What Are the Real Lessons of the Wells Fargo Case?

SUMMING UP James Heskett's readers identify key failures in Wells Fargo's culture and leadership.
by James Heskett


Respondents to this month’s Wells Fargo “case study” identified problem symptoms, diagnosed causes, proposed remedies, and even suggested a title for a follow-on case.

Mitch says that when one company is consistently more successful than others in that industry on a key operating metric, “be skeptical. In this case it was cross-selling retail products.” Outliers in competitive industries raise a red flag, he wrote.

A number of causes for the alleged fraudulent behavior at Wells Fargo were put forth. They included poor leadership, improper incentives, inadequate auditing and poor control, questionable organizational (particularly human resource management) practices, and human behavior traits in general.

As “Former Employee” put it, “much of the language in the Visions and Values about caring for team members and customers is just words and not lived out by management.” Tom has “serious questions regarding the oversight responsibilities within all levels of management, especially the Board of Directors!” Arie Goldshlager labels this “a classic case of Goals Gone Wild, referring to a paper by Harvard Business School colleague Max Bazerman. Goldshlager goes on: “Wells Fargo was asking its sales force to sell 8 products (‘Going for gr-eight’) to customers that needed fewer products.” This was coupled, as Thomas Dean put it, “with high, high pressure on line employees to perform or be fired.”

Hamad Sheikh suggests that the problems might not have occurred if “the Audit team (had been given) sufficient power and resources to do their work.” “Former Employee” maintains that “Wells Fargo has no HR presence at the local level, which means there is no buffer between rogue managers and conscientious employees.” And Peter, citing a Harvard Business Review article by David DeSteno, Who Can You Trust?, reminded us that “90% of people—most of whom identify themselves as morally upstanding—will act dishonestly to benefit themselves if they believe they won’t get caught.”

Possible remedies were suggested by Dino Ferrari (“They should install a balanced scorecard that measures all metrics. Hard and soft.”), Steve Braje (“You’re better off showing the value of increasing customer loyalty and focusing on that.”), and “bean counter” (operate by means of a balanced triangle “with equal sides for the customer, the shareholders, and the employees.”). Bob suggested that leadership might begin by changing the Visions and Values section on the current company web page to read: “We believe in our vision and values more strongly today than we did the first time we put them on paper more than 20 years ago. Major shortcomings in being true to our values have resulted in a decision to assess all board members and the top 200 executives regarding their historical and future ability to effectively perform their jobs while truly acting in accordance with our values. Being true to our vision and values will guide us toward growth and success for decades to come.” He would then benchmark the company against those “which have truly acted in accordance with their vision and values over 10+ years to get ideas for what might work at Wells Fargo.”

As if that were not enough, he then proposed a question suitable for the next case study: “What would you suggest Elizabeth Duke do when she becomes chairman of Wells Fargo on January 1?”

What do you think?


Case studies used in business schools portray dilemmas faced by managers. Students diagnose the problem and recommend actions. They are thought to learn at least as much from failure as from success. If that’s the case, there must be an educational treasure trove in the recent experiences at Wells Fargo, regarded as one of the best-managed banks in the world. A case about Wells Fargo might well contain some of the following.

For years, Wells Fargo has prided itself on putting “culture first, size second.” Its culture is built around the idea of One Wells Fargo, “imagining ourselves as the customer.” Its vision includes the mission of helping its customers succeed financially. This vision is supported by values such as “people as a competitive advantage, ethics, and what’s right for customers.” The organization even has gone so far as to define its culture as “understanding our vision and values so well that you instinctively know what you need to do when you come to work each day.” That’s all pretty impressive.

Given this context, it made sense that incentives were put in place several years ago to encourage frontline employees to develop “deeper” relationships—defined by the number of the bank’s services utilized--with existing customers. However, the goals on which the incentives were based were so daunting that they raised the temptation to cheat by establishing fake new accounts and even transferring token amounts of funds between these accounts without customers’ knowledge. When the practice became so prevalent—2.1 million accounts from 2011 to 2015—that it began to generate numerous customer complaints and evidence surfaced regarding systematic cover-up of the practice in the ranks.

Wells Fargo announced in September 2016 that some 5,300 employees were fired. The action was taken by leaders who claimed they were unaware of the practice; nevertheless, the board replaced CEO John Stumpf and clawed back some of his compensation. The monetary and non-monetary costs to the financial institution in penalties, fines, and loss of trust began to mount.

Months before the fraud was disclosed, Tim Sloan, then president and COO (and now CEO), was quoted as saying: “People are our competitive advantage, so we care for our team members and want them to enjoy what they’re doing. Customers tell us they do business with Wells Fargo because our people care about them—that is our Vision.”

But the problems didn’t stop there. In August 2017, the bank found that the fraudulent activity affected 1.4 million more accounts between 2009 and 2016, and perhaps additional accounts before 2009 for which, “it did not have sufficient data,” according to Sloan.

When the bank’s largest shareholder, Warren Buffett, was asked about the matter, he commented in a CNBC interview, “There’s never just one cockroach in the kitchen. Once you put a spotlight and start looking at everything, you’re likely to find something additional.” Other events were proving Buffett to be right.

It was disclosed this past July that an insurance company with which Wells Fargo had a contractual relationship had, over a period of nearly 12 years, been requiring as many as 800,000 of the bank’s auto loan recipients to take out insurance on autos that were already insured. Wells Fargo management claimed that it was unaware of customer complaints collected by the insurance company. Further, when made aware of the problem—including thousands of borrowers who could not make the extra payments and subsequently had their autos repossessed—management made provision to reimburse only those customers taking out auto loans in the last five of the twelve years, according to the Federal Office of the Comptroller of the Currency.

Wells Fargo announced last month that four executives had left in connection with a regulatory investigation into the bank’s foreign-exchange operations. It also announced what was described as “disappointing revenues and higher legal costs,” triggering at least a short decline in its share price.

A complete case study would, of course, contain much more information about the problem and the thinking behind decisions. That more complete case will, I’m sure, be written and studied. But in the meantime, we can at least ask ourselves what we might learn from what we know. Of course there will be the obvious lessons concerning the cost of management greed, dishonesty, and cover-up.

What are the real lessons of the Wells Fargo case? What do you think?

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