Worried about crime within your company? Here’s how to scandal-proof the business

In the late summer of 2016 allegations that employees of Wells Fargo’s retail banking unit had opened more than a million unauthorised accounts and sold customers thousands of unneeded products hit the national news. The scandal cost Wells Fargo dearly. On September 8 the Consumer Financial Protection Bureau (along with the Office of the Comptroller of the Currency and the City and County of Los Angeles) fined the company $185 million — and after revelations of more consumer abuses came out, Wells Fargo would later be fined an additional $1 billion and shell out $575 million to settle legal claims.

By the end of September, the bank’s stock price had fallen 13%, slashing Wells Fargo’s capitalization by some $20 billion, and it continued to stagnate while the market soared. John Stumpf, who resigned as CEO that October, and Carrie Tolstedt, the head of the retail bank who’d announced her retirement that July, were forced by the board to forfeit tens of millions of dollars in pay. Four of the unit’s senior managers were terminated for cause. Wells Fargo’s reputation was left badly tarnished — a humiliation for the 160-year-old institution.

Misconduct was widespread in the retail unit even though Wells Fargo had control and risk-management systems, which were overseen by its board of directors. So what went wrong? An investigation commissioned by the board found that a warped corporate culture, a decentralized organizational structure, and poor leadership were to blame. The postmortem revealed that much of the illegal behavior had been prompted by pressure to hit overly aggressive sales targets linked to bonuses and promotions.

Management had received ample warning signs: from 2000 to 2004 the number of cases in which employees had gamed sales and compensation goals rose 10-fold, and critical articles that raised questions about the new accounts, the pressure on the sales force, and in​creasing employee turnover had appeared in the Wall Street Journal in 2011 and the Los Angeles Times in 2013. Yet leaders of the retail bank had blamed a few bad employees for the problems. Accustomed to deferring to the business units, Stumpf simply accepted that explanation.