The Wells Fargo Scandal
In 2016, retail banking giant Wells Fargo fired some 5,300 employees and was forced to pay a record $185 million in fines by the Consumer Financial Protection Bureau for opening upwards of 2 million fraudulent accounts for unwitting customers. This lead to CEO John Stumpf testifying before the CFPB ( and very publicly dressed down by senator & liberal fire-brand Elizabeth Warren) and eventually stepping down from his position. These fraudulent activities stem from a banking environment stricken with low-interest rates and slim profit margins creating a culture of unreasonably aggressive sales quotas—up to 20 new accounts a day—and quick dismissals for employees who couldn’t perform. Some former employees allege that they were tasked by management to perform unethically and in some cases illegal practices under threat of termination, and when these employees reported the dubious activities to Wells Fargo HR or the bank's ethics hotline they were dismissed anyhow. Although Wells Fargo vehemently denies these allegations, employees say that management would begin scrutinizing employees, looking for any fire-able offense, such as being 3 minutes late. Head of Berkshire Hathaway and Wells Fargo shareholder Warren Buffett once said in defense of embattled JP Morgan Chase CEO Jamie Dimon, “ If a cop follows you for 500 miles, you're going to get a ticket…”; the same sentiment rings true for a bank investigating employees for small, but “fireable” infractions. Click here to hear Buffett’s thoughts on the scandal.
The HR policies in place here not only failed but actively worked against the some of the most vulnerable people within the organization and certainly some of the most. These were not high paid executives, these were single parents, recent graduates, and average Americans. Recruiting and company review site Glassdoor.com pegs the average annual salary of a personal banker at $37,500 a year or about $18 an hour. These were not people with large savings to fall back on or people who would be offered “golden parachutes” if implicated in misconduct. This is why it is so disheartening that Wells Fargo’s HR policies failed them. Even if there was no coercion by management to commit fraud, this would still be a pressure cooker environment that would result in wrongdoing.
The fraud and extreme quotas were not the only sins Wells Fargo committed. Within the banking industry, there is a document known as the “U-5”. This universal bio document for anyone licensed to handle investments designed to keep fraudulent bankers out of the industry. In the case of Wells Fargo, managers would leverage their ability to alter this document and functionally blackball the employee from the entire industry. Former employees allege that the “U-5” was used as a retaliatory weapon against those that attempted to blow the whistle on the above mentioned fraudulent activities. To learn more about the “U-5” and the way it was used to against ex-employees, check out the Planet Money Podcast embedded below.
There were HR policies in place to avoid these ethical dilemmas and they were avoided or disregarded entirely. HR departments are a powerful tool for employers to manage their workforces to achieve financial success, but they should also function to assist organizations to root out corrupt business practices and protect those that bring them that success. The record-breaking fine of $185 million may be a mere pittance in the banking industry, but the damage done to their brand through mismanaging their HR processes is enormous.
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