{"id":12729,"date":"2018-02-03T15:46:35","date_gmt":"2018-02-03T23:46:35","guid":{"rendered":"https:\/\/getlighthouse.com\/blog\/?p=12729"},"modified":"2024-05-10T14:13:58","modified_gmt":"2024-05-10T14:13:58","slug":"toxic-culture-wells-fargo-scandal","status":"publish","type":"post","link":"https:\/\/getlighthouse.com\/blog\/toxic-culture-wells-fargo-scandal\/","title":{"rendered":"Toxic Culture: Why Wells Fargo Created Over 3 Million Fake Accounts and Hurt so many Americans"},"content":{"rendered":"\n
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\"I never authorized it, I never asked for it, I never signed any paperwork for it,\u201d<\/em> said <\/span>Aaron Brodie.<\/span><\/a><\/p>\n<\/blockquote>\n\n\n\n

Brodie is a Texan 911 dispatcher. In 2012, he was sent a credit card without his permission.<\/span><\/p>\n\n\n

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\"Brodie<\/figure>\n<\/div>\n\n\n

Upset, he contacted his Wells Fargo's branch to cancel it. <\/span><\/p>\n\n\n\n

Strangely, they refused. However, the bank promised that if Brodie didn't use the card, he wouldn't have to pay any interest fees.<\/span><\/p>\n\n\n\n

They lied.<\/strong><\/p>\n\n\n\n

A year later, he discovered that <\/span>the card racked up $1300 in fees<\/span><\/a>, causing his credit score to drop by 125 points.<\/span><\/p>\n\n\n\n

When he tried to buy his first home, he learned that<\/span> he was disqualified for a loan.<\/a> <\/span>He has tried to take part in a class-lawsuit against the bank, but was forced into arbitration.<\/span><\/p>\n\n\n\n

Brodie is one of the millions whose lives were damaged by Wells Fargo's explosive fraud scandal.<\/span><\/p>\n\n\n\n

Wells Fargo's Fake Account Scandal<\/b><\/h2>\n\n\n\n

In 2016, Wells Fargo confessed to creating <\/span>3.5 million fake accounts<\/span><\/a> in their customers' names.<\/span><\/p>\n\n\n\n

In response to the scandal, the bank fired 5,300 employees. However, this is like putting a Band-Aid on a bullet wound for a company that employs almost 270,000 people .<\/span><\/p>\n\n\n\n

The scope of the corruption was nationwide.<\/span><\/p>\n\n\n\n

20,000 people, including <\/span>Samir Hanef<\/span><\/a>, had their cars repossessed because they were illegally enrolled in insurance programs. They were forced to pay hundreds in out-of-pocket fees.<\/span><\/p>\n\n\n\n

The Wall Street Journal <\/span>summarized important stats<\/span><\/a> about this scandal:<\/span><\/p>\n\n\n

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\"WSJ<\/figure>\n<\/div>\n\n\n

But, here's the worst part:<\/span> this could've been prevented over a decade ago.<\/em><\/b><\/p>\n\n\n\n

According to court documents<\/span><\/a>, Wells Fargo's secretary Julie Tishkoff  reported her suspicions in 2005:<\/strong><\/em><\/span><\/p>\n\n\n\n

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\"Tishkoff notified the bank's HR department about the illegal activities she saw<\/strong>, including employees forging customer signatures and opening accounts and credit cards for customers without their knowledge. <\/span><\/i><\/p>\n\n\n\n

Wells Fargo faced similar complaints from other employees. However, the bank ignored the information and failed to open an investigation into the shady practices<\/strong>. <\/span><\/i>(Julie Tishkoff v. Wells Fargo Bank, Ltd A California Corporation, 2011).\"<\/span><\/p>\n<\/blockquote>\n\n\n\n

She kept reporting her observations until she was fired in 2009.<\/span><\/p>\n\n\n

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\"John<\/figure>\n<\/div>\n\n\n

Much more than a few bad apples<\/b><\/h3>\n\n\n\n

Former CEO John Stumpf blamed the scandal on, \"a few bad apples.\" <\/em>However, <\/span>according to former employees, it was the result of a toxic culture.<\/span><\/p>\n\n\n\n

Employees were expected to follow the cross-selling strategy, <\/span>\"Going for Gr-Eight<\/a>\";<\/span> their mandate was to sell eight products per customer, because the more products a customer had, the more profit Wells Fargo generated with interests and fees. <\/span><\/p>\n\n\n\n

Tishkoff wasn't the only one to report illegal activities in 2005. Former branch manager Dennis Hambek <\/span>sent a letter<\/span><\/a> to a <\/span>regional leader<\/b> about his suspicions:<\/span><\/p>\n\n\n\n

