Running head: CASE ANALYSIS 1 1

Case Analysis 1: Wells Fargo Scandal

Alyssa Young

Kennesaw State University

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Case Analysis 1: Wells Fargo Scandal

The Wells Fargo fraud scandal of opening around two million illegitimate customer

accounts and credit cards began being investigated in September of 2016. However, the unethical

practices have been occurring much longer than a few months. Wells Fargo’s CEO since 2007,

John Stumpf, directly denied any knowledge of the scandal prior to 2013. The Wells Fargo

scandal damaged company reputation of prioritizing customer service and cultural integrity. This

analysis will provide an in-depth review of the Wells Fargo scandal through discussing its

unethical practices, careless management, and neglect of corporate responsibility.

Despite being informed multiple times by local management, Wells Fargo took no action

to come forward and admit to its faults. Investigations began in September of 2016 when the Los

Angeles city attorney, Consumer Financial Protection Bureau and the Office of the Comptroller

of the Currency filed a lawsuit against the company (Blake, 2017). These investigations brought

forth indisputable facts that proved the company had knowledge of unethical practice long before

CEO, John Stumpf, admitted. Wells Fargo representatives testified to only have known about the

problem was occurring beginning in 2013 (Cowley, 2016).

Wells Fargo terminated one percent of the workforce in response to reduce questioning.

The biggest issue with this action is that only 10 percent of people fired were management

(Cowley, 2016). The remaining terminated employees were low-level tellers. The 10 percent of

management fired was composed largely of people who attempted to alert human resources and

John Stumpf of unethical practices they witnessed. These cases are documented through

wrongful termination lawsuits dating back to 2008 (Cowley, 2016).

Wells Fargo had knowledge of the problems occurring within the company and took no

actions to cease these issues, affecting millions of customers who had an account they were
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unaware of and thousands of employees attempting to reach unrealistic sales goals. The banking

company had a competitive selling objective and tellers were expected to reach these goals in

order to maintain their compensation. When untrained employees are faced with getting paid

decently and making ethical decisions, they will choose the former. Wells Fargo should have

implemented more training programs for local management and local employees to understand

the importance of customer service above sales goals.

In addition to affecting customers and previous employees, Wells Fargo affected the

business of other credit unions. There is a blurred line between banks and credit unions for the

public. This scandal posed a difficult task upon other credit unions to prove differences from

banks and moreover from Wells Fargo. The timing of this scandal, being in the midst of a

controversial election, also made it challenging for other credit unions to gain media attention to

differentiate themselves (Ghosh 2016). It was suggested, “every credit union should embrace a

marketing strategy using targeted marketing and demographics to tell their story” through social

media, advertisements and other channels of communication (Ghosh 2016). Another strategy

credit unions could use to persuade their publics that they are different from Wells Fargo is by

using transparency to elaborate on their corporate responsibility.

The actions of Wells Fargo show a failure to abide by public relations ethical guidelines.

This is an example of the beliefs of Edward Bernays, who believed that people are neither

rational or logical. By allowing greed to take the place of corporate responsibility, the Wells

Fargo public relations department submitted to moral temptations. Moral temptations can be

defined as “occurring when a choice is required among actions that meet competing

commitments or obligations, but there are good reasons for and against each alternative” (Baker
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& Martinson, 2001). As a result of falling to moral temptations, the negative connotation of

manipulation is associated with the actions of Wells Fargo.

Under the theory of responsibility, public relations practitioners have the requirement to

protect clients and voice the opinions of shareholders. Wells Fargo failed to place clientele

protection at the top of their priority list, resulting in lost trust from consumers. This relates to

the attorney adversary model, which compares lawyers’ jobs to the profession of public relations.

It is the job of the lawyer to win in the court of law, but it is much more difficult to recover trust

in the court of public opinion.

The TARES test is an acronym for a series of step professionals can go through to ensure

they are using ethical persuasion. Truthfulness, the first principle, suggests that public relations

practitioners should avoid deception to maintain power in the and control in the hands of the

public” (Baker & Martinson, 2001). By hiding the truth and boasting about high sales, Wells

Fargo damaged relationships with clients and stakeholders. In addition, credibility with the

media was damaged. The second principle of authenticity was broken by Wells Fargo by failure

to display integrity and sincerity. This will be difficult for Wells Fargo to regain, unless the

company shows full transparency. Possibly the largest ethical principle that Wells Fargo broke

was respect for the public. By opening false accounts in the names of uninformed clients, Wells

Fargo showed no respect to its clients. Prior to the investigation on fraudulent activity, Wells

Fargo had excellent equity with its public through endorsing ultimate customer care. Equity takes

lengths of time to build and can be shattered in an instant. Finally, social responsibility was

eliminated from Wells Fargo’s actions after John Stumpf denied allegations of awareness of

unethical practices as well as late media responses. All of the above strategies exemplify failure
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to uphold accountable behavior; therefore, causing customer concern to rise and company sales

to drop.

Under the Public Relations Society of America (PRSA) code of provisions, it is stated

under disclosure of information that members should avoid deceptive practices (“PRSA

Professional Code of Ethics”, 2017). This provision was directly violated through the

acknowledgement of fraudulent activity without action and intentional termination of truthful

employees. Conflicts of interest are also listed under the PRSA code of provisions, which advise

practitioners to act in the best interests of the client and to avoid circumstances that compromise

good business judgement (“PRSA Professional Code of Ethics”, 2017). To avoid such

widespread fraudulent activity, practitioners should have familiarized employees with strict rules

of termination if caught submitting deceitful material. In addition, practitioners should have

made it a priority to seek the proper treatment of employees attempting to break the fraudulent

cycle.

