As the Wells Fargo fake accounts scandal escalates, it has been delicious to see a full-blown corporate pathology on display. With impressive speed, the press has eviscerated the pious mythology that Wells has peddled over the years. Somehow, no one in the top brass was alert enough to realize that creating a boiler room that churned employees, both the ones fired and the one disgusted with the culture, would leave a lot of eye witnesses who’d be delighted to tell their stories. And even by the standards of corporate misconduct, they are wowsers.
The media reports paint Wells as having leaders with their brains rotted by too many TED talks, leadership gurus, motivation coaches, and management information experts. They seemed to believe that boring old banking could become the next Apple….without any iPhone, that the mere force of corporate will could get the American public to buy more Wells banking services, in the absence of any evidence of customer appetite or Wells having better financial mousetraps. It was unadulterated “trees grow to the sky” thinking. We’ve managed to cross sell better than anyone else! Why shouldn’t we be able to stuff more products down customers’ throats? And the delusion started from the top. From the Wall Street Journal:
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!’
This sounds like a inept parody of managerial hopium meeting Soviet Stakhanovite goal setting. But the worst was that analysts and the media ate it up.
So how were Wells Fargo employees supposed to make Stumpf’s lame imitations of Muhammad Ali’s poetry happen? Did Wells train them how to go out on the street, tackle and hogtie hapless prospects, drag them into the branch, um, store, force feed them credit cards, and then attach ankle bracelets so they’d get electrical shocks if they didn’t use the products often enough? No, the bank’s bright ideas seemed to come straight of of multi-level marketing scams: sign up your all your relatives and harass everyone you meet. And these suggestions, um, requirements, suggest that the San Francisco bank may also have pressured employees to work unpaid, during off hours, to meet the relentless pressure to hit sales targets. Again from the Journal:
Managers suggested to employees that they hunt for sales prospects at bus stops and retirement homes, according to Mr. [Scott] Trainor and other former Wells Fargo employees….Managers asked employees who had fallen short of the targets if they could open accounts for their mother, siblings or friends, according to Mr. [Steven] Schrodt and other former employees…Mr. [Randy] Holbrook says missing targets meant working extra hours when the branch was closed to make more calls.
And even though CEO John Stumpf has tried blaming supposedly greedy employees for gaming the system, the anecdotal evidence is overwhelming that employees were hounded constantly, often multiple times within a day, to meet daily goals. And the threat of firing was live, a corporatized version of Glengarry Glen Ross (see here, though 1:20).
Even the New York Times’ Dealbook, which tries averting its eyes when bank misconduct is so…unseemly, it did point to the underlying threat, “Deliver the numbers or you’re out,” in its headline over the weekend, Wells Fargo Warned Workers Against Sham Accounts, but ‘They Needed a Paycheck’. And it served up some choice examples. For instance:
Mr. [Sharif] Kellogg said he was constantly being hounded by his supervisor to increase his sales, or “solutions,” as they were known.
“I was always getting written up for failing to bump my solutions numbers up,” he said.
Some of his co-workers, facing the same pressure, bent the rules, said Mr. Kellogg, who was making $11.75 an hour when he left the bank in 2012. They would ask local business owners whom they knew well to open additional accounts as favors, saying they could close them later.
“It seems as though you’d have to be willfully ignorant to believe that these goals are achievable through any other means,” Mr. Kellogg said.
The Journal’s story, based on over three dozen interviews, including managers and former area presidents, is far more confident and detailed in profiling the single-minded push for more sales. For instance:
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…
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.
In other words, this was grinding, unremitting harassment of staff to meet targets regardless of whether there was any factual basis for believing the actual or potential customers for that office could deliver them. The desires of President Stumpf must be met!
A lawsuit describes some of the predictable outcomes. From Bloomberg:
Three Utah customers sued the bank Friday in federal court, blaming the scandal on the lender’s push to increase the number of accounts held by clients to an average of eight — its “gr-eight” initiative. That strategy led to customers’ money being transferred without their authorization to accounts created without their knowledge, and then the bank charging fees on those accounts.
“Wells Fargo quotas are difficult for many bankers to meet without resorting to the abusive and fraudulent tactics,” the customers said in their complaint. “Those failing to meet daily sales quotas are approached by management, and often reprimanded and/or told to ‘do whatever it takes’ to meet their individual sales quotas.”…
The bank is also accused in the suit of misleading customers to force them to open new accounts, sometimes falsely stating that they would face penalties without additional products.
Even though these articles dutifully present Wells’ defenses, anyone with an operating brain cell can see they aren’t remotely credible. If you put together the timetable, the abuses started in 2009 and 2010, as some executives started seeing red flags. The bank did a limited investigation in response to rising customer complaints and fired 200 people, mainly in the hyper-aggressive Los Angeles area, rattling some managers in other areas of the country. But the convenient internal view was that this was just a few rogue actors.
The Los Angeles Times broke the story of the misconduct in late December 2013. The Los Angeles City Attorney opened its investigation sometime in 2014. In a predictable pattern, not wanting to be show up by an intrepid state probe, the Office of the Comptroller of the Currency pushed Wells to investigate. The reason to take this with a fistful of salt is that Wells hired law firm Skadden Arps. When an institution wants to hide dirty laundry, rather than come clean, it engages a law firm so that the work is protected by attorney-client privilege. If they want to make it clear they really want to get to the bottom of the matter, they turn to a consultant or an accounting firm.
