Case Studies, Portfolio

Wells Fargo Case Study

Wells Fargo Case Study

By Heather Bodajla

Case Summary

Wells Fargo, under the leadership of John Stumpf, Chairman and CEO, was fined $185 million dollars for allegedly opening over two million unauthorized chequing and credit card accounts without the consent of the customers between May 2011 and July 2015.  The bank settled with the regulatory agencies without admitting guilt or denying any wrongdoing.  Wells Fargo insisted it never directed any employees to open these accounts and ultimately fired 5,300 employees over five years for their participation in the scam.  It also refunded $2.6 million dollars to customers for wrongfully charged fees.  Finally, Stumpf recommended to the Wells Fargo board of directors that they “rescind $41 million of unvested stock awarded to him and $19 million to Carrie Tolstedt, who led the bank’s community banking unit where the wrongful sales practices occurred.”

Problem Statement

Wells Fargo’s reputation and trustworthiness is damaged internally and externally because it allegedly opened over two million unauthorized chequing and credit card accounts without the customer’s knowledge or consent over a four- year period.  Wells Fargo claims its focus is on serving customers, but it has deceived them instead.   It also threw its own employees under the bus, so the leadership team would escape persecution.

SWOT Analysis

Strengths

  • One of the top ten banks in the U.S.
  • Weathered financial crisis of 2007-08 and acquired Wachovia in 2008. Became North America’s most extensive distribution network for financial services
  • One of the nation’s largest financial institutions
  • Forbes magazine ranks Wells Fargo among top ten publicly traded companies in the world
  • Between 2010-2015, Wells Fargo’s assets grew by 46% and net income by over 85%
  • By early 2015, posted 18 consecutive quarters of profit growth
  • Performed better than its competitors. Lowest efficiency ratio
  • Stock price increased. In July 2015, became the most valuable bank in the world.
  • Success of company came from cross-selling ratios. Incentivized staff to sell more. Had highest cross sell ratio in the industry
  • Had a Code of Ethics and Business Conduct for all employees
  • First bank to launch online banking
  • Wells Fargo returned $2.6 million dollars to affected customers
  • Stumpf asked the Wells Fargo board to rescind $41 million of unvested stock awarded to him, and $19 million to Carrie Tolstedt

Weaknesses

  • Cross selling practice too aggressive, went against company ethics
  • Employees who tried to complain about cross selling were fired despite the company’s Code of Ethics and Business Conduct which asked employees to report wrongdoing and protect reputation of the company. The bank had a method in place to retaliate against whistle-blowers
  • Stumpf was still getting paid during the scam
  • Stumpf was CEO and Chairman- ideally these roles should be two separate positions. Shareholders tried to separate them in a proxy vote, but the board of directors urged them not to vote for it because the company was running fine as it was.  In addition, shareholders voted against the move 11 times in a row
  • Wells Fargo pushed blame for scam to lower- level employees and then fired 5,300 of them, but the practice of opening fake accounts was mandated in the culture. Those people were just following orders
  • Senate Banking Committee hearing, House Financial Services Committee hearing, fines totaling $185 million dollars
  • Cross selling makes the bank a lot of money. Successful cross selling and customer retention are highly correlated
  • Bonuses and quotas were introduced for bank employees to open more accounts
  • Destroyed some customers’ credit worthiness by opening and closing these accounts, issuing credit cards and having them cancel them
  • Violated integrity of Sales Quality Manual
  • Employees gave signed petitions to the board during 2014 and 2015 annual meetings urging them to look at the link between sales quotas and fraudulent opening of accounts without customers’ permission
  • Wells Fargo had a dispute resolution policy, but it was a sham- if you used it, you were fired
  • Employees who didn’t meet quotas or didn’t want to do business this way were harassed
  • Wells Fargo forced customers into private arbitration
  • Wells Fargo forced arbitration clauses in employees’ contracts

Opportunities

  • New CEO and Chairman to help restore trust and repair reputation
  • Cross- selling done ethically might keep more customers and maximize revenue potential
  • Hire a new Board of Directors to get rid of the toxic old ones who have let this scam carry on
  • “In August 2015, Wells Fargo hired PricewaterhouseCoopers LLP (PwC) to carry out detailed analysis of the sales practices pertaining to all the 82 million deposit accounts and nearly 11 million credit card accounts that been opened between 2011 and 2015 to quantify the remediation needed to compensate the customers who had suffered as a result of accounts fraudulently opened in their names.”

