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Wells Fargo: A Culture of Corruption – A Case Study for Entrepreneurs

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Hello everybody, Tom Ellsworth, and welcome
back to Case Studies with the Biz Doc. This week, we’re going to take a look at Wells
Fargo and talk about the unintended consequences of sales incentive programs running without
controls and when that becomes part of your culture, what happens. That’s what we’re going to talk about. The two points that we’re going to get out
of this today is first, sales incentives or performance incentives are a fact of life. And we need to have them with our sales people
so that they feel incentivized and rewarded to go out there and make sales for it. But, if you don’t have audits, or you have
a culture that permits bending the rules for the sake of sales, or so that a few of those
sales people can make their bonuses, that temptation is a recipe for disaster. And the second is, when that bleeds over to
the culture, and if it’s a culture of the end justifies the means, in other words, the
end, the sales number, making your targets, whatever it is, justifies, hey, we just do
what it takes, man. That’s just what we do here” you will eventually
own that entire problem as the entrepreneur. Because that company will come down upon you,
whether you’re two people, or 20 people. And as we saw with thousands and thousands
employees, that’s what happened to Wells Fargo. So let’s take a look at Wells Fargo. I know many of you may not have followed the
story from the beginning, and if you had better things to do when the story was breaking over
a three-week period, I don’t blame you.. But let’s recap here, so you can see step-by-step
what was happening. You can see how they reacted to it. You could see what was happening, and it will
make the whole case study come to life so it can show you that if it happened to Wells
Fargo, it can happen to you. So, let’s go. It was September 8th, 2016. Once upon a time, it was a bright, sunny day. Until the Consumer Financial Protection Bureau
and the Los Angeles City Attorney handed down a $185 million fine to Wells Fargo. And everybody goes, wait, that’s a headline. What just happened? Well, over two million bank accounts or credit
cards had been opened, without customer’s knowledge. So in other words, the customer had a checking
account or a savings account, and all of a sudden they got like a $5,000 Visa in the
mail and said, I don’t remember opening this. And they stuck it in their wallet. And it turns out that somebody at Wells Fargo
got a little bitty commission or got a point or something on a scorecard, and they were
doing that to meet their objectives. And we were about to find out exactly what
was going on inside the bank. So when that sort of headline breaks, all
the news starts covering it. And we found out that this had been going
on for four years. That this fine was handed down for what Wells
Fargo had been doing between May or 2011 and July of 2015, four years and two months, that
this had been going on. Well, the first response from Wells Fargo,
the happy, wonderful bank with wonderful employees, and happy customers and it loves all of us,
they threw the employees under the bus. And they announced there were 5300 bad employees,
roughly 1% of our workforce who have been responsible for these allegations. And so they issued this statement. And everybody’s like, so 99% of your people
are good, and 1% of the people were bad, and nobody else knew what was going on? So, people began to smell something was wrong
and were saying, you know, it’s not what, it’s not when, it’s not where. But the big question in every complicated
news story or in every big headline is always why. So we’re about to find out more about that. So, on September 13, a few days later, the
bank announced, uh, we’re going to be ending a sales employee goal program. We were giving people goals of opening certain
amounts of accounts every month, and we’re just going to cut that off, and we’re not
going to do that anymore. Because these employees, you know, the bad
5300 people we just offed or fired, offing is a different kind of business called the
Mafia, so we’ll set that aside. Wells Fargo was not offing people, so don’t
send me comments that say I was saying that. Probably the wrong word to use. Where was I? Oh, yeah. Wells Fargo. So, rather than talk about the 5300 employees
and why they did it, they just said, well, there’s a sales incentive program and these
5300 employees were bending the rules around it to be part of it. And their CEO, a guy named Stumpf was on T.V.
saying you know, we can get over this and “I think the best thing I could do right now
is lead this company, and lead it forward. Really? Seriously? Where were you for four years and two months? You’re telling me 5300 people were doing something
wrong and you didn’t know about it? C’mon, dude. So, at the beginning, I thought it was cultural
and would later find out that I was right. So on September 14, the FBI announces, you
know, we’re pretty interested in this, if 5300 people were doing something to two million
citizens, we’re the FBI, and we kind of investigate those things. And we tend to sometimes send people to places
called prison for doing things like that. So they wanted to know more about it. September 20th, now a week later, after the
bank says, oh, we’re cutting this program, nothing to see here, Stumpf appears in front
of the senate banking committee, he gets summoned to a senate inquiry, and Elizabeth Warren
was saying, dude, you should resign. Elizabeth Warren is a very powerful senator
