Writing business email

You are Director of Internal Communication at Wells Fargo, and you’ve been tasked with creating a strategy to ensure the bank doesn’t repeat these mistakes. Write an email to Tim Sloan asking for a meeting to discuss your strategy. Briefly mention your strongest points (no more than 3) and the need for prompt action.

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Rev. Sept. 28, 2018
Wells Fargo Circles the Wagons: Communicating during a Crisis
Two days after suddenly being named CEO of a scandal-ridden Wells Fargo & Company (Wells Fargo),
Timothy Sloan found himself rattled by a quarterly conference call that he and his CFO, John Shrewsberry, had
just conducted for inquisitive investors on the morning of October 14, 2016. Sloan’s predecessor, former CEO
and chairman John Stumpf, had just resigned from both posts at the bank two days earlier. His resignation
became inevitable after a month of enduring critiques and shakedowns from politicians, journalists, former
employees, and bank customers in response to September’s exposure of the bank’s intense corporate sales
culture that had driven thousands of community bankers to open more than a million fraudulent accounts and
more than half a million credit card applications for unaware customers since 2011.
Although Sloan’s intention going into the update call was to convey “continued strong financial results”1
at the bank and an action plan for recovering from the account crisis that had put the bank at the center of a
public-relations nightmare, not every listener to the call was satisfied with the corporate presentation. Despite
multiple corrective policy changes at Wells Fargo (which had been announced over the past few weeks and
reiterated once again during that morning’s presentation), in addition to the management shake -up initiated by
Stumpf’s resignation, many stakeholders were still left unsatisfied and unclear of future plans. One analyst, Mike
Mayo from CLSA Limited, took the opportunity to grill Sloan and Shrewsberry during the Q&A section at the
end of the call:
Mike Mayo: Of the 115,000 accounts that were open without authorization and charged a fee, how
many customers did those 115,000 accounts reflect? And what’s been your retention rate
of those customers?
Shrewsberry: I think the customer count is somewhat lower than the incidents or product count…So
I’d say it’s somewhat south of 100,000 customers for the 115,000 impacted accounts.
Mayo:
And the retention ratio—
Shrewsberry: I don’t have the retention ratio at hand. It’s not something that’s independently being
measured, at least, not at this level.
1 “Wells Fargo Reports $5.6 Billion in Quarterly Net Income; Diluted EPS of $1.03; Revenue Up 2 Percent from Prior Year,” Wells Fargo news
release, October 14, 2016, https://www08.wellsfargomedia.com/assets/pdf/about/press/2016/third-quarter-earnings.pdf (accessed Jul. 11, 2017).
This disguised, public-sourced case was prepared by Jenny Craddock, Senior Case Writer, and June West, Associate Professor of Business Administration.
Although the data are real, the protagonist and situation are fictionalized for pedagogical reasons. It was written as a basis for class discussion rather than
to illustrate effective or ineffective handling of an administrative situation. Copyright © 2017 by the University of Virginia Darden School Foundation,
Charlottesville, VA. All rights reserved. To order copies, send an email to sales@dardenbusinesspublishing.com. No part of this publication may be reproduced, stored
in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of
the Darden School Foundation. Our goal is to publish materials of the highest quality, so please submit any errata to editorial@dardenbusinesspublishing.com.
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Mayo:
…It’s a little frustrating not getting that retention information. I think you’d want to know
the customers that were impacted the most, what’s been your retention rate and I guess
we can’t really ask about the internal investigation, there’s no time frame. 2 We can’t ask
who knew what and when. We can’t ask why it took so long to stop the problem. This is
the first time we’ve had to ask a question on the call.
Sloan:
Mike, listen, I appreciate your question and as one of the many stakeholders at Wells
Fargo, I’m sorry that we’ve disappointed you, but we just spent 30 minutes talking about
what’s going on at the Company and we’ve provided a lot of information. …We want to
provide increased transparency, which we’ve done today, and we want to provide more
continuous updates as to how we’re operating the Company.
Mayo:
All right. Well, I look forward to the incremental updates that you give. Thanks.3
As Sloan ended the call, he began to fully appreciate the mountain of communications challenges that lay before
him. Indeed, Chris Kotowski, an analyst with Oppenheimer, had even reminded the conference attendees
moments earlier that “the financial impact [from the scandal had been] minor, but the impact on your Company
has been big in terms of management and press and reputation.” 4 What lessons could Sloan learn from Stumpf’s
recent communication style in handling the crisis over the last few weeks, and how had other stakeholders’
communication put the company in its current position? (For a full transcript and selected video of criticism
directed at Stumpf during a recent Senate hearing, see Exhibit 1.) Should Sloan adapt the corporate
communication strategy going forward, and how would that look for each of the stakeholders?
Wells Fargo—the “Folksy” Bank
Wells Fargo was founded in 1852 in the gold-rush port of San Francisco, when Henry Wells and William
Fargo established a banking company to serve the western United States. The bank’s two offerings to customers
at the time were banking (buying gold and selling paper bank drafts) and express (delivering gold and other
valuables). As the corporate website boasted, “In the boom and bust economy of the 1850s, Wells Fargo earned
a reputation of trust by dealing rapidly and responsibly with people’s money. In the 1860s, it earned everlasting
fame—and its corporate symbol—with the grand adventure of the overland stagecoach line.”5 That symbol,
evoking a sense of history and simple, honest values, persisted in the company’s corporate branding and
products over time.
As the company expanded, it grew to become the largest US bank by market value in 2016,6 by which time
its three business segments had evolved to include community banking, wholesale banking, and wealth and
investment management (WIM).7 Community banking, or retail banking, the largest segment in terms of
revenue and net income, offered “a complete line of diversified financial products and services for consumers
and small businesses including checking and savings accounts, credit and debit cards, and auto, student and
2 Independent members of the Wells Fargo board of directors announced in September 2016 that they would conduct an independent investigation
into the unethical sales practices in the company’s retail bank with the help of an external law firm. Details on the investigation’s presentation and
completion date were outstanding.
3 Thomson Reuters Streetevents, “Edited Transcript: WFC—Q3 2016 Wells Fargo & Co Earnings Call,” October 14, 2016.
4 Thomson Reuters Streetevents.
5 “History of Wells Fargo,” Wells Fargo website, https://www.wellsfargo.com/about/corporate/history/ (accessed Jun. 28, 2017).
6 Jon Gingerich, “Account Fraud Scandal Puts Wells Fargo in Crisis Mode,” J.R. O’Dwyer Company, September 9, 2016.
7 Wholesale banking, the second-largest segment, provided financial solutions to businesses and governments and other institutions, while WIM
provided a full range of wealth-management, investment, and retirement products and services to high-net-worth clients.
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small business lending.”8 This retail banking segment generated 55% of revenue and 57% of net income for
the second quarter of 2016 ($12.2 billion and $3.2 billion, respectively),9 with the other segments trailing behind.
The bank served its approximately 40 million retail customers10 from over 6,000 branches.11
Stumpf’s background
Much like Wells Fargo’s own old-timey, traditional bank positioning, its long-serving CEO, Stumpf, exuded
a distinctly honest, “folksy image in the financial world,” 12 unique from the exclusive, prestigious backgrounds
of many of his Wall Street peers. Stumpf frequently referenced his childhood growing up alongside 10 siblings
on a dairy farm in a tiny town in Minnesota, and he often credited that upbringing with forming “his philosophy
for ethical banking.” 13 After earning degrees from St. Cloud State University and the University of Minnesota,
he started his career in 1982 at Norwest, a Minneapolis bank that merged with Wells Fargo in 1998. There, “he
oversaw a handful of regional operations for Wells Fargo before being promoted to a top post in 2002 as head
of the community banking division.”14 By 2007, he was named CEO and, three years later, became chairman
of the board.
