Wells Fargo Fraudulent Accounts Scandal Term Paper

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Wells Fargo Fake Account Crisis

A crisis is defined as the perception of an unprecedented event/incident that threatens shareholders’ valuable expectations in relation to economic, health, environmental, and safety issues (Coombs, 2014). Since organizations operate in a challenging and highly competitive environment, they are likely to undergo crises. An example of an organization that has experienced a crisis in the recent past is Wells Fargo. The company recently experienced a scandal relating to fake accounts, which has plagued its operations for approximately a year. Given that the crisis is still ongoing, Wells Fargo needs to develop a suitable crisis management plan that will help resolve the issue. This paper focuses on examining the crisis using the three-stage approach articulated by W. Timothy Coombs.

Factual Summary

Wells Fargo fake account crisis is an ongoing scandal regarding the creation of millions of fake savings and checking accounts on behalf of its clients, but without their consent. Wells-Fargo, the third-largest bank in the United States, opened 3.5 million fraudulent accounts from 2009 to September 2016 (Dugan, 2017). Based on a summary by an auditor, the number of opened accounts during this period exceeded the previously estimated 2.1 million accounts by the bank, which represented 70% increase. The company also admitted to have opened fraudulent accounts from 2002 to 2009. As a result, Wells Fargo has been under investigations by several regulatory agencies including the Consumer Financial Protection Bureau, which fined the bank a combined $185 million due to its illegal activities. Since the company is still under investigation, it faces more criminal and civil lawsuits. For instance, Wells Fargo is facing a pending $32 million civil class-action settlement lawsuit for its engagement in illegal activities by opening fraudulent accounts (Dugan, 2017).

The bank responded to the crisis through admitting its wrongdoing, which has deepened its woes. However, an explosive report conducted on Wells Fargo by Pricewaterhouse Coopers did not include its fraudulent accounts that were opened between the years 2002 and 2009. This was primarily because of the difficulties in conducting a comprehensive analysis for this period of time. The bank has been accused of potentially lessening restitution for customers through omitting that time period from the report despite admitting its involvement in fraudulent activities.

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Through omitting that time period, Wells Fargo prevented an actual size and reflection of fraudulent accounts from being known. This ongoing crisis was uncovered by Los Angeles Times in 2013 and has continued to have significant impacts on its operations.

Precrisis

According to Coombs (2014), the first step towards effective crisis management is examining the precrisis stage, which includes signal detection, prevention, and crisis preparation. This is an important stage because it can help in preventing a crisis or preparing for it if it’s deemed inevitable.

Signal Detection

Similar to many crises, Wells Fargo fraudulent accounts scandal had some early warning signs that could have been addressed to prevent the crises. The early warning sign of this crisis was the mounting pressure on Wells Fargo bank managers and individual bankers to generate sales despite the extremely aggressive and mathematically impossible quotas (Morrell, 2017). Throughout the years, Wells Fargo has been utilizing a sales culture and cross-selling strategy, which is a concept of trying to sell several products to customers. This company has played a critical role in the growth of this bank in the recent past to an extent that it’s regarded as the most successful cross-seller in the modern business environment. Despite contributing to its success, cross-selling became the underpinning practice for this scandal through creating a corporate culture where bank managers and individual bankers were under intense pressure to generate sales. While the impact of this culture on the firm’s managers, employees, and customers were brought to its attention in 2011, Wells Fargo ignored its potential negative impact and denied the existence of any overbearing sales culture.

Probing and Prevention

By ignoring the potential negative effects of its sales culture and cross-selling strategy, the firm did not adopt any measures to prevent the problem from developing into a scandal/crisis. The firm’s Chief Financial Officer, Timothy Sloan, denied the existence of an overbearing sales culture, which implied that issues management and risk management approaches were….....

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"Wells Fargo Fraudulent Accounts Scandal" (2017, October 09) Retrieved May 6, 2024, from
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