Investigation of Wells Fargo Sales Practices Details 'Dramatic Failure'

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A sign outside a Wells Fargo branch in Oakland. (Justin Sullivan/Getty Images)

Senior management at San Francisco-based Wells Fargo contributed to a failure of culture that tarnished the bank’s reputation and injured customers, according to a scathing report released Monday by the bank’s board of directors.

The findings of the report are the result of an investigation launched by a committee of board members last September following revelations that bank employees had opened millions of unauthorized accounts to meet aggressive sales goals.

“I would describe it as a cultural failure that was stimulated by the incentive system that they put in place at the bank," says Stanford professor of law and business Joseph Grundfest.

The 110-page document provides a glimpse into a high-pressure culture that emphasized unreachable sales goals over customer service and encouraged employees to sell multiple accounts that customers didn't need and didn't use.

"In many instances," the report says, "bank leadership recognized that their plans were unattainable -- they were commonly referred to as 50/50 plans, meaning that there was an expectation that only half the regions would be able to meet them."

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The report says that led to intense pressure to perform, leading to a number of questionable and downright unethical practices. One manager encouraged bankers to sell customers "duplicate accounts." Other employees transferred funds from one customer account to another to create multiple accounts. The results were essentially "junk accounts" that didn't meet the needs of customers, or ultimately, the goals of the bank.

The report depicts senior executives being in denial about problems at the bank and slow to address the root cause of problems as they arose.

"There was a disinclination among the Community Bank's senior leadership, regardless of the scope of improper behavior or the number of terminated employees to see the problem as systemic," the report states. "It was common to blame employees who violated Well Fargo's rules without analyzing what caused or motivated them to do so. Effect was confused with cause."

“I think it was a mistake frankly of the sitting CEO at the time to attribute this to bad actors and not accept some responsibility for the corporate culture in his role as CEO," says Ann Skeet with the Markkula Center for Applied Ethics at Santa Clara University. "Clearly the board is willing to accept some responsibility.”

Then-CEO John Stumpf resigned last October in the aftermath of the scandal.

However, the report notes the board also should have responded to issues more quickly and insisted on more detailed and concrete action plans from senior management.

The report says board members believe they were misinformed about the number of people being fired after questionable sales practices came to light. It wasn't until a settlement was reached with the Consumer Financial Protection Bureau that "the Board learned for the first time that some 5,300 Wells Fargo employees had been terminated for sales practice violations between January 1, 2011 and March 7, 2016."

Stanford's Grundfest says many managers were looking at the wrong metrics and failed to use common sense.

"Not taking a step back," he says. "And asking what's wrong that we had to fire 5,300 otherwise perfectly normal people?"

Another area where the report says senior executives failed to frame the issue appropriately was the harm done to customers. Even when the bank started firing employees in 2013, the report says "there was no adequate investigation to identify and address injuries that customers might have suffered."

The report says it wasn't until a Los Angeles city attorney lawsuit raised the issue that the bank even recognized that customers could have been harmed by fees charged to accounts they didn't authorize or even knew existed.

More importantly, the report says, the bank "did not consider non-financial harm to customers resulting from the misuse of personal information or the opening of accounts in their names without their authorization."

The result, says the report, amounted to a serious breach of trust

“A bank is first and foremost the custodian and keeper of the customer’s assets," says the Markkula Center's Skeet. "And anytime you are tinkering with anything people think you are a caretaker of ... that should definitely be considered as key and an important fact in this case.”

The bank has implemented a number of steps, including clawbacks of executive compensation totaling more than $180 million -- among the largest in the history of corporate America. The report says that sales goals were eliminated last September, and incentives are now "focused on customer experience, with metrics designed to emphasize customer service, retention and long-term relationship building."