During his first years as CEO, Stumpf successfully steered the bank through the 2008 financial crisis,
managing to stay above the fray of frequent banking scandals and government bailouts of the time and beating
Citigroup to acquire a struggling Wachovia that year. Accolades came later, when American Banker named
Stumpf its 2013 Banker of the Year, and Morningstar Inc. gave him the CEO of the Year title for 2015.15
For all of these successes, Stumpf received hefty paychecks to match. By October 2016, it was public
knowledge that the bank had “paid Stumpf more than $250 million since 2000,” when his compensation started
being disclosed. “That figure included $23 million in salary, $44 million in cash bonuses, and $190 million from
the vesting of stock and exercising of stock options.”16 These sky-high payouts gave Stumpf a reputation as
one of the industry’s “best paid leaders.”17 Indeed, he was the highest-paid big-bank CEO in 2012 (when his
salary reached $22.9 million), and his position in later years only fell behind banking legends such as Lloyd
Blankfein of Goldman Sachs and Jamie Dimon of JPMorgan Chase & Co.18
Stumpf culture
Throughout Stumpf’s tenure as CEO, and even well before it began, Wells Fargo was known for the intense
sales culture that permeated the organization. Indeed, as one Wall Street Journal journalist noted in September
https://www08.wellsfargomedia.com/assets/pdf/about/press/2016/third-quarter-earnings.pdf.
Emily Glazer, “At Wells, A Solid Image is At Risk,” Wall Street Journal, September 10, 2016.
10 Gingerich.
11 Emily Glazer, “Wells Fargo Tripped by Its Sales Culture,” Wall Street Journal, September 17, 2016.
12 Renae Merle, “Wells Fargo CEO Raked Over the Coals by Congress,” Washington Post, September 21, 2016.
13 Renae Merle, “Wells Fargo CEO Departs amid Accounts Scandal,” Washington Post, October 13, 2016.
14 James Rufus Koren, “Wells Fargo CEO Retires amid Accounts Scandal and is Replaced by a Longtime Company Insider,” Los Angeles Times,
October 12, 2016, http://www.latimes.com/business/la-fi-wells-fargo-stumpf-resigns-20161012-snap-story.html (accessed Jun. 28, 2017).
15 Zeke Faux, Laura J. Keller, and Jennifer Surane, “Wells Fargo CEO Stumpf Quits in Fallout from Fake Accounts,” Bloomberg, October 12, 2016,
https://www.bloomberg.com/news/articles/2016-10-12/wells-fargo-ceo-stumpf-steps-down-in-fallout-from-fake-accounts (accessed Jun. 28, 2017).
16
https://www.bloomberg.com/news/articles/2016-10-12/wells-fargo-ceo-stumpf-steps-down-in-fallout-from-fake-accounts.
17 Rick Rothacker, “Wells Fargo CEO’s $19.3 Million in Pay Leads Peers,” Reuters, March 14, 2013, http://www.reuters.com/article/us-wellsfargostumpf-pay/wells-fargo-ceos-19-3-million-in-pay-leads-peers-idUSBRE92D1CF20130315 (accessed Nov. 8, 2017).
18 Emily Glazer, “Wells Fargo CEO John Stumpf’s Compensation Flat at $19.3 Million; Pay Packages for Other Bank CEOs Have Been Mixed,” Wall
Street Journal, March 17, 2015, https://www.wsj.com/articles/wells-fargo-ceo-john-stumpfs-compensation-flat-at-19-3-million-1426628933 (accessed
Nov. 8, 2017).
8
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2016, “for more than 15 years, selling more products to customers [was] a driving force of the San Francisco
company,”19 which notably referred to its branches as “stores.”
By 2010, Stumpf had become a vocal proponent of the company’s intense sales pressure, and in that year’s
annual report, he notoriously paraded the burdensome targets that were set for employees in the retail bank.
The goal was to put eight Wells Fargo products or accounts into the hands of each customer. In explaining the
mantra he often quoted to his employees—“Eight is great”—he used that year’s annual report to justify
selecting the target number of eight due to the fact that it “rhymed with great.” This unconventional explanation
matched the lofty target figure itself, given that other big banks averaged fewer than three accounts per
customer. Nonetheless, Wells Fargo stuck to its mission of piling additional products onto, or “cross-selling”
to, each customer, and by 2015, “the term ‘cross-sell’ appeared 20 times in the annual report.”20 That same year,
“the average Wells Fargo & Co retail customer had 6.3 products.”21
The Crisis Unfolds
As regional bankers faced pressure to sell at the customer-facing level, traces of sketchy sales behavior
began to emerge, finally becoming public in December 2013. That month, the Los Angeles Times published an
article that revealed questionable sales practices at Wells Fargo branches in Southern California. It read:
The relentless pressure to sell has battered employee morale and led to ethical breaches, customer
complaints and labor lawsuits, a Times investigation has found. To meet quotas, employees have opened
unneeded accounts for customers, ordered credit cards without customers’ permission and forged
client signatures on paperwork. Some employees begged family members to open ghost accounts.
These conclusions emerge from a review of internal bank documents and court records, and from
interviews with 28 former and seven current Wells Fargo employees who worked at bank branches in
nine states, including California.22
In addition to creating a “strong reaction from the bank’s customers and employees,” 23 the Times’ shocking
exposé galvanized Los Angeles City Attorney Michael Feuer into action. Crediting the Times’ story as a
“catalyst,” Feuer spent the next one-and-a-half years overseeing the city’s own investigation into the bank’s
alarming sales practices, allowing him to file a civil lawsuit against the bank in May 2015. 24 This legal action
from the city drew the Consumer Financial Protection Bureau (CFPB) and the Office of the Comptroller of
the Currency (OCC) into the probe. By November 2015, the bank had begun to work with regulators to
facilitate the regulatory review, and in September 2016, the results of the joint investigation were announced,
with devastating results for the bank.
On September 8, 2016, the CFPB announced that it was fining Wells Fargo $100 million for the
“widespread illegal practice of secretly opening unauthorized deposit and credit card accounts. Spurred by sales
targets and compensation incentives, employees [were found to have] boosted sales figures by covertly opening
Glazer, “Wells Fargo Tripped by Its Sales Culture.”
Glazer, “Wells Fargo Tripped by Its Sales Culture.”
21 Glazer, “Wells Fargo Tripped by Its Sales Culture.”
22 E. Scott Reckard, “Wells Fargo’s Pressure-Cooker Sales Culture Comes at a Cost,” Los Angeles Times, December 21, 2013,
http://www.latimes.com/business/la-fi-wells-fargo-sale-pressure-20131222-story.html (accessed Jun. 28, 2017).
23 E. Scott Reckard, “Times Investigation of Wells Fargo Culture Provokes Strong Reaction,” Los Angeles Times, December 28, 2013,
http://articles.latimes.com/2013/dec/28/business/la-fi-mo-wells-fargo-sales-pressure-20131228 (accessed Jun. 28, 2017).
24 E. Scott Reckard, “L.A. Sues Wells Fargo, Alleging ‘Unlawful and Fraudulent Conduct,’” Los Angeles Times, May 4, 2015,
http://beta.latimes.com/business/la-fi-wells-fargo-suit-20150505-story.html (accessed Nov. 8, 2017).
19
20
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accounts and funding them by transferring funds from consumers’ authorized accounts without their
knowledge or consent, often racking up fees or other charges.” 25 In the government report, these figures were
estimated to be 1.5 million unauthorized deposit accounts and 565,000 unauthorized credit card accounts that
the bank had opened nationwide since 2011. In addition to having to pay the $100 million penalty to the CFPB’s
Civil Penalty Fund (the largest penalty the CFPB had imposed to date), Wells Fargo also had to pay $50 million
to the city of Los Angeles and $35 million to the OCC (totaling $185 million in fines alone).26 The CFPB’s
enforcement also mandated that the bank (1) pay full refunds to consumers for fees they paid because of the
creation of the unauthorized accounts (these refunds were expected to total at least $2.5 million) and (2) hire
an independent consultant to conduct a thorough review of its procedures and instill proper sales practices.
