The CEO should be part of the 5,000 employees who got fired. He is incompetent (because he does not know what is going on in his company) or he was aware of the fraud. Francly, I think he was aware of the fraud but decided not to react.
The worst thing is that the fraud did not even increase the bank revenue. It’s a risk that managers and salespersons took for nothing. The CEO responsibility is to make sure everybody is following the rules. I know that Wells Fargo is a big company with branches everywhere in the country, but a fraud like this can’t occurred without top management knowing about it. The best thing to do for the CEO is to resign.
I would agree with you and think the CEO should resign. Throughout my readings, I couldn’t identify if the fraud was material or not, in the sense that it had a substantial impact on the financials of the company. However, in my post I suggested that an investigation be made on the CEO and if found he had knowledge of the fraud, should be held accountable in some degree. With that being said, if the amount from the fraud is not material in respect to the financial statements, then there is a serious company culture that Wells Fargo needs to address. If they are pushing over 5,000 employees to the point that they feel the need to commit fraud, then the organization needs to rethink its message and policies.
Well said both of you. I completely agree. The CEO should be held accountable whether he knew or not. I mean it seems as if he had an idea of what was going on so therefore, he should have addressed the situation. Paul, like you I could find whether the fraud was material or nonmaterial.
Additionally, Paul your statement hits the nail right on the head: “If they are pushing over 5,000 employees to the point that they feel the need to commit fraud, then the organization needs to rethink its message and policies.” The majority of these employees are living below the poverty line and were welfare recipients, which displays a lot. These people were vulnerable across the line; if they didn’t hit these quotas they lost their jobs. I think Senator Elizabeth Warren shed light on this issue, “You squeezed your employees to the breaking point, so they would cheat customers and you could drive up the value of your stock and put hundreds of millions of dollars in your own pocket,” Warren said. “And when it all blew up, you kept your job, you kept your multimillion-dollar bonuses, and you went on television to blame thousands of $12-an-hour employees who were just trying to meet cross-sell quotas that made you rich.”
How could this happen in the world of Sox and other regulations?
U.S. law requires banks to enforce “Know Your Customer” guidelines, whereby accounts are opened only by “genuine” customers, with documentation that establishes identity and legality of funds.
Just one example of how punishing whistleblowers is against the law: after the Enron bankruptcy, the Sarbanes Oxley Act was designed to prevent the “I’m the CEO and I know nothing” defense by requiring at a minimum that the CEO and CFO personally certify the accuracy of financial reports and the adequacy of internal controls. It also required public companies to create secure channels for internal whistleblowers to report if they saw what looked like legal or regulatory violations. From the National Whistleblower Center:
Unlike most whistleblower laws, the SOX’s whistleblower protection provisions are not limited to providing a legal remedy for wrongfully discharged employees. In addition to containing employment-based protections for employee whistleblowers, the law contains four other provisions directly relevant to whistleblower protection. First, the law requires that all publicly traded corporations create internal and independent “audit committees.” As part of the mandated audit committee function, publicly traded corporations must also establish procedures for employees to file internal whistleblower complaints, and procedures which would protect the confidentiality of employees who file allegations with the audit committee….
Fourth, Section 3(b) of the SOX contains an enforcement provision concerning every clause of the SOX. This section states that “a violation by any person of this Act [i.e. the SOX] . . . shall be treated for all purposes in the same manner as a violation of the Securities Exchange Act of 1934.” This section grants jurisdiction to the SEC to enforce every aspect of the SOX, including the various whistleblower-related provisions. It also provides for criminal penalties for any violation of the SOX, including the whistleblower-related provisions….
In addition to these four provisions, the law contains an employee protection provision which permits whistleblowers to file a complaint before the U.S. Department of Labor alleging unlawful retaliation.
As most of us know, Wells Fargo has recently disclosed that a large scale fraud has taken place within the company, which resulted in 5,300 employees being fired or about 2% of its workforce. This fraud essentially involved employees who made up fake accounts or enrolled existing users into new but unwanted programs in order to meet company incentives. Many customers who had accounts created in their names, have been financially affected with them being charged for actions like insufficient funds or overdraft fees. While fraud can occur in any company, one of the areas of concern is that Wells Fargo had identified that 5,300 employees were involved in creating over 2 million fake accounts. Not only that, there are reports that many whistleblowers have come forth, but were retaliated against and lost their jobs. This is to suggest that this fraud was not some rare occurrence, but actually a serious red flag for a lack of controls and ineffective company policy.
