Wells Fargo and the Repeating Cycle

Wells Fargo and the Repeating Cycle

By Nicholas Van Zandt

Wells Fargo, the nation’s biggest bank, is currently suffering from what may be this year’s greatest public relations crisis.  Recent news has announced that the bank fired 5300 employees and is paying $185 million in fines and $5 million in restitution as part of a giant cross-selling scam they were running on their customers.

As Cheryl Conner from Inc. points out, Wells Fargo did meet most of the four criteria of accountability in such instances, which includes:

1. Acknowledgement of the full role in the problem
2. Acceptance and acknowledgement of all consequences
3. Actions of restitution
4. Plan of action and commitment to ensure the problem never happens again.

It is true, Wells Fargo admitted their fault, fired who they claimed were responsible, and paid a fine.  Problem solved right?  Not quite.  In fact, this episode is yet another near replica of the standard PR playbook for when Wall Street commits fraud on the American consumer.  As it typically goes, have your lawyers write up your “apology” letter where you accept culpability (after you have exhausted all efforts to quash the lawsuit), pay a small fine that barely registers as pocket change compared to annual profits, hold a round of public firings of your expendable line employees that were more likely than not just following orders from their higher ups, and if you do need to remove an executive, be sure to provide them with a golden parachute larger that most Americans will see in a lifetime.

First of all, the statement they issued:

“Wells Fargo reached these agreements consistent with our commitment to customers 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”

This statement is a great example of admitting fault while not really admitting anything at all.  Phrases like “in the interest of putting this matter behind us” sounds as though the pain they are feeling from getting caught is a great burden to them and they just want to move on from all the fuss.  I reminds us of how BP CEO said of the Deepwater Horizon oil spill—one of the largest environmental disasters in history where 11 people lost their lives—that “there’s no one who wants this over more than I do.  I would like my life back.”  They also chose wording like “we regret and take responsibility for any instances where customers may have received a product that they did not request” and entirely leaving out that they were not just mistakenly giving the wrong products to people, they were deliberately committing fraud on a massive scale by opening accounts and credit cards in their customers’ names, charging them fees for these fake accounts and impacting their credit scores.

Second, “those who were responsible” included thousands of non executive employees who were almost certainly not the ultimate authority on whether or not this behavior was acceptable.  The person who was the ultimate authority is Carrie Tolstedt, the executive in charge of the business unit where this behavior was occurring.  She was not fired, but left the company in what the bank described as a “personal decision to retire after 27 years with the bank”.  Even as the bank was in the process of settling the lawsuit related to this fraud that occurred in her division, the Wells Fargo CEO actually said in the announcement of her departure that she “had been one of the banks most important leaders and was a standard-bearer of our culture”.  Oh, and what Wall Street banking scam would be complete without a giant golden parachute for offending executives.  Tolstedt left with both high praise and a $124.6 million dollar payout.  This is actually more than 60 Americans with a college degree will earn in a lifetime.

Third is the fine they paid.  $185 million may sound like a lot, and it is to the average person, but to Wells Fargo who pulled in $36.1 billion in pre-tax profits in 2015 it is a drop in the bucket.  In other words, Wells Fargo can make this amount back in less than two days in just the profits they make.  However, if you were to take it out of their revenues, it would only take 19 hours.

So, after they have issued their apology letter about how they want to put this all behind them, they paid their fine equating to 0.5% of last year’s profits, and they have punished the wrong doers by firing the low level employees and paying their boss $124.6 million, the next step in this repeating cycle is Congressional outrage.  The U.S. Senate will now likely haul the Wells Fargo CEO before a committee, berate him for about eight hours to let the whole world know how angry they are at this scandal.  Then, they will do absolutely nothing to stop this from happening again and in no time at all we will watch the cycle unfold once more.

References:

Cheryl Snapp Conner, “PR Lessons from Well Fargo’s Double Serving of Crow”, Sep 10, 2016, Available at: http://www.inc.com/cheryl-snapp-conner/pr-lessons-from-wells-fargos-double-serving-of-crow.html, Accessed Sep 11, 2016.

Robert Longley, “Lifetime Earnings Soar with Education,” About.com, July 7, 2016, Available at: http://usgovinfo.about.com/od/moneymatters/a/edandearnings.htm, Accessed Sep 11, 2016.

Stephen Gandel, “Wells Fargo Exec Who Headed Phony Accounts Unit Collected $125 million” Fortune, Sep 12, 2016, Available at: http://fortune.com/2016/09/12/wells-fargo-cfpb-carrie-tolstedt/?xid=soc_socialflow_twitter_FORTUNE, Accessed Sep 12, 2016.

“2015 Annual Report”, Wells Fargo, Available at: https://www.wellsfargo.com/about/investor-relations/annual-reports/, Accessed Sep 12, 2016.

Benjamin Snyder, “Tony Hayward’s Greatest Hits”, Fortune, June 10, 2010, Available at: http://archive.fortune.com/2010/06/10/news/companies/tony_hayward_quotes.fortune/index.htm, Accessed Sep 12, 2016.