Just like that, Wells Fargo suddenly found itself at the center of “the biggest banking scandal since the financial
crisis.”27
Wells Fargo Reacts
On that same day, September 8, 2016, Wells Fargo issued its own announcement, confirming it was paying
$185 million in fines to Los Angeles city and federal regulators to settle the allegations against the company. In
the announcement, the bank pledged its commitment to putting “customers’ interests first 100 percent of the
time.” The release continued, “We regret and take responsibility for any instances where customers may have
received a product that they did not request.” 28 (For full transcript, see Exhibit 2.) The release also detailed
actions the bank had taken to right its wrongs, including $2.6 million refunded to affected customers and a
newly instated confirmation email sent to all customers who were opening a new checking or savings account
within an hour to better monitor false activity. There was also a focus on “disciplinary actions, including
terminations of managers and team members who acted counter to our values.”29 Wells Fargo confirmed that
it had fired 5,300 employees over the last few years in response to the shady behavior.
The press release also directed customers to a newly created commitment page on the company website
that explained what happened and the efforts to fix the misdeeds. The same day, Stumpf emailed all Wells
Fargo employees, or “team members,” the following message: “Our entire culture is centered on doing what is
right for our customers. However, at Wells Fargo, when we make mistakes, we are open about it, we take
responsibility, and we take action. Today’s agreements are consistent with these beliefs.”30
The following week, the bank went on to promise it would “scrap all product-based sales goals in its retail
branches starting January 1st,” 31 and on September 14 Stumpf issued an email to all “valued customers,” once
again urging them to visit the wellsfargo.com/commitment website. He conveyed a tone of gratitude when he
wrote, “Your trust and confidence in us is something we hold near and dear. I know I speak for our 268,000
dedicated Team Members when I thank you for giving us the opportunity to continue serving you and
25 “Consumer Financial Protection Bureau Fines Wells Fargo $100 Million for Widespread Illegal Practice of Secretly Opening Unau thorized
Accounts,” Consumer Financial Protection Bureau, September 8, 2016, https://www.consumerfinance.gov/about-us/newsroom/consumer-financialprotection-bureau-fines-wells-fargo-100-million-widespread-illegal-practice-secretly-opening-unauthorized-accounts/ (accessed Jun. 28, 2017).
26 James Rufus Koren, “Wells Fargo to Pay $185 Million Settlement for ‘Outrageous’ Sales Culture,” Los Angeles Times, September 8, 2016,
http://www.latimes.com/business/la-fi-wells-fargo-settlement-20160907-snap-story.html (accessed Nov. 8, 2017).
27 http://www.latimes.com/business/la-fi-wells-fargo-stumpf-resigns-20161012-snap-story.html.
28 “Wells Fargo Issues Statement on Agreements Related to Sales Practices,” Wells Fargo press release, September 8, 2016,
https://www.wellsfargo.com/about/press/2016/sales-practices-agreements_0908.content (accessed Jun. 28, 2017).
29 https://www.wellsfargo.com/about/press/2016/sales-practices-agreements_0908.content.
30 John Stumpf, “Perspective on Sept. 8 Settlement Announcement,” Wells Fargo Stories, September 8, 2016, https://stories.wf.com/perspectivetodays-settlement-announcement/?cid=adv_prsrls_1609_102495 (accessed Jun. 28, 2017).
31 Glazer, “Wells Fargo Tripped by Its Sales Culture.”
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supporting your financial future.”32 Throughout the month of September, the company pulled back on
marketing as it braced itself for further fallout. Despite these defensive measures, Wells Fargo stock took a
beating that month (for stock market performance, see Exhibit 3).
The Press Reacts
Despite Wells Fargo’s attempts at damage control with its multiple stakeholders, the CFPB’s
announcement and findings of the bank’s practices created a firestorm of further investigations and reports
from media outlets across the globe (for sample articles, see Exhibit 4). Journalists quickly began to lambast
the “toxic” culture at Wells Fargo.33 Many workers, those journalists revealed, “faced pressure—up to and
including threats of losing their job” 34 to increase the count of products they got in the hands of each customer,
and apparently “tension about how to meet the sales targets was common.”35 Former employees went on the
record to air their grievances with the bank’s way of doing business. One such former employee, Scott Trainor,
revealed to the Wall Street Journal in a front-page story that managers had suggested to employees “that they
hunt for sales prospects at bus stops and retirement homes.” Trainor was so unsettled by “the sales pressure
and unethical practices” that he quit in 2014.36
Other journalists expressed their dismay at the lack of real ramifications for the company. The same Wall
Street Journal writer opined that “a $185 million fine [was] small change for Wells Fargo & Co, which had profit
last year of almost $23 billion.”37 Another bemoaned in the New York Times that “as in most banking scandals,
lower- and midlevel employees face[d] repercussions but senior executives [were] whisked out of harm’s way,
with their reputations and full stock awards intact.” The article continued, “To succeed, [Wells Fargo’s] repair
efforts must lead with candor and accountability in the executive suite.”38
Washington Reacts
It wasn’t long before pain was distinctly felt in the C-suite. On September 20, 2016, the US Senate Banking
Committee called a hearing to look into the bank’s sales practices, during which Stumpf faced “more than two
hours”39 of grilling from politicians on both sides of the aisle. Many observers felt his was a “disastrous”
appearance before Congress. He apologized with prepared remarks before his questioning:
I am deeply sorry that we failed to fulfill our responsibility to our customers, to our team members,
and to the American public. I want to apologize for violating the trust our customers have invested in
“An Important Message from John Stumpf, Wells Fargo CEO,” Wells Fargo email to customers, September 14, 2016.
Suzanne McGee, “Wells Fargo’s Toxic Culture Reveals Big Banks’ Eight Deadly Sins,” Guardian, September 22, 2016,
https://www.theguardian.com/business/us-money-blog/2016/sep/22/wells-fargo-scandal-john-stumpf-elizabeth-warren-senate (accessed Jun. 28,
2017).
34 https://www.theguardian.com/business/us-money-blog/2016/sep/22/wells-fargo-scandal-john-stumpf-elizabeth-warren-senate.
35 Glazer, “Wells Fargo Tripped by Its Sales Culture.”
36 Glazer, “Wells Fargo Tripped by Its Sales Culture.”
37 Glazer, “At Wells, A Solid Image is At Risk.”
38 Susan M. Ochs, “In Wells Fargo Scandal, the Buck Stopped Well Short,” New York Times, September 15, 2016,
https://www.nytimes.com/2016/09/15/opinion/in-wells-fargo-scandal-the-buck-stopped-well-short.html?_r=0 (accessed Jun. 28, 2017).
39 Renae Merle, “Wells Fargo CEO Raked Over the Coals by Congress,” Washington Post, September 21, 2016.
32
33
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Wells Fargo. And I want to apologize for not doing more sooner to address the causes of this
unacceptable activity.40
Especially harsh criticism and questioning came from Senator Elizabeth Warren (Democrat from
Massachusetts), whose condemnation of Stumpf went so viral that it ended up earning airtime on late-night
television. She scathed:
This is about accountability. You should resign. You should give back the money that you took while
this scam was going on and you should be criminally investigated by both the Department of Justice
and the Securities and Exchange Commission. (For a full transcript and video of her remarks, see
Exhibit 1.)
As one journalist noted, “Wells Fargo executives were probably hoping that the hearing, even if tough,
would help them move beyond the matter,” 41 but they were mistaken. Continued fallout from the scandal
remained ahead.