Now that a background was provided, the question raised is that “How could this happen in the world of SOX and other regulations?”. SOX, short for the Sarbanes-Oxley Act, is an act that directly aims to prevent the exact fraudulent activities that Wells Fargo had performed. The two main areas that are covered in the act is that the management of publicly traded companies have to sign off that the financial statements are accurate and that companies need to establish internal controls, which must be audited and reported upon. With that being said, I think one of the main reasons why this fraud could happen in the world of SOX, is that often times these organizations are seen as “too big to fail” and because of that they rather hide a fraud then prevent it. All one has to do is look at the settlement, which was $190 million. This amount is miniscule in comparison to the $86 Billion in Revenue and $22.89 Billion in Net Income that Wells Fargo had in 2015 according to its 2015 Income Statement. With this being said, the CEO had a choice. He could either correct the issue, pay a settlement, and take a stock value hit or continue the path of the company all while growing the company’s stock value. As we know, the CEO decided to refrain from correcting the fraud until now, resulting in a $19-Billion-dollar stock value decline.
Unfortunately, a CEO would rather sweep a fraud like this under a rug in order to avoid losing market value. Other than the hit in stock value, Wells Fargo’s only accountability was a $190-million-dollar settlement which equates to less than 1% of their total net income for the year 2015. In order to reduce fraud like this from occurring, you need to make it so that an executive doesn’t refrain from correcting an issue if it means keeping a high stock value. While SOX allows the SEC to hold executives accountable, enforcement needs to be made and actually hold them accountable. Personally, I feel that an investigation should be made upon the extent of knowledge that the CEO, John Stumpf, had of the fraud occurring. If he was aware that the fraud was occurring over the past 5 years, then he should be charged with perjury much similar to the executives at Enron or Tyco. While I don’t believe the fraud had a huge financial impact on Wells Fargo, it is fraud none-the-less. I think if one takes away the incentive to sweep something under the rug as opposed to correcting an issue at first, then CEO’s would make the moral decision more often. With all that being said, a company’s culture plays a big issue as well as the auditor’s ability to not be influenced by their client. It will be interesting to see how Wells Fargo will be impacted going forward.
Like, I mentioned early on Said’s post. I think CEO John Stumpf should resign, along with 86% of Americans. The CEO should be held accountable for the unethical sales culture at the bank’s retail branches; these intense pressures that were pushed on the banks employees to cross sell products as well as open about 2 million accounts customers did not want or need. I would think the CEO must have wanted to question these increase of sales or want to understand why the bank boosted earnings and its stock price. Although, Stumpft agrees he is accountable in some way during the Senate Committee hearing yet, he has not returned any of the illegitimate profit or resigned. Instead, he put the blame on “5,300 employees who were fault and fired”. However, these employees did not set the tone at the top.
Overall, Stumpfs inability to stop or act during these unethical sales and fraudulent business practices undermines him as a whole. He was unable to hold senior management accountable, which displays his lack of ability to lead Wells Fargo and ultimately, his ability to move the bank forward past this fiasco/ retain their credibility.
I definitely agree with your post (two thumbs up!)
Senior management needs to be held accountable and the CEO needs to resign. What type of message does that send if the CEO can’t reprimand senior management who were essentially responsible for managing some of those employees who committed the fraud? If someone can tell me a good reason why the CEO should stay, I would love to hear it.
The fact that nearly 5,300 employees felt the pressure to use unethical methods to meet sales goals shows me that management needs to be revamped and improved significantly to be sure employees are reaching morale. This is an unfortunate situation that could have been avoided over 5 years ago when the first red flag into sales conduct was investigated.
Said Ouedraogo says
The CEO should be part of the 5,000 employees who got fired. He is incompetent (because he does not know what is going on in his company) or he was aware of the fraud. Francly, I think he was aware of the fraud but decided not to react.