who usually shows up in a lot of financial legislation. And she’s like, dude, you should retire, you
should resign, you shouldn’t take a bonus. This is terrible. And it was going on for four years. You’re telling us this didn’t bubble up, you
didn’t know about it once? The fact that you didn’t know about it is
just irresponsible. If you did know about it, it’s criminal. Either way, you should resign, because you’re
a bad leader and you didn’t know, or you’re a corrupt leader and you should be investigated
by the FBI. So, a week goes by, and they were continuing
to say, well, maybe it was this other executive, this woman who was responsible for all of
the field branch sales programs. So now they’re going to throw her under the
bus. Well, she gets linked to Stumpf and you know,
they’re talking about both of them. A few days later, six senators come up and
they say, Wells Fargo bank, you know, they had read the fine print. And it turns out, the fine print of all those
Visa cards and accounts that were opening said that if there is ever a dispute, you
have to go to arbitration. Now, let me explain what that is. Arbitration is not court. Court, documents are filed, called lawsuits,
and anybody can go down to the court and read what’s in lawsuits. Those are public. When you file a lawsuit against somebody,
other people like the press, reporters, can go read it. But arbitration is done in private. And so these senators were pointing out, wait
a minute, so if the American consumer has to go to arbitration, that means this is kept
out of the public documents and courts, so courts and reporters will never find out about
this. And yet, these customers, they would have
to go to arbitration, because arguing about a Visa card they didn’t open. And so, these senators correctly pointed out
that, they said, man, that’s evil. Now you’re even making it so that this sounds
more and more and more like a cultural issue. Well, I’m going to tell you a little side
story. I was running a company, it was a digital
publishing company, way back 2011, and guess what? I got in the mail, and I remembered it, I
got a Visa card. Congratulations. Your company is qualified for a Visa card
with a $10,000 limit. And I’m like, I have a company savings account,
and a company payroll account and then a company checking account, why do I get this? I know you have to fill out a form and sign
something. So, I went into my branch and I stopped and
I asked. I said, Oh, by the way, I got a Visa card
and the person at the branch, remember I didn’t call the 800 number, I was at the local branch,
where I had opened my accounts to begin with. And they said, Oh, yeah, that’s complimentary. Well, one year later, there was an annual
fee of like $40. It wasn’t complimentary. So guess what? I am 99% certain that my little tiny publishing
company had a Visa card opened for it, and they waived the first year fee or something,
and then a year later, it was a $40 fee. I never used it. It sat in a drawer with my Wells Fargo statements. And so, apparently, I was one of many consumers
that ended up with something they didn’t ask for. Now at least I didn’t get ripped off, no one
was using the Visa, but there’s a perfect example of somebody at the bank got credit
for opening a credit card for my accounts and then when I went into the branch, they
said it was complimentary. Well, who do you think was in on this? It was probably the people in the branch. If I had called the 800 number and I’d say
where’s the application? I didn’t sign anything. Maybe it would have figured something out. But there was no harm that happened to me. I didn’t lose any money or anything. But a year later it was 40 bucks, or something
like that. That was shocking. But anyway, I have since closed every account
I had with Wells Fargo because as we’re about to go into, I think this was a cultural phenomena,
not 5300 bad people. As a matter of fact, I think that they sent
5300 people on their way because they were trying to clean house and what was really
the issue was the culture of Wells Fargo and sales performance. On September 26th, the plot thickens as some
Wells Fargo employees gave a whole world into a glimpse. They filed a lawsuit that the news media followed
and read, where they had said for 10 years, and remember, the original find of $185 million
was for those four years, from 2011 – 2015. They said, for 10 years, we, friends and colleagues
through the demoted, forced to resign, or terminated for not meeting sales quotas. So there was a quota at the bank that you
had to open this many accounts, otherwise you lost your job or you got demoted or passed
over for a promotion. Interesting. Well, on September 27th, the banks board of
directors announced that Stumpf was not going to get his $41 million bonus. And also, that the VP that worked for him,
a woman named Tolstedt was not going to get a $15 million bonus. And what do you bet that those bonuses were
based in no small part on all these wonderful new accounts that got opened, that they could
tell the board of directors, look how great leaders we are, and all these happy Wells
Fargo customers are getting all these products because our people know how to sell them. Nope. Your people knew how to sign them up. It had nothing to do with selling them. And, they were incented to do that by a corrupt
system. So, back to Capitol Hill and September 29th,
on October 5th, 14 senators sent a letter to the attorney general asking them to investigate
Stumpf and other senior executives. And one week later, on October 12, Wells Fargo
said Stumpf was out. He was retiring. They couldn’t even come to the microphone