The Board Reacts
A week later, on September 27, 2016, independent members of the Wells Fargo board of directors took
their own steps to appease angry lawmakers and observers. On that day, they announced that they would
conduct an independent investigation into unethical sales practices in the company’s retail bank with the help
of an external law firm. As a part of this investigation, Stumpf, the chairman of the board, agreed to forfeit all
his outstanding unvested equity awards (worth approximately $41 million) and forgo both his 2016 bonus and
his salary during the investigation. Despite these measures being announced on the corporate website,42 the
waves of anger in Washington persisted.
Back to Washington
On September 29, 2016, Stumpf made his second appearance before Congress, this time presenting his
prepared apology to the House Financial Services Committee. Stumpf revealed no intention to retire and
repeated his promise to accept “full responsibility” for the bank’s failings, as he had at the Senate hearing.43
During his apology, he stated:
We should have done more sooner, but we will not stop working until we get this right…I am fully
accountable for all unethical sales practices in our retail banking business, and I am fully committed to
fixing this issue, strengthening our culture, and taking the necessary steps and actions to restore our
customers’ trust.44
40 Maggie McGrath, “Elizabeth Warren to Wells CEO Stumpf: You Should Resign and Face Criminal Investigation,” Forbes, September 20, 2016,
https://www.forbes.com/sites/maggiemcgrath/2016/09/20/wells-fargo-ceo-john-stumpf-to-apologize-to-senate-banking-committee/#4aff8b023aab
(accessed Jun. 28, 2017).
41 Merle, “Wells Fargo CEO Raked Over the Coals by Congress.”
42 “Independent Directors of Wells Fargo Conducting Investigation of Retail Banking Sales Practices and Related Matters,” Wells Fargo press release,
September 27, 2016, https://www.wellsfargo.com/about/press/2016/independent-directors-investigation_0927.content (accessed Jun. 28, 2017).
43 Stacy Cowley, “Wells Fargo’s Reaction to Scandal Fails to Satisfy Angry Lawmakers,” New York Times, September 30, 2016.
44 https://www.wellsfargo.com/about/press/2016/chairman-ceo-update-on-wrongful-sales-practices_0929.content (accessed Jun. 28, 2017).
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Stumpf went on to provide an update on key actions the company was taking to reinforce a more customerfriendly culture. This included an acceleration of the process for the elimination of product sales goals for retail
banking team members from the original date of January 1, 2017, to just a few days away, on October 1, 2016.
During the subsequent line of questioning (that painfully exceeded four hours), Stumpf “stuck to the same
script he has used throughout the crisis. The problem, he explained, was an ethical lapse among the 5,300
employees, most of them low bankers and tellers, who had been fired for their actions since 2011.”45 Stumpf
clearly hoped these figures and the additional measures taken to protect customers would appease lawmakers,
but “nobody was impressed. If anything, the House lawmakers who interrogated Stumpf were even angrier and
more hostile than their Senate counterparts who questioned him last week, before either of those steps had
been taken.”46 Echoing Senator Warren’s comments the previous week, politicians used the opportunity at the
hearing to tell Stumpf, “he should be fired or even jailed.”47
Weeks later, even Wells Fargo’s auditors took some of the congressional heat. Global accounting firm
KPMG, which had acted as the bank’s independent auditor for the five years during which regulators spotted
the fake account activity, and which had guaranteed the integrity of the bank’s financial statements for each of
those years, received harsh words from Warren and several of her colleagues. “Your firm’s failure to identify
the illegal behavior at Wells Fargo raises questions about the quality of your audits,” they wrote in a letter to
KPMG’s CEO.48
Resignation
Within two weeks of his appearance before the House Financial Services Committee, Stumpf buckled to
the pressure. On Wednesday, October 12, Wells Fargo announced that Stumpf had resigned as CEO and
chairman in a rather “abrupt”49 move. According to unnamed sources, Stumpf had told the board on Monday
that he wanted to leave, and the written resignation came on Wednesday.50 The bank immediately named
President and COO Sloan as the new CEO, and the nonexecutive chairmanship went to independent director
and former General Mills executive Stephen Sanger. This move significantly divided the two roles. Stumpf was
quoted in the release:
I am grateful for the opportunity to have led Wells Fargo. I am also very optimistic about its future,
because of our talented and caring team members and the goodwill the stagecoach continues to enjoy
with tens of millions of customers. While I have been deeply committed and focused on managing the
company through this period, I have decided it is best for the company that I step aside. I know no
better individual to lead this company forward than Tim Sloan.51
Cowley.
Stacy Cowley, “Wells Fargo’s Reaction to Scandal Fails to Satisfy Angry Lawmakers,” New York Times, September 30, 2016. For video highlights of
the questioning, see Matt Egan, “Lawmakers: Wells Fargo a ‘Criminal Enterprise’ Like Enron,” CNN Money, September 29, 2016,
http://money.cnn.com/2016/09/29/investing/wells-fargo-john-stumpf-hearing-congress/index.html (accessed Jul. 11, 2017).
47
Matt Egan, “Lawmakers: Wells Fargo a ‘Criminal Enterprise’ Like Enron,” CNN Money, September 29, 2016,
http://money.cnn.com/2016/09/29/investing/wells-fargo-john-stumpf-hearing-congress/index.html (accessed Jun. 28, 2017).
48
Matt Egan, “Elizabeth Warren Calls Out KPMG for Wells Fargo Disaster,” CNN Money, October 28, 2016,
http://money.cnn.com/2016/10/28/investing/wells-fargo-elizabeth-warren-kpmg/index.html (accessed Nov. 8, 2017).
49 Sei Chong, “Morning Agenda: Wells Fargo C.E.O. Resigns, Snap Said to Hire Bankers,” New York Times, October 13, 2016,
https://www.nytimes.com/2016/10/14/business/dealbook/wells-fargo-stumpf-sloan-snapchat.html?_r=0 (accessed Jun. 28, 2017).
50
https://www.bloomberg.com/news/articles/2016-10-12/wells-fargo-ceo-stumpf-steps-down-in-fallout-from-fake-accounts.
51 “Wells Fargo Chairman, CEO John Stumpf Retires; Board of Directors Elects Tim Sloan CEO, Director; Appoints Lead Director Stephen Sanger
Chairman, Director Elizabeth Duke Vice Chair,” Wells Fargo press release, October 12, 2016, https://www.wellsfargo.com/about/press/2016/ceojohn-stumpf-retires_1012/ (accessed Jul. 11, 2017).
45
46
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As with all other milestones in the scandal, journalists were abuzz with news of the resignation. (For
selected responses in the press, see Exhibit 5.) “Investors appeared to approve of Mr. Stump’s departure, with
Wells Fargo’s stock rising 2 percent in after-hours trade.”52
Trial by Fire
Despite ample surprises for the bank during the past few months, naming Sloan as the new CEO was not
a totally shocking move—he’d been at the bank since 1987, and was “long considered to be Stumpf’s
successor.”53 A holder of a BA and an MBA from the University of Michigan–Ann Arbor, Sloan’s rise through
the company ranks included various leadership roles in wholesale banking, CFO, and beginning in 2015, COO.
In advance of that morning’s earnings call on October 14, 2016, Wells Fargo issued a news release outlining
key actions the company had taken over the past few weeks to ensure that the company’s culture was “wholly
aligned with the interests of customers.” Those actions included reminders of the elimination of product sales
goals, the new procedure of sending customers a confirmation email within an hour of opening any deposit
account, the board’s recently announced independent investigation into sales practices, and attempts to contact
all retail and small-business deposit customers across the country to invite them to review their accounts with
their banker.
