Article originally posted in and nationally syndicated by the American City Business Journals on April 25, 2017.

On April 10, the directors of the Wells Fargo board independent oversight committee issued their 111-page report on the scandal that has engulfed the bank. The report was prepared by the law firm Shearman & Sterling LLP.

The scandal went public when Wells Fargo (NYSE: WFC) was sued in May 2015 by the district attorney of Los Angeles for fraudulent sales practices within the Community Banking Division over a five-year period.

In a Sept. 8, 2016 press release, the Consumer Financial Protection Bureau stated, “Spurred by sales targets and compensation incentives, employees boosted sales figures by covertly opening accounts and funding them by transferring funds from consumers’ authorized accounts without their knowledge or consent, often racking up fees or other charges.

“According to the bank … employees opened more than two million deposit and credit card accounts that may not have been authorized by consumers.”

Wells Fargo was fined $185 million and ordered to reimburse customers $5 million in fees they were charged due to these unethical practices.

Reading the Shearman & Sterling report, the following lessons stand out:

Don’t lose sight of your company’s mission

The mission of every business should be to exceed its customers’ expectations and provide them a great customer experience. It was apparent that this was not the mission of the Consumer Banking Division of Wells Fargo.

The Community Banking Division only cared about increasing sales, which drove incentive compensation. This was a significant failure of the culture of the bank.

The report stated, “The Community Bank identified itself as a sales organization, like department or retail stores, rather than a service-oriented financial institution. This provided justification for a relentless focus on sales, abbreviated training and high employee turnover.”

Wells Fargo’s branches are not stores. They are banks providing clients with banking services. Why did Wells Fargo cheapen its brand?

An incentive system not properly designed can produce adverse results

Quoting from the report: “The root cause of sales practice failures was the distortion of the Community Bank’s sales culture and performance management system, which, when combined with aggressive sales management, created pressure on employees to sell unwanted or unneeded products to customers and, in some cases, to open unauthorized accounts.”

This sales pressure was intense. A Wall Street Journal article by Emily Glazer on Sept. 16, 2016 was headlined, “How Wells Fargo’s high-pressure sales culture spiraled out of control.” The article was sub-headlined, “Hourly targets, fear of being fired and bonuses kept employees selling even when the bank began cracking down on abuses.”

Glazer’s article describes a deeply embedded culture in which lower level managers told their employees to ignore orders from senior Wells Fargo managers to stop abusive sales practices. Many Wells Fargo employees at retail bank branches chose to quit rather than do their jobs in an unethical manner.

While business operations can be decentralized, internal controls must be centralized

John Stumpf, the former chairman and CEO of Wells Fargo, who was forced to resign in the wake of the scandal, believed that not only should operations be decentralized, but the internal control and compliance functions should also be decentralized. He continued to have this belief year after year as serious issues persisted within Consumer Banking.

Quoting the report, “Wells Fargo’s decentralized corporate structure gave too much autonomy to the Community Bank’s senior leadership, who were unwilling to change the sales model or even recognize it as the root cause of the problem. Community Bank leadership resisted and impeded outside scrutiny or oversight and, when forced to report, minimized the scale and nature of the problem.”

One wonders why the Wells Fargo board did not identify decentralized internal control and compliance functions as a significant enterprise risk, especially as they became aware of the issues within Community banking.

A business unit leader that is not transparent should raise red flags

Carrie Tolstedt, the former vice president of Community Bank who was forced to retire in July 2016, “was notoriously resistant to outside intervention and oversight,” according the report.

“Tolstedt and certain of her inner circle were insular and defensive and did not like to be challenged or hear negative information. Even senior leaders within the Community Bank were frequently afraid of or discouraged from airing contrary views.

“Tolstedt effectively challenged and resisted scrutiny both from within and outside the Community Bank. She and her group risk officer not only failed to escalate issues outside the Community Bank, but also worked to impede such escalation, including by keeping from the Board information regarding the number of employees terminated for sales practice violations.”

Tolstedt’s toxic tone at the top of her organization was a red flag that was ignored. This type of leader cannot be trusted.

Employees who use the employee hotline to report wrongdoing must be protected

In a Sept. 21, 2016 CNN Money article headlined, “I called the Wells Fargo ethics line and was fired,” reporter Matt Egan writes that the news organization spoke with a number of Wells Fargo employees who were fired for reporting unethical practices on the ethics hotline and to the bank’s human resources department.

Quoting the Shearman & Sterling report, “Based on a limited review completed to date, Shearman & Sterling has not identified a pattern of retaliation against Community Bank employees who complained about sales pressure or practices. The review … is ongoing…”

It is very important that this investigation be done carefully and its conclusions be accurate. Its credibility with the Wells Fargo employees depends on it, as well as trust in the Wells Fargo hotline.

Wells Fargo faces many lawsuits and investigations, the bank has lost business and its reputation has been damaged. The proxy advisory firm Institutional Shareholder Services is recommending that the 12 directors in place while the scandal unfolded not be reelected to the Wells Fargo board at its annual meeting. Proxy advisor Glass Lewis is recommending that six directors not be replaced.

Hopefully, what went wrong at Wells Fargo will be a lesson for other companies.

Stan Silverman is founder and CEO of Silverman Leadership. He is a speaker, advisor and nationally syndicated writer on leadership, entrepreneurship and corporate governance. Silverman earned a Bachelor of Science degree in chemical engineering and an MBA degree from Drexel University. He is also an alumnus of the Advanced Management Program at the Harvard Business School. He can be reached at

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3 responses to “5 Lessons from the Report Analyzing Wells Fargo’s Fraudulent Sales Practices”

  1. Anonymous doctor says:

    Excellent article. I have personally talked with multiple customer service representatives from local banks who have been extremely stressed over the years and it has caused psychological problems because of the pressure to “sell products”.

  2. Anthony Clifton says:

    Right in the money! This abusive focus on driving sales at the expense of stakeholders – customers, shareholders, employees – could apply to almost any business, especially in a soft economy where the pressure is on for P& L performance.


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