and say that the board fired him. And it took them a month of this going on
for them to fire him. And if we think that Wells Fargo and the board
didn’t know before early September that this was going down, that they were being investigated,
then we’re not paying attention. Because of course they knew. But the fact that it took them a month to
basically fire them was something else. So now, why tell you the whole story? It’s because some of you maybe didn’t follow
all the news, and you can see that. And what you heard, I believe, was a story
of cultural failure. And whether you’re two people, twenty people,
or 20,000, sales incentive programs are a necessary thing to run your business. And so, in any sales compensation system,
we start here in the middle. There’s a target. You sell, you get a commission on it. Or you sell enough, you get a bonus. But we have a target and rewards. So there’s an incentive. You perform, you hit the target, you get rewarded. And it goes around. Well, there’s ways to cut corners in life. And so you’ve got to be sure that your sales
people have a system of controls and audits in place. Let me give you a simple, real world example
that maybe you don’t think about. You know, you go down the highway and it says
65 miles per hour, but every now and then, there will be a highway patrol, state trooper
with a radar. What that is, that is an audit of how fast
you’re going, because he’s trying to control things and just the presence of the few state
troopers keeps people in the 65 to 75 range, hopefully driving safely at those speeds. And that’s really what they’re trying to do,
is just make it safe. So, similarly, in business, you need audit
points and controls. In other words, if you’re the founder, and
you have a sales person, make sure that there’s somebody that the sales people on your right,
make sure there’s someone you trust on your left. And that person should check and audit sales
orders, check and audit the commission plans, and have controls in place. For instance, maybe a commission request has
to go first to that person before it gets to you. And these are little things you can do, because
from your first salesperson, you’re going to have a person that wants a commission for
selling for you, and from the first commission, you’re going to have somebody that’s hungry
for the next commission. And, you know, greed is human. To be tempted is human. So don’t put that temptation out there. Make sure your sales systems that have incentives
and rewards have audits and controls. Because if you just say, well, I’m buddy,
buddy with my salesperson, which I think is a mistake. Always have a limited personal relationship
with your salesperson. Because there may be a day you have to look
them in the eye and say, we’re going to audit all the sales orders. And you don’t want him to say, wait, you don’t
trust me? I’m not your friend? No, I do trust you. And I want you to be here a long time. But I want to know that everything is happening
straight and honest and you’re going to be here a long time. And so that’s the purpose of it. At Wells Fargo, it’s clear that there were
branch managers that put pressure on people. And do you think those people could be opening
up the bank accounts without a supervisor knowing? Do you think that could happen for four years
without a branch manager knowing? Do you think that could happen without like
a regional manager in charge of four or five branches knowing? Do you think that could happen without a vice
president knowing? And the answer is no. It can’t. And when they do an investigation and they
fire 5,300 people, you know what that says? They had a cultural problem. Because once they started turning in those
results, and bragging about all they could do, if they suddenly popped the balloon and
bring it to a stop, the next thing that the CEO has to say to Wall Street is, well, we
didn’t open as many accounts this quarter. We didn’t have as many new customers open
second and third accounts, and get Visa cards. And then Wall Street’s going to say, hey,
what’s going on? And they will lose faith and the stock starts
to go down. And they start to say, you must not be a very
good CEO. Because a minute ago you had all these things
happening and all this goodness. Well, guess what? So the culture of deceit and corruption grew
roots and became the tree. It wasn’t one bad apple on the end of a branch. It was the whole damn tree. And the unfortunate thing is that it didn’t
have to be that way. Because some point and some time had a simple
review been done, so people wouldn’t cut the corners, and the temptation of upper management
to be hungry for those next numbers, which turned out to be fake, because they never
made money on my Visa card, it start in a drawer. They make money when I make purchases. And I didn’t use it. So somebody got credit for “selling” me a
new Visa card from Wells Fargo and nothing happened. And that happened, according to this, to two
million consumers. So the lesson for your business is as we said,
targets, incentives, and rewards, with controls and audits, and then your culture will be
one of performance and integrity. And this, won’t be the failed logo of Wells
Fargo. It will be the logo of the company you create. There we go. Thank you very much for watching. Please subscribe to Valuetainment. This is the best channel on the Internet for
education and incentive and motivational topics for entrepreneurs. From your host and founder of Valuetainment,
Patrick Bet-David. Until next time, I’m Tom Ellsworth, and I
hope I left you, better than I found you.