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\"A customer applied for a mortgage loan at the Selah branch and was given a PMA checking, growth savings, and a debit card, opened by a PB located in Ellensburg. The customer stated he had never met with the PB or been to the Ellensburg Branch.<\/strong> He never signed any documents, or worse yet, never received any disclosures.\"<\/span><\/i><\/p>\n<\/blockquote>\n\n\n\n

Hambek never got a response.<\/span><\/p>\n\n\n\n

The corruption at Wells Fargo was systemic, not a few bad apples. <\/span><\/p>\n\n\n\n

Leaders create the environment for toxic cultures to thrive<\/b><\/h3>\n\n\n\n

Blaming lower employees for business corruption is easy. However, public scandals like Wells Fargo show a bigger problem than a few workers misbehaving.<\/span>
<\/span>
<\/span>Toxic cultures exist because senior leaders allow it.<\/span>
<\/span>
<\/span>The academic journal Personnel Psychology released an article called, <\/span>\"A Trickle-Down Model of Abusive Supervision.\"<\/a> <\/span>Researchers theorized that upper management's lousy behavior enables middle and lower employees to act the same way.<\/span>
<\/span>
<\/span>Here is their model of abusive trickle-down supervision:<\/span><\/p>\n\n\n

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\"Toxic<\/figure>\n<\/div>\n\n\n

When a manager is abusive to their subordinate, that subordinate becomes abusive to their employees or co-workers.<\/span>
<\/span><\/p>\n\n\n\n

But that's not all. <\/span>When there's a hostile climate, like unreasonably high-sales pressure without accountability, the probability of abuse increases. <\/span><\/p>\n\n\n\n

The lousy behavior of senior leaders not only affects their employees, it also affects the entire organization. The higher up the problematic person, the greater the damage.<\/span>
<\/span>
<\/span>This is what happened at Wells Fargo. <\/span><\/p>\n\n\n

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\"wells<\/figure>\n<\/div>\n\n\n

Wells Fargo's Trickle-Down Toxic Culture<\/b><\/h1>\n\n\n\n

Wells Fargo's toxic culture was present at every stage of their leadership hierarchy. <\/span>Here's the Wells Fargo's version of the trickle down model:<\/span><\/p>\n\n\n

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\"wells<\/figure>\n<\/div>\n\n\n

Senior executives set high sales goals<\/b><\/h2>\n\n\n\n

Remember that regional leader Dennis Hambek sent a letter to? That was<\/span> Carrie Tolstedt. <\/b>She was also the head of Wells Fargo's Community Bank.<\/p>\n\n\n

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\"Carrie<\/figure>\n<\/div>\n\n\n

According to <\/span>an investigation report<\/span><\/a>, she escalated the sales pressure by tying <\/span>sales goals to <\/span>employee performance<\/a>:<\/span> <\/span><\/i><\/p>\n\n\n\n

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\"Bankers, branch managers, and district managers risked pay cuts and poor performance reviews if they didn't hit the goals...and employees were ranked against one another.\"<\/span><\/i><\/p>\n<\/blockquote>\n\n\n\n

We've covered before how bad stack ranking employees<\/a> is for morale. However, it's not surprising that it was an element of such a toxic work culture.<\/p>\n\n\n\n

Catchy name, bad behaviors<\/h3>\n\n\n\n

Tolstedt also created the \"Jump to January\" campaign. It was when the Community Bank enforced higher sales targets in January.<\/span><\/p>\n\n\n\n

Whenever a colleague raised concerns about these high targets, Tolstedt ignored them. She didn't accept any criticism of her and the bank's toxic culture. <\/span><\/p>\n\n\n\n

Tolstedt's leadership gave an impression that sales were<\/span> the only way one could succeed<\/a>:<\/span><\/p>\n\n\n\n

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\"Employees...most likely to be praised, rewarded and held out as models for success were high sales performers.\"<\/span><\/i><\/p>\n<\/blockquote>\n\n\n\n

She drilled this further by making <\/span>Arizona Regional Banking's leader Pam Conboy<\/span><\/a> the model of success.<\/span><\/p>\n\n\n\n

Conboy enforced the \"Jump to January\" tradition throughout the year, causing bankers to push unnecessary products to customers.<\/span><\/p>\n\n\n\n

The Trickle-Down: Regional leaders pressured branch managers<\/b><\/h3>\n\n\n\n

Tolstedt's pushy behavior trickled-down to regional leaders. <\/span><\/p>\n\n\n\n