The Public Relations Society of America also has a statement of professional core values

that are vital to incorporate when practicing public relations. The values of advocacy, honesty,

expertise, independence, loyalty and fairness set the standard for the practice by guiding

behaviors (“PRSA Professional Code of Ethics”, 2017). Wells Fargo failed at advocacy by acting

irresponsibly for the clients they represent. The company was unsuccessful in being honest by

hiding the truth that executive officers were aware of the fraudulent accounts being opened.

Furthermore, they continuously fired people who attempted to share the truth. Despite having an

ethics hotline for employees to call if they noticed unethical behavior, Wells Fargo failed to use

expertise or fairness in the scandal through using the hotline to source and terminate
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whistleblowers. The company was unsuccessful at acting accountable or independent by making

excuses for bad behavior and denying corporate knowledge of unethical behavior.

What actions did Wells Fargo take following the investigations and lawsuits filed by the

Los Angeles city attorney? Although Wells Fargo was late in response to the accusations, they

did publish press releases to address the situation. On September 13, 2016, Wells Fargo

announced the elimination of product sales goals for retail bankers (Wells Fargo – “News

Releases”, 2017). A week later, a release was published to announce the measured to strengthen

culture and rebuild trust of customers outlined by John Stumpf at the Senate Banking Committee

hearing. Three more press releases were submitted detailing the importance of healthy behaviors

by senior executives and implementation of independent directors conducting investigations.

Instead of admitting to corrupt behavior, Wells Fargo officials stated they, “disagree with the

allegations in the complaint and will vigorously defend against the misrepresentations it contains

about Wells Fargo and all of the Wells Fargo team members whose careers have been built on

doing the right thing by our customers” (Blake, 2017). The next and final press release of 2016

about the situation was published on October 12, 2016, which announced the new CEO, Tim

Sloan (Wells Fargo – “News Releases”, 2017). The scarce amount of press releases submitted by

Wells Fargo were not enough to replenish trust with the public. Most media published by Wells

Fargo focused on humanitarian efforts to remove attention from its recent unethical practices.

As a result of failure to take responsibility and show transparency to the public, Wells

Fargo experienced a drop in sales and overall reputation. Credit card applications dropped 43

percent, and checking account openings dropped 40 percent (Corkery, 2017). These numbers are

likely influenced by strict enforcements of monitoring employee activity and evidence of

realistic sales. Additionally, transactions decreased 6 percent and customer interactions declined
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14 percent (Corkery, 2017). Finally, total profit decreased 4.3 percent to $21.9 billion (Corkery,

2017). The quarterly reports represent the poorly handled crisis, which would not have been the

same degree of severity if Wells Fargo had practiced ethical communication.

To make reputational increases and improvements, Wells Fargo should look for a public

relations manager with a larger focus on strategic persuasion. Through sourcing practitioners

with strategic persuasion skills, the company could expect to experience corporate responsibility,

crisis preparedness, and the ability to recover from reputational damage due to lack of

transparency. Additionally, Wells Fargo should “review all incentive compensation programs to

make sure that the proper control environment is in place and that the goals are not creating

perverse incentives” (Lukomnik, 2016). All programs that provide incentives of compensation

should be announced to clients and stakeholders. By sharing all company changes and details

with the public, Wells Fargo can rebuild its image to one of credibility. The credit union should

also enforce accountability and have an independent regulator to monitor the amount of

incentives being distributed.

The fraudulent scandal committed by Wells Fargo damaged the company reputation, but

can recover with dedication. The best decision made by Wells Fargo officials was to replace

CEO John Stumpf. This provided the public with a new key figure to place trust in. The practices

and overall management structure will need to undergo changes to make internal improvements.

If all further actions are communicated in a timely and transparent manner to stakeholders and

clients, Wells Fargo can rebuild equity with the public.

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References

Baker, S. & Martinson, D. (2001). The TARES Test: Five Principles for Ethical Persuasion.

Journal of Mass Media Ethics. 16(2-3), 148-175.

Blake, P. (2017). Timeline of the Wells Fargo Accounts Scandal. ABC News. Retrieved 26

February 2017, from https://www.nytimes.com/2017/01/13/business/dealbook/wells-

fargo-earnings-report.html

Cowley, S. (2016). At Wells Fargo, Complaints About Fraudulent Accounts Since 2005.

Nytimes.com. Retrieved 26 February 2017, from

https://www.nytimes.com/2016/10/12/business/dealbook/at-wells-fargo-complaints-

about-fraudulent-accounts-since-2005.html

Corkery, M. (2017) Wells Fargo Struggling in Aftermath of Fraud Scandal. Nytimes.com.

Retrieved 26 February, 2017, from

https://www.nytimes.com/2017/01/13/business/dealbook/wells-fargo-earnings-

report.html

Ghosh, P. R. (2016). How should credit unions market themselves in the wake of Wells

Fargo? Credit Union Journal, 20(20), 10-n/a. Retrieved from

https://login.proxy.kennesaw.edu/login?url=http://search.proquest.com/docview/1825287

315?accountid=11824

Lukomnik, J. (2016, Oct 06). Five steps for Wells Fargo to rebound from scandal. American

Banker Retrieved from

https://login.proxy.kennesaw.edu/login?url=http://search.proquest.com/docview/1826503

410?accountid=11824
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PRSA Professional Code of Ethics. (2017). PRSA.org Retrieved 26 February 2017, from

http://apps.prsa.org/AboutPRSA/Ethics/documents/Code%20of%20Ethics.pdf