During the October 14, 2016, earnings call, Sloan provided analysts with a few backward-looking
concessions, asserting that “senior management should and could have done more” 54 to monitor its sales
culture. Looking ahead, he stressed the “specific plan in place to lead the Company forward during this period,”
which included “being transparent in communication.” Despite the stated transparency, many future plans were
shrouded by limited detail, including vague plans for “a higher, more focused marketing effort” over the coming
months and the need to “re-recruit our team in this kind of environment…All ideas are on the table.”55
Other future changes included a shift to a more “service-oriented culture rather than a more sales oriented
culture,” but specifics on what that business model would feel like in the community banking division were not
made clear. “You’ll be hearing more about that as it’s fully developed,” CFO Shrewsberry chimed in.56
Once Sloan concluded the call, he knew he was dealing with perhaps the worst reputational blow to the
company that it had ever endured. With so many decisions to make on messaging and restoring the bank’s
reputation in the future, he wondered what to change and what to keep the same. As one journalist noted,
“Wells Fargo will need more than a change of leadership to fix its problems—it needs a new direction.”57

Richard Gonzales, “Wells Fargo CEO John Stumpf Resigns amid Scandal,” NPR, October 12, 2016, http://www.npr.org/sections/thetwoway/2016/10/12/497729371/wells-fargo-ceo-john-stumpf-resigns-amid-scandal (accessed Jun. 28, 2017).
54 Thomson Reuters Streetevents.
55 Thomson Reuters Streetevents.
56 Thomson Reuters Streetevents.
57 https://www.nytimes.com/2016/10/14/business/dealbook/wells-fargo-stumpf-sloan-snapchat.html?_r=0.
52
53
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Exhibit 1
Wells Fargo Circles the Wagons: Communicating during a Crisis
Senate Hearing, September 20, 2016: Senator Elizabeth Warren Questions CEO John Stumpf
Video Footage:
1) Stumpf’s prepared introductory remarks:
•
https://www.c-span.org/video/?c4621120/senate-banking-committee-questions-wells-fargoceo1
2) Selected clip of Warren questioning Stumpf:
•
https://www.c-span.org/video/?c4620860/warren-questioning-wells-fargo-ceo2
Transcript:
Warren: Thank you, Mr. Chairman. Mr. Stumpf, Wells Fargo’s vision and values statement, which you frequently
cite says: “We believe in values lived not phrases memorized. If you want to find out how strong a
company’s ethics are, don’t listen to what its people say, watch what they do.” So, let’s do that. Since
this massive years-long scam came to light, you have said repeatedly: “I am accountable.” But what
have you actually done to hold yourself accountable? Have you resigned as CEO or chairman of Wells
Fargo?
Stumpf: The board—I serve—
Warren: Have you resigned?
Stumpf:
No, I have not.
Warren: Alright. Have you returned one nickel of the millions of dollars that you were paid while this scam was
going on?
Stumpf:
Well, first of all, this was by 1 percent of our people.
Warren: That’s not my question. This is about responsibility. Have you returned one nickel of the millions of
dollars that you were paid while this scam was going on?
Stumpf:
The board will take care of that.
Warren:
Have you returned one nickel of the money you earned while this scam was going on?
Stumpf:
And the board will do—
1 “Senate Banking Committee Questions Wells Fargo CEO,” C-Span, September 20, 2016, https://www.c-span.org/video/?c4621120/senatebanking-questions-wells-fargo-ceo (accessed Dec. 4, 2017).
2 “Warren Questioning Wells Fargo CEO,” C-Span, September 20, 2016, https://www.c-span.org/video/?c4620860/warren-questioning-wells-fargoceo (accessed Dec. 4, 2017).
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Exhibit 1 (continued)
Senate Hearing, September 20, 2016: Senator Elizabeth Warren Questions CEO John Stumpf
Warren: I will take that as a no, then. Have you fired a single senior executive? And by that, I don’t mean regional
manager or branch manager. I’m asking about the people who actually led your community banking
division or your compliance division.
Stumpf:
We’ve made a change in our regional—to lead our regional banks—
Warren:
I just said I’m not asking regional managers. I’m not asking about branch managers. I’m asking if you
have fired senior management, the people who actually led community banking division, who oversaw
this fraud or the compliance division that was in charge of making sure that the bank complied with
the law.
Stumpf:
Carrie Tolsted—
Warren: Did you fire any of those people?
Stumpf: No.
Warren: No. OK, so you haven’t resigned, you haven’t returned a single nickel of your personal earnings, you
haven’t fired a single senior executive. Instead evidently your definition of “accountable” is to push the
blame to your low-level employees who don’t have the money for a fancy PR firm to defend themselves.
It’s gutless leadership. In your time as chairman and CEO, Wells has been famous for cross-selling,
which is pushing existing customers to open more accounts. Cross-selling is one of the main reasons
that Wells has become the most valuable bank in the world. Wells measures cross-selling by the number
of different accounts a customers has with Wells.
Other big banks average fewer than three accounts per customer. But you set the target at eight. Every
customer of Wells should have eight accounts with the bank. And that’s not because you ran the
numbers and found that the average customer needed eight banking accounts. It is because, “Eight
rhymes with great.” This was your rationale right there in your 2010 annual report. Cross-selling isn’t
about helping customers get what they need. If it was, you wouldn’t have to squeeze your employees
so hard to make it happen. No. Cross-selling is all about pumping up Wells’ stock price. Isn’t it?
Stumpf:
No. Cross-selling is shorthand for deepening relationships. We only do well—
Warren: Let me stop you right there. You say no? Here are the transcripts of 12 quarterly earnings calls that you
participated in from 2012 to 2014, the three full years in which we know this scam was going on. I
would like to submit them for the record if I may, Mr. Chair. Thank you. These are calls where you
personally made your pitch to investors and analysts about why Wells Fargo is a great investment. And
in all 12 of these calls, you personally cited Wells Fargo’s success at cross-selling retail accounts as one
of the main reasons to buy more stock in the company. Let me read you a few quotes that you had.
April 2012: “We grew our retail banking cross-sell ratio to a record 5.98 products per household.” A
year later, April 2013: “We achieved record retail banking cross-sell of 6.1 products per household.
April 2014: “We achieved record retail banking cross-sell of 6.17 products per household.” The ratio
kept going up and up. It didn’t matter whether customers used those accounts or not. And guess what?
Wall Street loved it. Here is just a sample of the reports from top analysts in those years. All
recommending that people buy Wells Fargo stock, in part, because of the strong cross-sell numbers. I
would like to submit them for the record.
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Exhibit 1 (continued)
Senate Hearing, September 20, 2016: Senator Elizabeth Warren Questions CEO John Stumpf
Chair:
No objections.
Warren: Thank you, Mr. Chair. When investors saw good cross-sell numbers, they did, while this scam was
going on. That was very good for you, personally, wasn’t it, Mr. Stumpf? Do you know how much
money, how much value your stock holdings in Wells Fargo gained while this scam was underway?
Stumpf:
First of all, it was not a scam. And cross-sell is a way of deepening relationships. When customers…
Warren: We’ve been through this, Mr. Stumpf. I asked you a very simple question. Do you know how much the
value of your stock went up while this scam was going on?
Stumpf:
It’s. . all of my compensation is in our public filing—
Warren:
Do you know how much it was?
Stumpf:
It’s all in the public filing.
Warren: You’re right. It is all in the public records because I looked it up. While this scam was going on, you
personally held an average of 6.75 million shares of Wells stock. The share price during this time period
went up by about $30, which comes out to more than $200 million in gains, all for you personally. And
thanks, in part, to those cross sell numbers that you talked about on every one of those calls. You know,
here is what really gets me about this, Mr. Stumpf. If one of your tellers took a handful of $20 bills out
of the cash drawer, they probably would be looking at criminal charges for theft. They could end up in
prison. But 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. 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. This is about accountability. You should resign.