Erick Estrada <\/span>told the LA Times<\/span><\/a> how regional executives bullied branch managers. <\/span>Every morning, they were reminded to fulfill their quotas. If they didn't, there was hell to pay: <\/span><\/p>\n\n\n\n

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\"If you [didn't] make your goal, you [were] severely chastised and embarrassed in front of 60-plus managers in your area by the community banking president.\u201d<\/span><\/i><\/p>\n<\/blockquote>\n\n\n\n

According to <\/span>the social learning theory<\/span><\/a>, these managers had no reason to believe that their actions were wrong.<\/span><\/p>\n\n\n\n

In <\/span>\"A Trickle-Down Model of Abusive Supervision,\"<\/span><\/a> researchers claimed that abusive supervisors (regional leaders) are only doing what is accepted in the workplace. <\/span>Since their bosses had no problem with their behavior, they had no reasons to stop.<\/span><\/p>\n\n\n\n

A lawyer representing Wells Fargo employees echoed this:<\/span><\/p>\n\n\n\n

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\"the better [managers] did at sales, the more they advanced, so it spread across the company. An entire generation of managers thrived in the culture, got rewarded for it, and are now in leadership positions.\u201d<\/span><\/i><\/p>\n<\/blockquote>\n\n\n\n

Trickle-Down to the Bottom: Bankers did the dirty work<\/b><\/h3>\n\n\n\n

Finishing the trickle-down model, managers pushed sales goals on local bankers. <\/span>For example, <\/span>Yesenia Guitron<\/span><\/a> worked at Wells Fargo's St Helena branch.<\/span><\/p>\n\n\n

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\"Yesenia<\/figure>\n<\/div>\n\n\n

The workplace culture was very intense. Every hour<\/strong>, managers would check up on her to see if she was meeting her quotas. <\/span><\/p>\n\n\n\n

She wasn't. But, her co-workers were. Something was off.<\/span>
<\/span><\/p>\n\n\n\n

Her lawsuit reported that it impossibl<\/strong>e<\/strong><\/em> for her branch to have high sales records:<\/span>
<\/span><\/p>\n\n\n\n

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\"There were only about 11,500 potential customers in the area and 11 other financial institutions. The quotas for the bankers at Guitron's branch totaled 12,000 Daily Solutions each year, including almost 3,000 new checking accounts. Without fraud, the math didn't work<\/strong>.\"<\/span><\/em>
<\/span><\/p>\n<\/blockquote>\n\n\n\n

Her co-workers were <\/span>\"gaming\"<\/span><\/i><\/a> the system at their customers' expense. <\/span>
<\/span><\/p>\n\n\n\n

Guitron sent hundreds of printouts depicting suspicious activity to her managers. But, they didn't care. They told her to mind her business. <\/span>
<\/span><\/p>\n\n\n\n

Escalation falls on deaf ears<\/h3>\n\n\n\n

Despite this, she didn't quit.  Instead, s<\/span>he requested meetings with executives and made calls to Wells Fargo's Ethics Line. <\/span>
<\/span><\/p>\n\n\n\n

Rather than listen to her concerns, in 2010, the bank fired her.<\/span>
<\/span><\/p>\n\n\n\n

Years later, a fellow former St. Helena banker confessed that <\/span>\"gaming\" was encouraged:<\/span>
<\/span><\/a><\/p>\n\n\n\n

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\"It was normal...to use false identification on accounts and to change customers' names and open new accounts...Management made it clear<\/strong> that no employee was allowed to complain<\/strong> about the unethical practices that were going on within the branch.\u201d<\/span><\/i><\/p>\n<\/blockquote>\n\n\n\n

A Houston teller, who transferred between many branches, discovered that <\/span>they all shared the same shady practices.<\/a> Wells Fargo's toxic culture had spread nationwide.<\/span><\/p>\n\n\n\n

The High Costs of a Toxic Culture<\/b><\/h1>\n\n\n\n

Having a toxic culture hurts your business in the long-run in a variety of ways. It lowers work performance, damages public perception of you and your brand, and it hurts customer's trust.<\/span><\/p>\n\n\n\n

All are consequences that take years to overcome.<\/span><\/p>\n\n\n\n

Disengaged workers are expensive<\/b><\/h2>\n\n\n\n

Two professors at Concordia University in Montreal wrote a paper on unhealthy companies. It's called, <\/span>\"Toxins in the workplace: Affect on organizations and employees.\"<\/span><\/a><\/p>\n\n\n\n

They found that organizations like Wells Fargo are hurting their workers' self-esteem, <\/span>creating a less engaged workplace.<\/span><\/a><\/p>\n\n\n\n

This table from their paper shows that companies with high people management practices (PMP) tend to have higher financial returns than ones that low PMP.<\/span><\/p>\n\n\n

