Question

• Discuss the consequences of Wells Fargo risk events making reference to its impact on stakeholders including employees and shareholders, other financial institutions such as banks and the auditors of the company. in 500 words

Answer 1

Before the scandal, Wells Fargo Bank was one of the most honored and trusted bank of the world. Customers used to trust the bank as the bank was branded for its ethical measures and employer brand. The year 2018 proved to be a black year for the bank. In the noted year, a deep rooted scandal of the bank started trending. The scandal involved fake customers. In order to meet quarterly targets, the employees of the bank were opening accounts and issuing loans to fake customers. Existing customers were also being forced to take unnecessary insurance as well as pay mortgage fees. The fake accounts was attributing to the annual performance of the bank and was bluffing the investors and existing shareholders.

When the employees were probed in this scandal, they talked about the extreme pressure on them, made by bank management to reach targets. The sales targets were quite huge, almost unachievable in real terms. The performance of the employees was getting hampered and hence they resorted to the trick of creating bank accounts of fake customers. Lack of awareness among the customers made them easy targets of the scandal. Various employees had to lose their jobs when this scandal came in light.

The investors and shareholders as well as existing customers of the bank were also shaken quite bad. The trust and bond between the bank and the stakeholders was affected quite badly. Various customers suspended their bank accounts and requested for loan transfer to other reputed banks. The investors started shifting their capital from Wells Fargo Bank to other financial institutions. The overall goodwill and brand of the bank was black-marked in the industry.

Though the employees of the bank were held responsible for the scandal, in my views, the primary culprits were the corporate governance as well as overall leadership of the bank. Corporate governance was not in terms with the real happenings which eventually led the employees to pull the bluff. The leadership and the management was running after numbers and had put the overall brand and goodwill of the bank to stake. When the scandal came to light, the leadership of the bank collapsed. It was an alarming wake up call for corporate governance of all banks and financial institutions to have ears to the ground. Various banks aligned their business model as per the SOX act and came up with independent auditing committees. It was the role of the auditing committees to conduct random audits in such financial institutions so as to keep a check on compliance and legal adherence. The overall accountability of leadership and corporate governance was reassessed across the industry and various interventions were taken to maintain the trust of customers with banking sector.