/2016/09/08/investing/wells-fargo-created-phony-accounts-bank-fees/

• http://www.usnews.com/opinion/articles/2016-09-19/wells-fargo-problem-is-fake-accounts-were-part-of-the-profit-system