Wells Fargo: The lessons of an ethics failure.

• Author: Fox, Tom
• Position: Ethics Corner

What is one to make of the Wells Fargo cultural miasma that led to the bank paying a $100 million fine to the Consumer Finance Protection Board, the largest in the agency's short history?

Add to that another $35 million to the office of the comptroller of the currency and $50 million to the City and County of Los Angeles and the fines total $185 million. The fines were assessed based upon the bank's conduct of opening over 2 million phantom bank and credit card accounts, usually without customers' knowledge.

The scandal was as straight-forward and pedestrian as one can imagine. It involved the sales of simple-to-understand, simple-to-use products such as credit and debit cards, coupled with traditional banking services such as car and home loans. These products were cross-sold to customers with an aggressive sales incentive program, which determined not only employees' compensation, but whether they even kept their jobs.

What began as a legitimate, legal and beneficial business strategy became not only high-risk but illegal, because of the way Wells Fargo administered its approach to cross-selling. As with any sales initiative, if a company wants to push it, it will set up incentives to engage in such behavior, increasing commissions around the service or product being emphasized. Almost any product or service can present a substantial legal and reputational risk, if not properly managed.

Moreover, Wells Fargo seemed to have forgotten that a bank's reputation is built on a basic cultural value: trust. People trust that their money will be there when they go to take it out. From the earliest days of banking in the west, the institutions succeeded because customers believed their money was safe. One need only consider the run on the bank scene from Walt Disney's film version of Mary Poppins.

Banks and banking have certainly changed since 1890s England or even the 1930s Great Depression in America. Before the scandal, Wells Fargo was worth some $240 billion, a far cry from a neighborhood bank; it is a worldwide financial services organization. Yet many people still ascribe the values of our parents and grandparents to how we think a bank should conduct itself. This seems to be a lesson which was lost on Wells Fargo senior executives and its board of directors.

Former CEO John Stumpf seemed as out of touch as the head of a multi-billion-dollar corporation could be when he announced that the fraud was the fault of some 5,300 employees who were...