Rachel Jackson

COM 346

Written Case Brief

May 5, 2017

Overview

On September 8, 2016, the Consumer Financial Protection Bureau (CFPB),

the Los Angeles City Attorney and the Office of the Comptroller of the Currency

(OCC) imposed $185 million in fines upon Wells Fargo. They claimed that the banks

employees had opened or applied for more than 2 million bank accounts or credit

cards between May 2011 and July 2015 without the knowledge or authorization of

customers. Investigators determined that employees had fabricated these accounts

in order to meet sales goals and earn financial rewards.

Approximately 5,300 employees, who represent roughly 1% of their

workforce, were terminated in relation to the fraudulent accounts. No senior level

executives were initially terminated. CEO John Stumpf quickly made an appearance

after the allegations were made public, but this failed to satisfy the banks panicked

publics. The Wells Fargo case is a classic example of the downfalls of not being

prepared with a thorough crisis plan and failing to execute proper internal

communication.

Pre-Crisis

What could have been an easily avoided issue with the use of environmental

scanning, distributed power and efficient internal communication quickly

became arguably the worst public relations debacle of 2016. Employees had been
opening unauthorized accounts for years and the company had failed to

acknowledge or address the issue. Just weeks after the fines were announced,

dozens of employees spoke out against the company, claiming that Wells Fargo had

suppressed employees who had tried to raise concern about the unethical activities.

Executives failed to address the concerns of these employees. Had Wells Fargo

practiced successful distribution of power within their company, the crisis could

have been quelled before it became such a damaging issue.

Soon after the fines were announced, Wells Fargo decided to terminate its

controversial employee sales goal program. The unrealistic sales goals had led

employees to fabricate accounts in order to meet their quotas, protect their jobs or

land promotions. Instead of having a clear system of internal communication and

listening to employee concerns about the high sales goals, Wells Fargo ignored the

unintended ethical implications to protect profits.

The bank apparently had no crisis plan in place to handle situations such as

this. While Stumpf seemed to be the intended designated spokesperson, he did not

seem to have undergone media training and offered vague statements and answers.

Had the company diagnosed organizational vulnerabilities, executives may have

been able to determine beforehand that the sales goals were unrealistic and could

cause problems.

Wells Fargo executives, including the CEO, were informed of the illegal

activity within their company in 2013, nearly three years before it became public.

Rather than acting proactively to further prevent ethical violations, the banks

executives allowed the illegal activity to continue, further impacting the banks
publics. When the allegations became public in September 2016, Wells Fargo was

forced to act reactively.

Wells Fargo failed to execute proper environmental scanning or signal

detection to diagnose organizational vulnerabilities. Had they been aware that

the sales goals were unrealistic, they could have addressed and stopped this crisis

before it had gotten out of hand. The bank failed to proactively address the concerns

of its many publics, which could have, at the very least, mitigated the impacts of the

crisis. Rather, they ignored the warning signs and employees, customers,

competitors, government officials and regulatory agencies were all impacted by

Wells Fargos actions, or lack thereof. The bank refused to be flexible, which is

required in order to be a resilient enterprise, and continued with business as

usual.

Wells Fargo utilized the duel game of game theory by not addressing the

issue as soon as they were made aware of it in 2013. Instead of shooting and

putting a stop to the ethical violations internally, they aimed and the story came out

before they had addressed it. Their silence lasted too long to be considered

strategic silence. They had adequate time to discover the causes and employees

behind the fraudulent accounts and handle it internally, making sure to assert that

the behavior was unacceptable, but they continued to allow the illegal activity to

occur.

Using the social exchange theory, Wells Fargo weighed the costs and

benefits of being forthcoming about the fake accounts. It is apparent that the benefit

of making more money influenced the decision-making of Wells Fargo executives

greatly. Executives chose to ignore the warning signs of illegal activity because they

were making more money with the sales goals in place than they had ever made.

They did not follow the proper steps and failed to meet the objectives of crisis

management.

