The Wells Fargo Cross-Selling Scandal

Abstract

In this updated Closer Look, we examine the tensions between corporate culture, financial incentives, and employee conduct as illustrated by the Wells Fargo cross-selling scandal. In 2016, Wells Fargo admitted that employees had opened as many as 2 million accounts without customer authorization over a five-year period. We discuss the factors that contributed to the scandal, the repercussions for the bank, and its response.

We ask:

• How did the company’s incentive system contribute to the scandal?
• Would the system have worked better if coupled with additional metrics or controls?
• What systems should have been put in place to identify and escalate potential problems earlier?
• What steps should senior management have taken to better contain the fallout?
• Is an inside or outside CEO successor better positioned to help the bank recover?
• How do you maximize the positive contribution that incentives make to culture while minimizing potentially negative outcomes?

The Stanford Closer Look series is a collection of short case studies through which we explore topics, issues, and controversies in corporate governance and executive leadership. In each study, we take a targeted look at a specific issue that is relevant to the current debate on governance and explain why it is so important. Larcker and Tayan are co-authors of the books “Corporate Governance Matters” and “A Real Look at Real World Corporate Governance.”

This updates the original Closer Look with more recent information.

Keywords: Corporate governance, risk, reputational risk, risk management, scandal, culture, tone at the top, leadership, incentives, incentive systems, compensation, controls, oversight, board of directors, corporate governance research

JEL Classification: G3, G30, G34