The worst thing is that the fraud did not even increase the bank revenue. It’s a risk that managers and salespersons took for nothing. The CEO responsibility is to make sure everybody is following the rules. I know that Wells Fargo is a big company with branches everywhere in the country, but a fraud like this can’t occurred without top management knowing about it. The best thing to do for the CEO is to resign.
Paul Linkchorst says
Hi Said,
I would agree with you and think the CEO should resign. Throughout my readings, I couldn’t identify if the fraud was material or not, in the sense that it had a substantial impact on the financials of the company. However, in my post I suggested that an investigation be made on the CEO and if found he had knowledge of the fraud, should be held accountable in some degree. With that being said, if the amount from the fraud is not material in respect to the financial statements, then there is a serious company culture that Wells Fargo needs to address. If they are pushing over 5,000 employees to the point that they feel the need to commit fraud, then the organization needs to rethink its message and policies.
Magaly Perez says
Well said both of you. I completely agree. The CEO should be held accountable whether he knew or not. I mean it seems as if he had an idea of what was going on so therefore, he should have addressed the situation. Paul, like you I could find whether the fraud was material or nonmaterial.
Additionally, Paul your statement hits the nail right on the head: “If they are pushing over 5,000 employees to the point that they feel the need to commit fraud, then the organization needs to rethink its message and policies.” The majority of these employees are living below the poverty line and were welfare recipients, which displays a lot. These people were vulnerable across the line; if they didn’t hit these quotas they lost their jobs. I think Senator Elizabeth Warren shed light on this issue, “You squeezed your employees to the breaking point, so they would cheat customers and you could drive up the value of your stock and put hundreds of millions of dollars in your own pocket,” Warren said. “And when it all blew up, you kept your job, you kept your multimillion-dollar bonuses, and you went on television to blame thousands of $12-an-hour employees who were just trying to meet cross-sell quotas that made you rich.”
Source: http://fusion.net/story/350752/wells-fargo-sued-class-action-lawsuit/
Magaly Perez says
couldn’t***
Wenlin Zhou says
How could this happen in the world of Sox and other regulations?
U.S. law requires banks to enforce “Know Your Customer” guidelines, whereby accounts are opened only by “genuine” customers, with documentation that establishes identity and legality of funds.
Just one example of how punishing whistleblowers is against the law: after the Enron bankruptcy, the Sarbanes Oxley Act was designed to prevent the “I’m the CEO and I know nothing” defense by requiring at a minimum that the CEO and CFO personally certify the accuracy of financial reports and the adequacy of internal controls. It also required public companies to create secure channels for internal whistleblowers to report if they saw what looked like legal or regulatory violations. From the National Whistleblower Center:
Unlike most whistleblower laws, the SOX’s whistleblower protection provisions are not limited to providing a legal remedy for wrongfully discharged employees. In addition to containing employment-based protections for employee whistleblowers, the law contains four other provisions directly relevant to whistleblower protection. First, the law requires that all publicly traded corporations create internal and independent “audit committees.” As part of the mandated audit committee function, publicly traded corporations must also establish procedures for employees to file internal whistleblower complaints, and procedures which would protect the confidentiality of employees who file allegations with the audit committee….
Fourth, Section 3(b) of the SOX contains an enforcement provision concerning every clause of the SOX. This section states that “a violation by any person of this Act [i.e. the SOX] . . . shall be treated for all purposes in the same manner as a violation of the Securities Exchange Act of 1934.” This section grants jurisdiction to the SEC to enforce every aspect of the SOX, including the various whistleblower-related provisions. It also provides for criminal penalties for any violation of the SOX, including the whistleblower-related provisions….
In addition to these four provisions, the law contains an employee protection provision which permits whistleblowers to file a complaint before the U.S. Department of Labor alleging unlawful retaliation.
resource: http://www.nakedcapitalism.com/2016/09/wells-fargo-fake-accounts-hidden-by-fake-whistleblowing-former-employees-including-hr-officials-allege-systematic-retaliation.html
Paul Linkchorst says
As most of us know, Wells Fargo has recently disclosed that a large scale fraud has taken place within the company, which resulted in 5,300 employees being fired or about 2% of its workforce. This fraud essentially involved employees who made up fake accounts or enrolled existing users into new but unwanted programs in order to meet company incentives. Many customers who had accounts created in their names, have been financially affected with them being charged for actions like insufficient funds or overdraft fees. While fraud can occur in any company, one of the areas of concern is that Wells Fargo had identified that 5,300 employees were involved in creating over 2 million fake accounts. Not only that, there are reports that many whistleblowers have come forth, but were retaliated against and lost their jobs. This is to suggest that this fraud was not some rare occurrence, but actually a serious red flag for a lack of controls and ineffective company policy.