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35 thoughts on “Wells Fargo: A Culture of Corruption – A Case Study for Entrepreneurs”

  1. Charles Miller says:

    This happens alot in small companies, Like A/C , Roofing, Window, ect. They last around 10 years, then people finally figure out that they are a scam. They close up shop, and start again under a different name. In a way they are more dangerous then larger companies doing the same thing. Wells Fargo has to work under laws of banking. Smaller companies have no such laws.

  2. Namaslay Ingit says:

    WellsFargo is NOT Namaslayingit!!!

  3. Ana Gutierrez says:

    I used to work at Wells Fargo – you’re 100% right it was cultural, company wide

  4. No Hope Equals no fear says:

    Wells fargo are crooks.. warren buffet protected all of the crooked board of directors… brilliant video

  5. Magnets Travel says:

    I have WF accounts, they also opened 2 extra saving a/c, plus they kept 10k for 2.6 years as secured credit card. Applied for credit line & they gave me 10k with 10% interest with 99 charge every year, I said take that in ur back, I had multiple times money in business a/c than 10k they offered for credit line. After that I transferred most money to other place. Applied for equity loan as I have no mortgage on my home to get an other property & they offered 50k, on 400K+ house, what property I can buy in 50k??? WF is a big bullshit bank. Totally waste of time. I wish Amazon go in banking & burst these MFs. I would change my bank first day if Amazon open banking.

  6. Marc Fontaine says:

    This story is similar to another company I worked for in the railroad industry. But in that case, while the issue is more in the HR management than with the sales, this is the whole industry that is plagued with a cultural problem. Maybe you will have an interesting case study to do in the future if the bubble come to blow out.

  7. JeepCherokeeful says:

    Pure Evil

  8. JeepCherokeeful says:

    Local speed traps are for revenue though

  9. Chris Martin says:

    Well. That was….dark.

    Honestly I just don't know what to say. From the shady folks at the branches, the pathetic excuse of a CEO, the arbitration, the Senate hearing, FBI investigation it's so clear to me that whole thing needs to be disbanded.

    Like you said it's a culture of corruption problem that went to the very top and I'm supposed to believe that getting rid of the people who put the people that put this in place that hired the people that knew this was happening and continued to work there that's supposed to get fixed overnight? 5 years, MAYBE but will they ever see my signature on one of their documents again? Not going to happen.

