The Price of Unethical Behavior

During the post- financial crisis in the banking world, Wells Fargo became the golden child due to its focus on using strong base of retail deposits to for it funding.  This enabled it to weather the effects of the credit crisis and emerging stronger with a real nationwide presence. The downside of the company’s strategy was that it had to depend on its ability to increase profitable products to the large customer base. This path led the firm into a predicament as management sought to improve growth by pressuring the employees to hit sales targets and the response among many employees was to fraudulently open customer accounts.   In many of these cases, the accounts could be closed before the customers could become aware, and in other cases the customers faced the related fees or which also affected their credit ratings (Mathews & Heimer, 2016). The employees of the company used fraudulent tactics in order to reach the high sales target which also included giving illegal credit cards and credit lines and forging signatures of the clients. On receiving complaints from clients in relation to the same, the company would refund the fees partly; misstate telephone numbers of the customers affected in order to avoid including them in various surveys on customer satisfaction. In one case, former manager of a branch quoted saying that failure of the employees to reach their goal would result to severe embarrassment and chastisement in front of over 60 managers by the president of the community bank. This indicates the amount of pressure that the employees were placed in order to reach their sales target and thereby leading to the cases of fraudulent opening of the accounts (Mathews & Heimer, 2016).  

 The occurrence of this unethical behavior can be traced to setting of sales target so high that the employees consider them impossible to meet. This made the employees to seek for the easy solution that involved ignoring the interest of customers, breaking basic business ethics and the law. The fact that the employees could open up the accounts even against the wish of customers indicates the extent to which the interests of the customers as stakeholders were ignored. This shows a case where an organization will set itself up for ethical disasters when it create an environment in which employees feel  that they are forced to make choices they did not imagine. The excessive pressure to reach unrealistic targets in performance creates such an environment where people feel they have to use any means regardless of possible consequences to reach set goals (Hill et. al 2014). The unfettered goal encouraged individuals in Wells Fargo to compromise on their choices so as to reach their targets which seemed unrealistic to attain normally. The management may be inviting employees to cheat in various ways; cutting corners on how to reach the set goal or lying while giving reports on how much of the goal they were able to obtain. Goals comes with a strong effect of making people to have tunnel vision , so that they have a narrow focus  rather than seeing what else is in their surrounding including the potential effects  of compromised decisions made to attain the goals (Phillips & Gully, 2013).  

When the employees sense the risk of failing to reach the goals, they enforce a mode of loss prevention since they fear the loss of status, job and that their incentives are at risk (Phillip & Gully, 2013). This is what happened at Wells Fargo where the employees were willing to lie about reaching the set goals, through opening of fraudulent accounts and failing to inform the customers of the same. In addition, there may exist attitudes of indifference, where employees believe that the management would not take any corrective action deterring those who are well aware of the unethical behavior from reporting or raising concerns (Elias, 2013). The failure of management to set a positive example can also be attributed to causing the unethical behavior by employees. If the management is not vigilant about its intension and how its behavior may be interpreted by the lead to employees making careless decisions, the result is careless decision making (In Van et. al 2016). That Wells Fargo did not act thoroughly on complaints, and only refunded part of the fees says a lot about the attitude of the management in setting a good example. This enhanced the felling among the employees that they could engage in unethical behavior as long as they achieved the sales target. Even if the employees were warned against this kind of behavior, the reality was that they had to attain their goals and hence resulted to the illegal ways.

The unethical behavior related to the company has negative impact to the company in terms of reduced performance, poor relation with internal and external stakeholders. The firm has found itself in bitter lawsuits and legal challenges, investigations from regulatory authorities especially the Securities Exchange Commission in court filings.  The mess of fake accounts and ongoing investigations of the company’s mortgage tactics has made the bank to increase it legal defense fund. It has issued a warning to investors that its ligation cost could amount to about $1.7 B in addition to what was set aside.  This means that in case of unfavorable decision is made out of the investigations being carried out, it may end up being material to the firm’s business (Corkery, 2017). The company has also faced litigation from ex-employees who feels that they have been left to bear the burden of tarnished names, including those who were whistle blowers and in low level of management. The investigations have even extended to the possibility that management violated the relevant laws providing for whistleblower protection as some employees believe that they were facing retaliation for calling on ethics hotline over the scandalous issues. The company has also faced criticism from investors for failing to alert them to the various problems inside, which they were only notified after reaching settlement with regulatory authorities (Corkery, 2017). This went against legal provisions that public firms should disclose the relevant and necessary information about business operations to its investors.

 The biggest impact is how this scandal has continued to wreck havoc on the performance of the bank. There has been a decrease in the number of accounts being opened as new customer checking accounts decreased by 41 percent in comparison to the previous performance. The company was also fined over $ 185 million by regulators due to the illegal practices which were a reflection of serious flows (Mathews & Heimer, 2016). It has also eliminated the sales targets in the various branches and has lost the ability to recruit and dismiss board members or executives with the approval of the authorities. There was also the negative publicity stemming from the reports that employees were punished by the bank for trying to expose this misconduct (Corkery, 2017). The big question remains is whether the firm’s performance will be affected in the long-run, its efficient operations and prudency in risk management which forms the basis of its competitive advantages. The fine issued to the company is justified, and it should have been much higher than that. The financial regulation in this case is not tough enough, and it shows that even the toughest penalties may have little effect on this industry. Fining the company that has indulged in such misconduct with $185 million, in comparison billion it makes in profit is just not enough to instill discipline in the sector. The regulatory authorities should be given more power to act as the watchdog.

Sometimes it is difficult it identify when breaching ethical standards especially when there is disconnect between the organizational values and individuals. When the organizational ethical value to do not clearly explain what is and is not acceptable, a person can find themselves in ethical dilemmas. It may be hard to note when a conflict of interest is occurring when carrying out the operations of an organization in good faith (Phillips & Gully, 2013). Identifying ethical breaches may face challenges when there is lack of clarity about the foundation or basis of ethical standards and how such standards should be applied to certain situations. When one is not accustomed to making ethical choices or decisions on the basis of sensitivity to some set values, they may find themselves erring. 

References

Hill, C. W., Jones, G. R., & Schilling, M. A. (2014). Strategic management: theory: an integrated approach. Cengage Learning.374

Phillips, J., & Gully, S. M. (2013). Organizational behavior: Tools for success. Mason, OH: South-Western Cengage Learning.224-226

Elias, S. M. (2013). Deviant and criminal behavior in the workplace. New York: New York University Press.14-15

In Van, S. S., In Benson, M. L., & In Cullen, F. T. (2016). The Oxford handbook of white-collar crime.374-377

Phillips, J., & Gully, S. M. (2013). Organizational behavior: Tools for success. Mason, OH: South-Western Cengage Learning.225

Corkery, M., (2017).Wells Fargo Struggling in Aftermath of Fraud Scandal. Retrieved from: https://www.nytimes.com/2017/01/13/business/dealbook/wells-fargo-earnings-report.html?_r=0