Now that a background was provided, the question raised is that “How could this happen in the world of SOX and other regulations?”. SOX, short for the Sarbanes-Oxley Act, is an act that directly aims to prevent the exact fraudulent activities that Wells Fargo had performed. The two main areas that are covered in the act is that the management of publicly traded companies have to sign off that the financial statements are accurate and that companies need to establish internal controls, which must be audited and reported upon. With that being said, I think one of the main reasons why this fraud could happen in the world of SOX, is that often times these organizations are seen as “too big to fail” and because of that they rather hide a fraud then prevent it. All one has to do is look at the settlement, which was $190 million. This amount is miniscule in comparison to the $86 Billion in Revenue and $22.89 Billion in Net Income that Wells Fargo had in 2015 according to its 2015 Income Statement. With this being said, the CEO had a choice. He could either correct the issue, pay a settlement, and take a stock value hit or continue the path of the company all while growing the company’s stock value. As we know, the CEO decided to refrain from correcting the fraud until now, resulting in a $19-Billion-dollar stock value decline.
Unfortunately, a CEO would rather sweep a fraud like this under a rug in order to avoid losing market value. Other than the hit in stock value, Wells Fargo’s only accountability was a $190-million-dollar settlement which equates to less than 1% of their total net income for the year 2015. In order to reduce fraud like this from occurring, you need to make it so that an executive doesn’t refrain from correcting an issue if it means keeping a high stock value. While SOX allows the SEC to hold executives accountable, enforcement needs to be made and actually hold them accountable. Personally, I feel that an investigation should be made upon the extent of knowledge that the CEO, John Stumpf, had of the fraud occurring. If he was aware that the fraud was occurring over the past 5 years, then he should be charged with perjury much similar to the executives at Enron or Tyco. While I don’t believe the fraud had a huge financial impact on Wells Fargo, it is fraud none-the-less. I think if one takes away the incentive to sweep something under the rug as opposed to correcting an issue at first, then CEO’s would make the moral decision more often. With all that being said, a company’s culture plays a big issue as well as the auditor’s ability to not be influenced by their client. It will be interesting to see how Wells Fargo will be impacted going forward.
Magaly Perez says
What should the CEO do now? Resign? Explain
Like, I mentioned early on Said’s post. I think CEO John Stumpf should resign, along with 86% of Americans. The CEO should be held accountable for the unethical sales culture at the bank’s retail branches; these intense pressures that were pushed on the banks employees to cross sell products as well as open about 2 million accounts customers did not want or need. I would think the CEO must have wanted to question these increase of sales or want to understand why the bank boosted earnings and its stock price. Although, Stumpft agrees he is accountable in some way during the Senate Committee hearing yet, he has not returned any of the illegitimate profit or resigned. Instead, he put the blame on “5,300 employees who were fault and fired”. However, these employees did not set the tone at the top.
Overall, Stumpfs inability to stop or act during these unethical sales and fraudulent business practices undermines him as a whole. He was unable to hold senior management accountable, which displays his lack of ability to lead Wells Fargo and ultimately, his ability to move the bank forward past this fiasco/ retain their credibility.
Source: http://www.businessinsider.com/86-percent-americans-think-wells-fargo-ceo-john-stumpf-should-resign-poll-2016-9
Victoria A. Johnson says
Magaly,
I definitely agree with your post (two thumbs up!)
Senior management needs to be held accountable and the CEO needs to resign. What type of message does that send if the CEO can’t reprimand senior management who were essentially responsible for managing some of those employees who committed the fraud? If someone can tell me a good reason why the CEO should stay, I would love to hear it.
The fact that nearly 5,300 employees felt the pressure to use unethical methods to meet sales goals shows me that management needs to be revamped and improved significantly to be sure employees are reaching morale. This is an unfortunate situation that could have been avoided over 5 years ago when the first red flag into sales conduct was investigated.
Victoria