Wells Fargo F.

The case notes that previously, Wells Fargo has focused solely on financial measures of
performance. List and explain at least three downsides to focusing only on financial metrics in
relation to Wells Fargo’s OFS division
OFS Division
The OFS group consisted of 5 functional areas: operations, development, marketing, finance and
planning, and human resources. Operations handled: customer service requests, a call center, and
online banking. The Call Center was divided into three areas, technical support agents, phone
support agents, and email agents.
The culture at Wells Fargo circulated around financial metrics—which were used to track the
performance of all divisions in the organization. This approached led to concerns on how the
Financial Services sector was being operated.
Downsides on focusing only on financial services:
1. The first concern was that financial metrics alone do not effectively measure or
communicate a division’s strategy. That is to say, when you look at a P&L or a Balance
Sheet, it is very hard to reveal cause and effect of a strategy, or the value-add to the
division of the strategy. Secondly, financial metrics make it hard to communicate the
value behind a strategy. As such, employees might feel disconnected from the division’s
efforts and unaware of what the goals are. Moreover, it does not help keep the
employee’s decision-making power focused on the strategy, but rather on acquiring
good financial metrics. Specifically, in such a dynamic and fast-paced group, where the
competitive landscape switched continuously, and priorities changed incessantly, the
overall big-picture strategy has to be communicated clearly and thoroughly—which
cannot be achieved through financial metrics.
2. Decision-making is very important within an organization, as it allows individuals to take
on responsibility that can make or break a division. Financial metrics do not help
individuals make the best decisions, as it could provide benefits that do not combine
harmoniously with the overall strategy. Other metrics are more valuable as they provide
better insights as to how employees should make decisions. The OFS division was
concerned that over-reliance on financial measures led to short-term decision making.
This generated pressure to cut costs, when the division needed the exact opposite
investment outlook. Hence, financial metrics blind us, and do not provide us the correct
perspective and insight with which to make decisions. As the case highlights, “The online
banking business required a long-term, strategic view of its role within the bank”.
3. OFS was not only a cost-savings opportunity for the bank, but it is also valuable for its
effective ability to retain and acquire customers over the long term. Financial metrics
cannot provide the lifetime value of a customer, and therefore, can switch our focus to
think that customer retention and acquisition are not as important. This change of focus
affects our decision-making ability, and places pressure on employees to only generate
returns if our only focus are financial metrics.
4. Additionally, financial metric’s push for a cost-saving approach to a business limits the
bank to invest in that division and therefore, cuts on the possible profitability made
from developing and offering new products and technologies. As such, it places the
division not on the forefront, but in a common position against their competitors, being
unable to differentiate their services from other banks and similar online financial
services. The case highlights that the group felt that potential benefits of online banking
could only be crafted with investment in its division—switching from a cost-savings and
containment structure and vision.
Part 2- Sales Misconduct at Wells Fargo Community
In class, we discussed how a belief system can help counter balance performance pay incentives.
Exhibit 8 describes Wells Fargo’s belief system. Why was this vision statement not enough to
prevent fraud at Wells Fargo? Identify three issues with Wells Fargo’s actual belief system that
led to the sales misconduct and explain why each issue helped foster a culture of sales fraud.
1. Belief System
a. What is it
i. Belief Systems are broad, concise and inspirational messages designed to
communicate a company’s values and larger purpose of employee’s
efforts. A Belief system only works if employees believe in the vision and
mission. As such, top-level management must embody these principles
and beliefs so that all employees are affected by this system of thought.
Belief systems help employees stay motivated to do uninteresting or
uninspiring tasks, and communicates the overall culture and values that
guide decision making.
2. Wells Fargo
a. Why was vision statement not enough to prevent fraud
i. The vision statement was not enough to prevent fraud because:
1. The vision statement was not upheld by higher executives and
managers at regional and district levels.
2. The Wells Fargo Community Bank’s aggressive sales culture
b. Identify 3 issues with the actual belief system
i. Culture, top-level management fussiness,
ii. How did it lead to sales misconduct?
iii. Why each issue helped foster a culture of sales fraud
Wells Fargo Performance Pay Incentive

 Sales were a large component for employees, district and regional managers and higher
executives
 Incentive compensation was based on sales volume, profit proxy metric, customer
experience measures and sales quality
o Main sales quality metric was rolling funding rate – the average % of customer
accounts that were funded beyond minimum balances district managers were
required to achieve a rolling funding rate or risk having incentive compensation
reduced
 Security and Risk report from Operational Risk did not mention risks relating to fraud or
inappropriate employee behavior in connection with cross selling or other sales
practices
 Exhibit 8
o Outline code of ethics and business conduct
o Included explicit language about appropriate and inappropriate sales tactics
 Whistleblower hotline to report concerns about violation of laws rules or
regulations
o Risk Culture
 Begins with Vision and Values and demonstrated by setting the
appropriate tone at the top, fostering credible challenge within and
among our lines of defense, and developing and maintaining sound
incentive compensation risk management practices
Widespread Fraud & Misconduct
 Factors
o Pressure of meeting quotas
o Pressure to meet sales goal
 Practices
o Aggressive and illegal sales practices
 Results
o Sandbagging
 Employee open an account a period after to boost sales metrics
o Bundling
 Employee falsely informed a customer that certain products were
available only when couple with add-ons like extra accounts like
retirement plans, or insurance plans
o Employees created phony ID numbers and contact information like phone
numbers and email addresses
o Staffers (fearing retribution from managers) begged friends and family members
to open ghost accounts
o Opened accounts that customers did not want
o Forged signatures on paperwork
o Falsified home numbers so they couldn’t be reached for customer satisfaction
surveys
 Punishments
o Demanded hourly updates and regularly issued threats and punishments if
employees missed targets
 Required to work on weekends
o Inappropriate coaching techniques spread between branches as employees
relocated.
o Employees learned to improperly bundle products
o Employees learned to manipulate customer information from former or fellow
managers
o She claimed that her bosses threatened her and her colleagues for failure to
meet sales thresholds, were biased in their treatment of employees, and did not
grant employees legally-required breaks.94 A
o
 Practices
o Bosses threatened her and colleagues for failure to meet sales thresholds
o Were biased in treatment of employees
o Did not grant legally-required breaks
 District managers
o District managers would suggest employees to encourage customers to sing up
for products regardless of need
o Taught personal bankers to disguise unnecessary accounts for family members
within computerized system
o Warning people to be prepared to do whatever it takes to meet numbers unless
it was downright unethical
 Gaming
o Significant unethical activity within sales branches and routine deception and
exploitation of clients which was so widespread that it became a normal sales
practice
Conclusions
o Board focused blame on Stumpf and Tolstedt—too late and too slow
o 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.”
o An internal report prepared in 2004 was titled “Gaming” and included a large number of
forewarning signs about what could happen at Wells Fargo if the bank did not reduce
sales pressure. The report was sent to the chief auditor at Wells Fargo and to HR
personnel, among others. It warned that employees felt pressure and fear of losing jobs,
which, coupled with the bank’s unrealistic sales goals, made them feel that “gaming the
system” was their only option to survive in the organization.109
o In one case, a manager instituted the practice of “running the gauntlet” for Jump into
January sales campaigns, “in which district managers dressed up in themed costumes,
formed a gauntlet and had each manager run down the line to a whiteboard and report
the number of sales they achieved.”
o

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The case notes that previously, Wells Fargo has focused solely on financial measures of

Part 2- Sales Misconduct at Wells Fargo Community

Wells Fargo Performance Pay Incentive

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