Threats

  • Stumpf as CEO
  • Unethical corporate culture
  • Senior executives were out of touch to let this happen and let the lower level employees take the fall
  • Settled with regulatory agencies without admitting or denying alleged misconduct. Not giving any response makes them look guilty
  • Scapegoated people at the bottom of the employee chain
  • Accused of fraud by Senator Pat Toomey during Senate Banking Committee hearing
  • Broke trust of employees, current customers and future customers
  • Dozens of fired employees spoke to the media
  • Lawsuits piled up
  • Shareholders filed class action lawsuit
  • Stock price fell more than 10%
  • Competition can come in and take the business now. Customers might be very willing to leave Wells Fargo

PEST Analysis

Political

  • Stumpf appeared before the Senate Banking Committee and the House Financial Services Committee

Economic

  • Cross selling is the cornerstone of the marketing strategy of the financial services industry
  • “In 2012, the United States District Court for the Northern District of California had ruled that even if its sales targets were unreasonable, the Bank had the right to use them as an employment yardstick.”
  • “In July 2015, with market capitalization of about $300 billion, Wells Fargo became the most valuable bank in the world.”
  • Worldwide trend of separating CEO and Chairman of the Board roles
  • Wells Fargo stock outperformed the broader stock market index over longer periods of time

Socio-Cultural

  • Cross selling was used across the financial services industry. Many of Wells Fargo’s competitors used it too
  • Acquiring new customers was seven times more expensive than retaining existing customers
  • In 2016, NYSE Governance Services gave the board Best Board Diversity Initiative Award

Technological

  • There aren’t any indicated in the case study

Research

Secondary research will be needed to determine more information about the current social, political, environmental and technological climates in the financial services industry in the United States at this time.

Stakeholders/ Publics

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What are the stakeholders wants, interests and needs?

Stakeholders need to trust the company again and know that this will never happen again.  They want the people responsible for the scam to leave the company and know changes will be made and their investments and credit history are safe and uncompromised.

Audience Research

I recommend primary research such as interviews, surveys and focus groups to get a pulse of customer and employee perception of Wells Fargo’s reputation and trust before we launch a communication plan.  We need to re-administer the surveys and focus groups at regular intervals throughout the plan, to the same groups, in order to know if we’re making progress.  We will also continue to monitor media.

Goal

The goal is to repair the long- term damage to Wells Fargo’s reputation, and rebuild trust among customers and employees.

Objectives

Objective for Customers:

To have an effect on acceptance.

To create a positive attitude among 50% of current and potential customers about Wells Fargo’s commitment to its customers by year end 2018.  Success would look like a 70% approval rate.

Objective for Employees:

To have an effect on action. 

To increase attention about the stories we will tell in our internal communications campaign about ethical behaviour by 90% by June 2018.

Objective for Shareholders:

To have an effect on action. 

To increase opinion of shareholders and key analysts about the new board and CEO by 60% by year end 2017.

Output Objectives:

To increase MRP score of Wells Fargo to 70% by year end 2018.

To decrease negative attitude on social media by 50% by year end 2018.

Strategies

  • A consumer relations strategy, along with a social media strategy are needed to repair credibility of Wells Fargo.
  • Internal communications are needed to repair credibility internally and communicate the stories.
  • Financial and investor relations are needed to reach the shareholders and analysts.
  • A media relations strategy is needed to address how Wells Fargo will rectify behaviour and increase MRP score.

Tactics

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Key Messages

We are deeply sorry to our clients and employees for knowingly perpetrating this scandal.

Our focus is on serving customers honestly and ethically.  Your investment and credit history are safe, and uncompromised.

We have removed the CEO, replaced the board of directors and implemented a new code of ethics to ensure this will never happen again.  We know it will take time to regain your trust, and we hope to earn it back.

Conclusion

It is quite obvious Wells Fargo knew what it was doing when it initiated and continued the scam it was running.  Hopefully with Stumpf out of the company, and several board members replaced, Wells Fargo can begin the long process to repair its reputation in its customers, employees and the industry’s eyes.