You should give back the money that you took while this scam was going on and you should be
criminally investigated by both the Department of Justice and the Securities and Exchange
Commission. This just isn’t right. A cashier who steals a handful of twenties is held accountable. But
Wall Street executives who almost never hold themselves accountable. Not now, and not in 2008 when
they crushed the worldwide economy. The only way that Wall Street will change is if executives face
jail time when they preside over massive frauds. We need tough new laws to hold corporate executives
personally accountable and we need tough prosecutors who have the courage to go after people at the
top. Until then, it will be business as usual. And at giant banks like Wells Fargo that seems to mean
cheating as many customers, investors and employees as they possibly can. Thank you, Mr. Chair.
Source: “Elizabeth Warren DESTROYS Wells Fargo CEO for Unauthorized Accounts ‘YOU SHOULD RESIGN’ 9/20/16,” YouTube video, 7:25,
posted by “LesGrossmanNews,” September 20, 2016, https://www.youtube.com/watch?v=sOBmn0xU7wY (accessed Jun. 30, 2017); Berkeley
Lovelace Jr. and Antonio José Vielma, “Sen. Elizabeth Warren on Wells Fargo CEO Stumpf: ‘Gutless Leadership,’ CNBC, September 20, 2016,
http://www.cnbc.com/2016/09/20/senator-warren-on-wells-fargo-ceo-gutless-leadership.html (accessed Jun. 28, 2017).
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Exhibit 2
Wells Fargo Circles the Wagons: Communicating during a Crisis
Corporate Press Release—September 8, 2016
SAN FRANCISCO, September 8, 2016
Wells Fargo Bank, N.A., a subsidiary of Wells Fargo & Company (NYSE:WFC), reached agreements with the
Consumer Financial Protection Bureau, the Office of the Comptroller of the Currency, and the Office of the Los
Angeles City Attorney, regarding allegations that some of its retail customers received products and services they did
not request.
The amount of the settlements, which Wells Fargo had fully accrued for at June 30, 2016, totaled $185 million, plus
$5 million in customer remediation.
The company issued the following statement related to today’s news:
“Wells Fargo reached these agreements consistent with our commitment to customers and in the interest of putting
this matter behind us. Wells Fargo is committed to putting our customers’ interests first 100 percent of the time, and
we regret and take responsibility for any instances where customers may have received a product that they did not
request.
Our commitment to addressing the concerns covered by these agreements has included:
•
An extensive review by a third party consulting firm going back into 2011, which we completed prior to
these settlements. The review included consumer and small business retail banking deposit accounts and
unsecured credit cards opened during the period reviewed.
•
As a result of this review, $2.6 million has been refunded to customers for any fees associated with products
customers received that they may not have requested. Accounts refunded represented a fraction of one
percent of the accounts reviewed, and refunds averaged $25.
•
Disciplinary actions, including terminations of managers and team members who acted counter to our
values.
•
Investments in enhanced team-member training and monitoring and controls.
•
Strengthened performance measures that are tied to customer satisfaction, loyalty and ethics.
•
Sending customers a confirming email within one hour of opening any deposit account, and sending an
application acknowledgement and decision status letter after submitting an application for a credit card.”
In addition, as noted in a message emailed to all Wells Fargo team members today, the company said “Our entire
culture is centered on doing what is right for our customers. However, at Wells Fargo, when we make mistakes, we
are open about it, we take responsibility, and we take action. Today’s agreements are consistent with these beliefs.”
Customers can visit wellsfargo.com/commitment to view their accounts, and for information about this
announcement.
Source: “Wells Fargo Issues Statement on Agreements Related to Sales Practices,” Wells Fargo press release, September 8, 2016,
https://www.wellsfargo.com/about/press/2016/sales-practices-agreements_0908.content (accessed Jun. 28, 2017).
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Exhibit 3
Wells Fargo Circles the Wagons: Communicating during a Crisis
Wells Fargo & Company Stock Market Performance
(New York Stock Exchange, July 1, 3016–December 31, 2016)
$60
$50
$40
$30
$20
$10
$0
7/1/2016
8/1/2016
9/1/2016
10/1/2016
WFC
Note: WFC stands for Wells Fargo & Company.
Data source: Yahoo! Finance.
11/1/2016
12/1/2016
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Exhibit 4
Wells Fargo Circles the Wagons: Communicating during a Crisis
Press Reactions—Sample Newspaper Articles, September 2016
Article 1 (of 2):
A $185 million fine is small change for Wells Fargo & Co., which had profit last year of almost $23 billion. But the
reputational blow from claims of “widespread illegal” sales practices could prove costly.
The San Francisco bank, with its folksy stagecoach logo, has positioned itself as a solid, Main Street lender that
avoided the excesses of the financial crisis and other missteps on Wall Street. That image is in danger now of being
challenged by disclosures of improper account and product openings by employees unveiled in an enforcement
action the bank entered into Thursday.
In that action, the bank was fined and had to submit to a consent order to settle civil claims brought by the Office
of the Comptroller of the Currency, the Consumer Financial Protection Bureau and the Los Angeles City Attorney’s
office.
In other high-profile enforcement cases such as multibillion-dollar settlements related to mortgage underwriting and
the sales of mortgage bonds, banks often have been able to use an agreement to put bad behavior behind them and
move on. But in the case of Wells Fargo, banking specialists, analysts and investors say the damage may be just
starting.
“This scandal, easy to understand and not nearly as complex as mortgage-backed securities, seriously undermines
Wells Fargo’s Main Street image,” wrote Ian Katz, director at research firm Capital Alpha Partners LLC.
In a release, the bank said the settlement with regulators was reached “consistent with our commitment to customers
and in the interest of putting this matter behind us.”
Even so, rivals already are moving to capitalize on the disclosures. In a statement Friday, Camden R. Fine, president
of the Independent Community Bankers of America, said the association and its nearly 6,000 community banks are
“outraged” and called Wells Fargo’s conduct “appalling and harmful to American consumers and communities.”
The National Association of Federal Credit Unions, whose members, like community banks, compete with Wells
Fargo, issued a similarly harsh denunciation.
Such sentiments along with public opprobrium on the internet and social media had the bank in damage control
mode. Executives were calling investors and analysts to try and tamp down fears over the impact, according to people
familiar with the matter.
Jim Smith, head of virtual channels for Wells Fargo, wrote in a message to employees Thursday the bank had a
“robust” communications plan to support staff. “The next few days will likely be very busy days…during this time,
we take it one interaction at a time — one customer at a time,” Mr. Smith wrote, according to the message reviewed
by The Wall Street Journal.
Wells Fargo’s shares fell 2.4% Friday, a worse drubbing than other bank stocks in a down day for markets overall.
An immediate worry for investors is how customers react to news of how employees behaved. Regulators, for
instance, said that Wells Fargo employees, often chasing sales goals and bonuses, created fake accounts for
customers, invented personal identification numbers and moved funds between accounts without authorization.
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Exhibit 4 (continued)
Press Reactions—Sample Newspaper Articles, September 2016
Those allegations could hurt the bank’s ability to attract new customers, could prompt current customers to look for
another bank and affect the amount of products and services Wells Fargo is able to sell to new or existing customers,
said Allen Tischler, a senior vice president at Moody’s who focuses on U.S. banks.
A curtailment of Wells Fargo’s ability to cross-sell products to customers could crimp profits. The bank has long
touted its cross-selling abilities as a reason for its success. It has noted in recent investor presentations and securities
filings that its customers have more than six of its products per household.
The community banking segment at Wells Fargo, which handles most retail-banking products and services, generated
$12.2 billion in revenue in the second quarter and net income of $3.2 billion. That was equal to 55% and 57%,
respectively, of revenue and net income for the bank as a whole.
Any erosion of that business could affect returns on equity at the bank. Although this measure of profitability has
been falling in recent quarters due to the squeeze of superlow interest rates, Wells Fargo has consistently posted the
highest returns of big, U.S. banks in recent years.