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\"A<\/figure>\n<\/div>\n\n\n

Companies with low PMP suffer from low productivity and high absenteeism. Their employees are more likely to take sick days, abandon workloads, and quit early. This is in line with the myriad of data we've covered on employee disengagement studies by Gallup.<\/a><\/span><\/p>\n\n\n\n

These disengaged workers cost the <\/span>U.S. between $450 billion to $550 billion<\/span><\/a> in lost productivity every year. <\/span><\/p>\n\n\n\n

A report from CareerBuilder found<\/a><\/span> that 69% of HR managers and professionals have been negatively affected by a bad employee. Meanwhile, 65% of managers estimated that this bad employee cost them between $25,000 and $50,000 in lost time and productivity.<\/span><\/p>\n\n\n\n

In the case of Wells Fargo, an investigative report revealed that one of their Community Banks once had an employee turnover rate of 42%!<\/strong><\/span><\/p>\n\n\n\n

Long-term struggles to overcome<\/b><\/h3>\n\n\n\n

Wells Fargo's fake account scandal ruined its reputation. Today, the majority of Americans don't trust the bank with their money.<\/span><\/p>\n\n\n\n

This distrust showed in their financial reporting. In 2017, <\/span>their net income was $5.5 billion<\/span><\/a>, which meant they had zero growth<\/strong> from the year before. Even worse, their revenue dropped by $200 million.<\/span><\/p>\n\n\n\n

Not surprisingly, according to the <\/span>American Banker<\/span><\/a>, Wells Fargo has the lowest overall bank reputation ranking.<\/span><\/p>\n\n\n

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\"The<\/figure>\n<\/div>\n\n\n

Customers and Non-Customers perceive their brand to be very weak. This means that people are less likely to buy, invest, and apply for a job at Wells Fargo.<\/span><\/p>\n\n\n

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\"The<\/figure>\n<\/div>\n\n\n

In January, the bank announced their plan to <\/span>close 800 branches by 2020.<\/span><\/a> This is because they're trying to save money for their legal expenses and damages.<\/span><\/p>\n\n\n\n

So far, they spent about <\/span>$3.3 billion in legal bills.<\/a> Yet, the worst isn't over for them. They're expecting more victim lawsuits in the future. <\/span><\/p>\n\n\n\n

The consulting firm, <\/span>cg42<\/span><\/a>, believes that Wells Fargo could lose 14% of their customer base. They also predict that they could lose about $99 billion in deposits and $4 billion in revenues in upcoming years.<\/span><\/p>\n\n\n

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\"Toxic<\/figure>\n<\/div>\n\n\n

As of yesterday, <\/span>the Federal Reserve<\/span><\/a> will halt the firm's growth, \"until it sufficiently improves its governance and controls.\u201d<\/em> Meaning, that the bank can't grow beyond its $1.95 trillion in assets.<\/span><\/p>\n\n\n\n

When customers don't trust a company, the company tends to pay a high price. Wells Fargo is now paying for years of bad behavior and toxic culture. <\/span><\/p>\n\n\n\n

You<\/em> are responsible for your culture.<\/b><\/h2>\n\n\n\n

Don't want a toxic culture like Wells Fargo? Then, you must live and enforce your corporate values.<\/span><\/p>\n\n\n\n

You're much more than an authority figure and decision maker as a leader at your company. You're the standard of what is accepted within your business.<\/span><\/p>\n\n\n\n

Live your values like Red Hat<\/h3>\n\n\n\n

One company that embraces this is Red Hat. Their CEO's attitude represents their culture quite clearly.<\/span><\/p>\n\n\n\n

Jim Whitehurst encourages employees<\/span><\/a> to have candid discussions about their mistakes. He believes that the more his people embrace failure, the more innovative they become: <\/span><\/p>\n\n\n\n

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\"By accepting and even celebrating a failed effort, we promote innovation. We will reward someone who tries to climb the tallest mountain, even if they fall short of the summit because they have created an experience we can learn from and build upon. That's what innovation is all about.\"<\/span><\/i><\/p>\n<\/blockquote>\n\n\n\n

Investment in learning is a value that can help any team. HBR reported<\/a><\/span> that great managers tend to make more great managers, while poor managers create more poor leaders. <\/span><\/p>\n\n\n

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\"toxic<\/figure>\n<\/div>\n\n\n

How to find out if you have a toxic culture<\/b><\/h3>\n\n\n\n

The first part of transforming a toxic culture is to determine if there is one.<\/span><\/p>\n\n\n\n

You can do this by reading:<\/span><\/p>\n\n\n\n