The priceless part is that Wells Fargo expects the chump public to believe that it was serious about stopping the account fakery….because it started giving ethics classes to staff. Help me. Better yet, they appear to have been implemented in 2014, meaning only after the Los Angeles City Attorney put the San Francisco bank in its crosshairs.
Like those human resources bromides that no one reads, courses like these are eyewash designed only to serve as liability shields for top executives. All insider accounts say that nothing changed on a day-to-day basis. And what message are you going to believe, the one from some folks who parachute in with PowerPoint and are never to be seen again, or what your immediate boss demands that you do repeatedly during the day? One manager had the bad taste to call out the charade for what it was. From the Journal:
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.
The pressure on Wells is rising. The Senate Banking Committee has a hearing set for this Tuesday. The House Financial Services Committee has requested documents from Wells as part of an investigation and in advance of a hearing later this month. And the reaction from the Congresscritters that have weighed in is that they aren’t buying the tripe that Stumpf is hawking, that there’s nothing amiss with the bank and he and it were victimized by rogue employees. The Department of Justice, if it is at all serious about its investigation, isn’t likely to find that excuse too persuasive either.
It will be interesting to see how Elizabeth Warren handles the Senate Banking Committee hearing. She’s boxed herself in by praising the Consumer Finance Protection Bureau lavishly for what now looks like a weak settlement, particularly given the lack of clawbacks or any punishment of executives. If she had any evidence that pointed in that direction, a line of attack that would be deadly and would also exculpate the CFPB was if Wells misled regulators in the investigation. Remember, coverups are always worse than the crime.
Wells’ next line of defense, prefigured in the press stories over the weekend, is “Whocoulddanode?” in the form of “This is a really big bank, we observed only spotty signs of misbehavior, and we acted promptly when we saw it.” The problem with this tidy story is that sprawling retail banks are run like large factories, with intensive monitoring. And that can be accomplished readily because any meaningful employee activity is reflected in records, like new account openings or transactions. So there are no mysteries or secrets.
And as our resident bank IT expert Clive pointed out in an earlier post, any retail bank worth its salt has plenty of metrics in place to catch the sort of misconduct that became rampant as Wells:
Opening up fake products to claim a sale is a trick which goes back to when a TBTF tried to sell Noah Ark insurance. When I started in retail at a TBTF nearly 30 years ago, senior management (as a minimum the VP or equivalent in charge of a geographical area) would get reporting from the internal compliance or risk function about the number of accounts opened which had low turnover. A low turnover account is a serious red flag for either mis-selling or even (as was the case that has been exposed at Wells’) the salesforce boosting their figures by robo-applications….
Of course, it all comes out in the wash eventually — the customer didn’t want the product in the first place and if they didn’t want it, they almost certainly won’t use it. This will result in a low (or no) activity account.
Simplistic attempts are generally made in the bank’s operations to prevent this kind of sales practice. The most common is that if within in a certain timeframe (a month or 6 weeks is usual) there hasn’t been a transaction on the account or the card hasn’t been activated, the account will be closed and this low activity account sale will be clawed back from the salesforce. But of course, this is widely known in the bank employees, so the standard ruse is to diarise a follow-up customer service call, tell the customer some cock-and-bull story about how the bank employee has noticed a potential security issue with one of their cards and could they phone the security team just to confirm the card is still in their possession. Or another variation is to tell the customer If they want to call into the branch, they can sort the “problem” out, while in the branch they get the customer to phone the activation line, then “check” everything is okay by doing a cash advance at the counter on the card (they’ll even refund the fee, how kind!).
These are just some tricks, readers can get the gist of how it works and probably even think of their own alternatives.
But there’s still a trail of evidence which the bank should be following — accounts which are very light in transactions after 6 months or dormant in a year. These are always investigated, not for the customer’s benefit but because it costs the bank money to maintain the account. They are invariably force-closed due to low activity (this will be in the product’s standard Terms and Conditions, to give the bank the ability to do this). This management information is collated and picked over endlessly by the P&L accountants. Too many customers attracted to the brand, sold product to, but who then walk away are value-destructive. Senior management (one part of the senior management team, anyway) are all over this metric like a rash.
Of course, another “arm” of senior management — those who’s bonus is simply determined by sales volume, not long-term profitability — don’t care and unless the one at the top (and I do mean the top, the CEO is the only one who can wield the big stick in this sort of management turf war) has his or her finger on the pulse and determines to stop the rot, the rot will go on and get rottener and rottner until the stench (the stinkyness being the Average Revenue Per Customer declines) becomes too obvious to ignore.
To recap: there is no way Wells’ top management could not have seen what was going on, given the evidence in the form of low or no activity accounts and “solutions”. Those six or “gr-eight” products per customer are meaningless if three of them are dormant. But Stumpf for years has made clear what his priorities are, and had them telegraphed with brutal effectiveness to the lowliest customer-facing staffer: more sales, more products, no matter how you get them, and no questions will be asked as to whether anyone wanted them, which means where anyone actually would use them. This is a prescription for fraud. The only surprise here is that it took as long as it did to become visible to the public at large.