In the immediate aftermath, investors want to see how the settlement affects the bank’s approach to business and
to understand how widespread the roots of the alleged behavior run.
“Give me some assurances this isn’t an endemic thing in the organization,” said David Ellison, who manages a
Hennessy Funds portfolio that owns $4 million worth of Wells Fargo stock.
Notably, Wells Fargo Chief Financial Officer John Shrewsberry is slated to speak at a financial services conference
this upcoming Tuesday.
There are also worries among investors that the settlement and the behavior portrayed could cause regulators to
subject the bank and its management to increased scrutiny.
During an interview on CNBC Friday, Federal Reserve Governor Daniel Tarullo, the central bank’s point person on
regulation, said he couldn’t comment directly on the Wells Fargo case. But he said that, generally, banks’ cultures
haven’t changed enough.
“Too many banks, instead of putting in place a comprehensive system for assuring that all their employees
understand what is legal and ethical across the board, only respond when there is a particular problem,” he said.”
Source: Emily Glazer, “At Wells, A Solid Image is At Risk,” Wall Street Journal, September 10, 2016.
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Exhibit 4 (continued)
Press Reactions—Sample Newspaper Articles, September 2016
Article 2 (of 2):
At a sales meeting in Florida in 2014, Wells Fargo & Co. regional executives scolded lower-level managers about an
obvious problem that kept cropping up at the bank. Managers were told that their employees should never open
accounts for people who don’t exist, people familiar with the meeting recall.
One manager in the room saw things differently. In an email peppered with exclamation points and capital letters,
she urged her employees to ignore the bosses and get sales up at any cost, says someone who saw the email.
For more than 15 years, selling more products to customers has been a driving force of the San Francisco company.
The term “cross-sell” appears 20 times in the latest annual report by Wells Fargo, which calls its branches “stores”
and has the highest return on equity of any large U.S. bank.
The sales culture rooted itself so deeply among employees in Wells Fargo branches that it eventually spiraled out of
control. Federal regulators and the Los Angeles City Attorney’s office announced last week that Wells Fargo opened
as many as two million deposit and credit-card accounts without customers’ knowledge. The problems affected most
of the product types sold in the bank’s 6,000 branches, but few of the accounts made money because customers
rarely used them.
“If you could sell, you had a job,” says Scott Trainor, who worked at Wells Fargo in several different jobs until he
quit in 2014. He says he was fed up with sales pressure and unethical practices. Managers suggested to employees
that they hunt for sales prospects at bus stops and retirement homes, according to Mr. Trainor and other former
Wells Fargo employees.
John Stumpf, Wells Fargo’s chairman and chief executive, denies that the company’s culture is obsessed with nonstop
selling that ran amok. “Could we have done more, faster, better? Of course,” he says. Mr. Stumpf says he “feels
accountable” but adds that some employees didn’t honor the bank’s values.
The scandal mars the reputation of a bank so renowned for its sales prowess that rivals have long tried to emulate
it. Large banks have become far more sales-conscious in hopes of squeezing additional revenue from customers.
The mess at Wells Fargo isn’t likely to change that. The bank said this week it will make major changes to its incentive
system but won’t back away from cross-selling.
Wells Fargo declined to comment on current and former employees’ descriptions of sales practices at the bank. “We
never want a customer to receive a product they do not want or value,” spokeswoman Mary Eshet said Friday. “We
are committed to fixing this issue, to strengthening our culture throughout the company and taking the necessary
actions to begin restoring our customer’s trust.”
For five years, Wells Fargo conducted investigations into improper practices, hired consultants and tinkered with
sales and compensation incentives. Its efforts typically focused on specific offices and regions, but some employees
say they got mixed signals, including at the Florida sales meeting in 2014.
The manager who encouraged subordinates to defy their superiors was fired in a crackdown that cost about 5,300
employees their jobs over five years, according to a person familiar with the matter.
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Exhibit 4 (continued)
Press Reactions—Sample Newspaper Articles, September 2016
The firings were disclosed last week when Wells Fargo was fined $185 million for what regulators called “widespread
illegal” sales practices. The bank neither admitted nor denied the allegations.
Questionable sales tactics persisted, though, and were an open secret in Wells Fargo branches across the country,
according to interviews with more than three dozen current and former area presidents, district managers, branch
managers and other bank employees.
They say many branch managers routinely monitored employees’ progress toward meeting sales goals, sometimes
hourly, and sales numbers at the branch level were reported to higher-ranking managers as many as seven times a
day. Tension about how to meet the sales targets was common.
“If somebody said: ‘This doesn’t make sense. Where are you getting these sales goals?’ then [the response] was: ‘No,
you can do it’ or ‘You’re negative’ or ‘Oh, you’re not a team player,’” says Ruth Landaverde, a former Wells Fargo
credit manager in Palmdale, Calif.
She says she often got the same response whenever she said a customer didn’t need another credit card. “The answer
was: ‘Yes, they do,’” she says. She quit after being warned she wasn’t reaching her sales goals, she says.
Employees at a Wells Fargo branch in Lincoln, Neb., had a daily goal to open two new checking accounts and make
eight other product sales, says Steven Schrodt, who worked there from 2010 to 2012.
Managers asked employees who had fallen short of the targets if they could open accounts for their mother, siblings
or friends, according to Mr. Schrodt and other former employees. He says he opened about 15 accounts for friends
and family members. Mr. Schrodt says he decided to leave Wells Fargo because the sales pressure was too stressful.
He is now in law school.
Bankers in branches who hit sales targets could earn bonuses of $500 to $2,000 per quarter, while district managers
could get $10,000 to $20,000 a year, according to six Wells Fargo employees.
Bonuses made a big difference in the paychecks of branch employees, whose base salaries often were about $30,000
a year. According to the bank, tellers are paid $12 to $16.50 an hour, depending on location and experience.
In Tucson, Ariz., some bankers met sales goals by using a list of wealthier, existing customers who were preselected
for credit cards, according to a banker who was fired last year for what the bank called unethical behavior.
The customers were told in phone calls that Wells Fargo planned to send them a new credit card as a “thank you”
for their business. If a customer didn’t want the card, he was told to cut the card when it arrived in the mail, according
to the former banker.
She says those customers weren’t told that issuing each new card required a credit check, which can lower a person’s
credit score.
At the end of last year, the average Wells Fargo retail customer had 6.3 products, according to the company. Inside
the bank, cross-selling was the brainchild of Mr. Stumpf’s predecessor, Richard Kovacevich, when he led Norwest
Corp., which merged with Wells Fargo in 1998.
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Exhibit 4 (continued)
Press Reactions—Sample Newspaper Articles, September 2016
Mr. Kovacevich wasn’t aware of any cross-selling problems before he retired as CEO in 2007 or left Wells Fargo’s
board of directors at the end of 2009, according to a person familiar with the matter.
In the 2010 annual report, Mr. Stumpf said he often was asked why Wells Fargo had set a cross-selling goal of eight.
“The answer is, it rhymed with ‘great,’ he wrote. “Perhaps our new cheer should be: ‘Let’s go again, for ten!’
Former branch manager Rasheeda Kamar says her Wells Fargo office in New Milford, N.J., had a goal of selling
about 15 new products or services a day. If the branch didn’t hit the goal, the shortfall would be added to the next
day’s goal, she says.
Ms. Kamar says laggards were threatened with termination and sometimes criticized in conference calls. In February
2011, she wrote to Mr. Stumpf in an email: “For the most part funds are moved to new accounts to ‘show’ growth
when in actuality there is no net gain to the company’s deposit base.” She says she got no reply.
After working for Wells Fargo and its predecessor banks for 22 years, she was let go in 2011 for failing to meet sales
targets, she says.
