Is corporate accountability, like virginity past the age of 16, a dead letter? Unfortunately, based on the latest banking shenanigans, the answer seems to be yes.
On Sept. 8, Wells Fargo, the country’s third largest bank with $1.9 trillion in assets, which has portrayed itself as a bank for Main Street, became the latest to experience a major scandal after it agreed to pay $185 million in fines over the “widespread illegal practice” of opening unwanted accounts to meet sales targets and reap compensation incentives.
Fines included $100 million to the Consumer Financial Protection Bureau, $35 million to the Office of the Comptroller of the Currency and $50 million to the city and county of Los Angeles. Put in context, these fines amount to a rounding error for WFC, which earned $5.6 billion just in the second quarter this year.
The firm also agreed to pay $5 million to customers who incurred fees on the ghost accounts. That works out to an average of about $25 per customer.
As usual, the firm did not admit wrongdoing, despite acknowledging that it has fired roughly 5,300 employees, or about 1 percent of its workforce, over the past five years for fraudulently opening up to 2 million fake fee-generating accounts for products like credit and debit cards, checking and savings accounts for unsuspecting customers. By creating these sham accounts, the firm ripped off customers, who paid overdraft and late fees on credit cards and deposits they
An aggressive sales culture that includes cross-selling, or getting customers to open multiple deposit, mortgage, and investment accounts, has been a hallmark of WFC’s strategy for years. The bank explicitly cites it as a key strategic goal in its 2015 Annual Report. The policy once again proves that you get the behavior you reward.
You don’t need a PhD to know that other “too big to fail” banks are likely engaging in the same aggressive sales practices to make their numbers. After all, it is the promise of increased pay that keeps the engine running.
The bank said of its settlement: “Wells Fargo reached these agreements consistent with our commitment to customers and in the interests of putting this matter behind us.”
But the executive in charge of WFC’s community banking operations made $9 million in total compensation last year and was set to walk away with an even bigger payday when she retired at age 56 at the end of the year. Her payout had been pegged at $124.6 million in a mixture of shares, options, and restricted stock. But the firm’s board of directors under pressure from lawmakers and others said this week she will forfeit $19 million of her stock awards immediately.
Also, the board announced that WFC Chairman and CEO John Stumpf, who has led the bank since 2007 and made $19.3 million in 2015, will forfeit $41 million in stock awards and be ineligible for a bonus this year. He has defended the bank’s cross selling strategy, saying it promotes “deep relationships” and helps customers. He had turned away calls for a claw back of executive compensation when testifying before the Senate last week punting to the board.
While investor support of Wells Fargo continues to deteriorate, Warren Buffet, the bank’s biggest shareholder with 10 percent of its stock, has stayed mum on the scandal.
For all the media attention given to accountability abuses and the continuing debate over whether regulators are doing enough to hold firms accountable, the American public has grown numb to scandalous behavior in the financial community and knows the government won’t punish the perpetrators.
Not all employees are subject to the same standard. Once again, senior executives are granted greater latitude to violate the rules; none of them have lost their jobs. Sadly, it is a truism that accountability rolls downhill in the corporate hierarchy. It’s all very now.
Originally Published: Sep 30, 2016