Crisis

Wells Fargo had bided their time as long as they possibly could and the

allegations and fines were made public in September 2016. Without a clear crisis

plan, they were scrambling to come up with a response to the allegations. Despite

this, they offered a quick response apologizing to any customers who had received

products or services that they had not requested. Five days later, the bank

announced that the controversial sales goal program would be discontinued. In an

interview with CNBC, CEO John Stumpf, the dominant coalition of Wells Fargo,

announced that he would not be resigning from his position and that he would lead

the company forward.

Once the public was made aware of the crisis, Wells Fargo maintained an

open system of communication with its publics. On the day the crisis was made

public, the bank immediately distributed a press release on its website and across

its social media channels. The release made it clear that the bank would maintain

transparency with its publics and do its best to eliminate any future problems.

They shot by releasing this statement and that was the first step in the right

direction, despite the fact that the release was vague and did not offer an apology. A

series of press releases were issued to the public in the next few weeks and

questions were addressed on Wells Fargos customer inquiry website. The bank
used the two-way symmetric model to seek a mutual understanding with its

publics, which was important in a crisis involving so many publics. They also used

the public information model by releasing press releases, which was necessary to

provide the most information possible to its publics. The combination of these

models leads to the conclusion that Wells Fargo used the model of symmetry as a

two-way practice, which means that the organization and its public sought to

persuade one another as much as possible.

Though Stumpf made an initial statement to employees on September 8th

detailing the fines and reporting the illegal conduct, he failed to maintain internal

communication with the employees, resulting in confusion. Stumpf himself

struggled to deliver concise, concrete statements, rather answering questions with

vague statements. The lack of proper internal communication led to weak responses

when the Wells Fargo team appeared before Senate on September 20 and did not

answer questions effectively.

Stumpf did make a positive effort to communicate with the public by

participating in several media interviews. Had he been adequately prepared, this

could have been a tool for regaining the trust of publics and being a resilient

enterprise, but his statements were inconsistent. He spent much of his time in

interviews placing the blame on low-level employees and failed to take

responsibility until the news of the unrealistic sales goals was released.

Post-Crisis

Wells Fargo failed to meet the crisis management objective of reducing the

crisis life cycle, thus their troubles are still far from ending. They have, though,
made several steps in the right direction. On October 12, 2016, Stumpf retired from

his position as CEO of Wells Fargo. Tim Sloan, former president of Wells Fargo, took

over the position as dominant coalition immediately. Sloan acknowledged that

executives had placed too much blame on branch employees and apologized for not

taking responsibility.

The company has agreed to pay hundreds of millions of dollars in

settlements to customers who had fake accounts or credit cards created in their

name. As recently as March 29, 2017, a preliminary settlement had been reached

stating that the company would pay $110 million dollars. This was the first class

action settlement by Wells Fargo. This at least serves to address one of their main

publics, their customers. The new CEO and other executives were also ordered to

forgo bonuses in 2016 in order to reach settlements.

Wells Fargo is still awaiting further decisions from lawmakers, but the bank

is attempting to rectify the situation in the meantime. The bank has expressed their

continued confidence in Sloans ability to return the bank to its original ethical

standards and financial state. The companys communication strategy has improved

and continues to improve. If Sloan can be the company spokesperson and deliver

clear, concise, consistent messages, the bank may be able to recover in the

coming days. Internal communication must be a priority to avoid another

situation of this magnitude in the future. Regaining the trust of customers,

employees, stakeholders and lawmakers will be a difficult task, but with proper

communications strategies, Wells Fargo has the ability to overcome this crisis.
Sources

http://money.cnn.com/2017/03/29/investing/wells-fargo-settles-fake-account-
lawsuit-110-million/

http://money.cnn.com/2016/10/12/investing/wells-fargo-ceo-john-stumpf-
retires/

http://www.cnbc.com/2016/10/12/wells-fargo-ceo-stumpf-to-depart-dj-citing-
source.html

http://prospect.org/article/can-new-ceo-tim-sloan-fix-scandal-plagued-wells-
fargos-corporate-culture

http://abcnews.go.com/Business/timeline-wells-fargo-accounts-
scandal/story?id=42231128

http://www.prweek.com/article/1417005/timeline-crisis-wells-fargo

https://blogs.wsj.com/riskandcompliance/2016/09/19/crisis-of-the-week-fake-
accounts-scandal-rocks-wells-fargo/