The high-pressure sales environment defied the bank’s official policy. A 2007 internal document titled “Sales Quality
Manual” said customer consent “for each specific solution or service is required every time (including each product
in a package).”
The document also said “splitting a customer deposit and opening multiple accounts for the purpose of increasing
potential Incentive Compensation (IC) is considered a sales integrity violation.”
Despite the warnings, some bank executives noticed around 2009 and 2010 an uptick in bad sales behavior, according
to people familiar with the matter. They noticed a rise in activity when the bank was running its “Jump into January”
sales program, which set big goals in a month that usually was slow.
About a year later, employee-satisfaction surveys done for Wells Fargo by research firm Q & A Research Inc. showed
that some bank employees felt uncomfortable about what managers had asked them to do or when pushing
customers to buy products, says Shannon Purvis, who reviewed some of the surveys while working at Q & A. She
no longer works there. The research firm’s chief executive, Warren Pino, says its findings are confidential.
In 2012, Wells Fargo’s community-banking unit assembled a special task force to look for suspicious patterns in
sales practices and examine areas of the U.S. where customer complaints were prevalent, such as Southern California,
according to current and former bank executives.
A former Wells Fargo human-resources executive says the review found that a local management team in the Los
Angeles area was “very aggressive” in the use of questionable tactics to do better on sales goals.
In early 2013, Wells Fargo fired about 200 employees. The firings rattled some directors and executives who worked
in other parts of the country. Some executives wondered if sales goals were too high or if cross-selling was an
underlying problem, the former human-resources executive says.
The conclusion was no. “When we first started looking at it, we didn’t think it was anything other than rogue junior
players and a few rogue managers,” says someone involved in the bank’s internal discussions.
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Exhibit 4 (continued)
Press Reactions—Sample Newspaper Articles, September 2016
Nevertheless, the community-banking unit’s risk-management team increased its oversight and audit capabilities.
Wells Fargo also changed parts of the compensation structure.
“We were making changes as quickly as we could, as incrementally as we could, without blowing things up,” one
Wells Fargo executive says.
In December 2013, the Los Angeles Times reported questionable sales practices at Wells Fargo offices in Southern
California. Los Angeles City Attorney Michael Feuer launched an investigation, and the Office of the Comptroller
of the Currency asked the bank to hire consultants to dig deeper.
Wells Fargo hired consulting firm Accenture and law firm Skadden, Arps, Slate, Meagher & Flom LLP to conduct
an internal investigation, and Wells Fargo’s board was briefed regularly about the investigation’s progress, according
to people familiar with the matter.
As a result, the bank lowered some sales goals and toughened procedures to ensure that new accounts were legitimate.
At regional sales meetings, executives stressed the need to make sales properly.
Despite the edicts, the daily routine and pressure to drum up sales in branches didn’t change much, says Randy
Holbrook, a personal banker who worked at two Wells Fargo branches in Florida from 2012 to earlier this year.
“Every day around 3 p.m., all the personal bankers were looking at each other and saying: ‘Who are you going to
call?’” he says. Mr. Holbrook says missing targets meant working extra hours when the branch was closed to make
more calls.
In weeks when the office was closed for a holiday, all of the bankers would have to come in Saturday, Mr. Holbrook
says. He says the branch manager shut off his access to the internet when she saw him looking at a sports website
instead of hunting for customers. He says the sales pressure caused him to quit.
Higher-ranking executives didn’t realize how much their strategic planning and goals were based on exaggerated
numbers, according to people familiar with the matter. A Wells Fargo executive says the person in charge of creating
a yearly sales plan for the community-banking unit “had no idea of what was real and what wasn’t in the prior year’s
performance.”
In May 2015, the Los Angeles city attorney’s office alleged in a lawsuit that Wells Fargo pressured retail employees
to commit fraud. The allegations included opening accounts for people who didn’t exist and charging customers for
products without permission. Wells Fargo said it would defend itself.
Wells Fargo hired consulting firm PricewaterhouseCoopers to do an in-depth analysis. About a dozen PwC
employees worked on the project for about a year, discovering fraudulent sales practices that were prominent in
Phoenix, Miami and Newark, N.J.
Throughout last year, the Consumer Financial Protection Bureau and OCC kept pressing the bank for answers.
Earlier this year, Wells Fargo’s top executives and directors were told that the number of employee firings added up
to 5,300. The firings peaked in 2013.
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Exhibit 4 (continued)
Press Reactions—Sample Newspaper Articles, September 2016
“We knew we had problems [and] knew investigations were going on, but we didn’t know it was that many people,”
says one person familiar with the matter. “How did this get this far?”
The fired Wells Fargo employees include personal bankers, branch managers, district managers overseeing about a
dozen branches each and area presidents overseeing regions. It isn’t clear if any higher-ranking executives were fired
or implicated in the sales scandal.
Earlier this year, retail-banking chief Carrie Tolstedt told Mr. Stumpf that she planned to retire after 27 years at Wells
Fargo and Norwest. He didn’t object, and Wells Fargo made it clear to regulators that she would be leaving, according
to people familiar with the matter. Her retirement was announced in July. She didn’t respond to requests for
comment.
The bank said Tuesday it will scrap all product-based sales goals in its retail branches starting Jan. 1, but Mr. Stumpf
remains steadfastly committed to cross-selling. “That’s how we’ve grown so much,” he says.
Source: Emily Glazer, “Wells Fargo Tripped by Its Sales Culture,” Wall Street Journal, September 17, 2016.
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Exhibit 5
Wells Fargo Circles the Wagons: Communicating during a Crisis
Stumpf Resignation—Media Reactions
Change was clearly the only way to demonstrate a legitimate and concerted effort to hold management
responsible at the highest levels. [The resignation] is not just the right thing, but probably the only thing Wells
Fargo could do at this point…Stumpf’s resignation alone won’t be enough to restore the confidence of
customer and investors, but it’s a good start…Last month, the independent directors announced an
investigation into the scandal, and that still needs to be conducted aggressively and transparently, with full
disclosure when the results are in…One right call is now in the books. Wells Fargo has a lot more to make
before it’s clear of this mess.
Source: Michael P. Regan, “Stumpf Takes One for the Team,” Bloomberg, October 12, 2016, https://www.bloomberg.com/gadfly/articles/2016-1012/wells-fargo-s-stumpf-takes-one-for-the-team-with-a-long-way-to-go (accessed Jun. 28, 2017).
The San Francisco bank has apologized repeatedly, and it reported firing 5,300 employees for misconduct and
putting in place more stringent internal controls. But that has not been enough for regulators and lawmakers,
including Sen. Elizabeth Warren (D-Mass), who called on him to resign.
Source: Renae Merle, “Wells Fargo CEO Departs amid Accounts Scandal,” Washington Post, October 13, 2016.
…Lessons for other banks, including:
•
Clawbacks are not enough. Well Fargo’s decision to take back $41 million from Mr. Stumpf’s
compensation did little to quell the anger over the scandal.
•
Dual roles are in question: Having a chief executive also hold the chairman role, as Mr. Stumpf did,
may cast doubt on a bank’s corporate governance. Notably, Mr. Sloan will not have dual role as chief
executive and chairman.
Source: Sei Chong, “Morning Agenda: Wells Fargo C.E.O. Resigns, Snap Said to Hire Bankers,” New York Times, October 13, 2016,
https://www.nytimes.com/2016/10/14/business/dealbook/wells-fargo-stumpf-sloan-snapchat.html?_r=0 (accessed Jun. 28, 2017).
Stumpf’s retirement is surprising given that other CEOs, especially in the financial industry, have been able to
weather scandals of a similar scale, says Carl Tobias, a professor at the University of Richmond School of Law.
“We rarely see people stepping down. It is quite extraordinary,” he said. But the executive probably felt he did
not have a choice, Tobias said.
Source: Merle.