    I've been trying to think of a way to make sure everyone is on the straight and narrow. I've already expressed to my team areas I won't bend. I've made it clear that if I find out someone is doing something wrong I will deal with it immediately. Mistakes I can live with; bad intentions I don't tolerate, period.

    Stay Passionate!

  10. Lawrence Petersen says:

    Thanks tom, can always count on you to bring golden content! Really appreciating this channel, been binge-watching the past few days! 🙂

  11. tarundeep singh says:

    Mr. Tom can you please do a case study on Jet Airways.

  12. Misty ann Flores says:

    I used to work for Wells Fargo. And this is all true, we used to get pressured to meet or quota every month. Management looks down on you until you meet your numbers. I was in the mortgage market and when all this was happening we all found out through social media.. they never sat down with us to explain what was going on. I was there when the CEO resigned. Customers were highly angry and we understood but never got coaching on how to handle this scandal. It was very embarrassing . Everything that has been said about this bank is absolutly true.

  13. Herp Derpingson says:

    To be fair, opening credit cards without knowledge isnt the bad kind of corruption. Historically, the government has done far worse.

  14. Moose Bme says:

    In the 1990's, I was hearing how "Wells Fargone" was holding military direct deposits, to create penalties on their auto withdrawals…
    !(: GREAT VIDEO and Channel :)!

  15. Grass Snake says:

    Oh yeah, I remember when all this went down, yet I'm still with WF. What's wrong with me? lol

  16. respinoza89 says:

    I had a family member work there. He didn’t care about the bonus. He was just trying to save his neck. He never opened up accounts for people without their knowledge. But he did open up accounts for his mom, dad, sister, wife, and every single family member he could think. Probably his cat too 😂. He opened one up for me and said that I can close it in a couple of months or whatever, he just needed to meet his quota and he was down and was always stressed out about that darn quota he had to meet.

  17. Edward Holmes says:

    Elizabeth warren is an idiot and everyone knows it. Please don't inflate her importance.

  18. Bass Voice says:

    I just recently found your videos, and I love them! Had to sub, so informative.

  19. John Smith says:

    This had been going on since back in 2010 at least. I know people who closed out accounts with Wells Fargo only to find 3-4 accounts they never opened.

  20. Sam King says:

    6:28…Arbitration is a condition that 99% of credit card issuers include in their agreements. It is nothing unique to Wells Fargo.

  21. Chillout2NewYork says:

    Wells Fargo = the Bank of Evil 👿

  22. User says:

    Wells Fargo has been corrupt as hell well before 2015.

  23. George McGovern says:

    But Warren Buffett says WF is a great bank. They are the best in the banking industry at cross-selling. Nobody in the industry comes close…

  24. FlightX101 says:

    I love how Wells Fargo skipped over the fact that people were simply fired if you couldn't perform to their crazy goals. When you have 5000+ employees opening accounts on purpose something is clearly wrong

  25. predat0r says:

    10:20 41 meeeellion dollar bonus.

  26. Locutus says:

    These banks need stiffer financial penalties. $120m is chump change for them. Hit them with a $1.2b fine and bar the guilty directors from serving in any senior management position for 10 years. That would clean up their act.

  27. Green Brain Seaside says:

    14:48 no. it says DAMN!

  28. nag69 says:

    I've heard stories about tellers working at bank branches (Not WF) that would monitor the activity of customers accounts, and then withdraw the money (into their pocket, tax free) from accounts that hadn't had any activity in x amount of time, prior to them closing the account. I can only image what goes on in that industry considering the size of it, theres obviously not enough oversight taking place aimed at protecting the consumer. I hear your story about the fees on a CC you never used or requested, really makes me wonder how many billions banks have stolen from people, in addition to the billions they rake in from their over priced services. And then theres the old boys that still got their bonuses when everyone else was losing their shirts in the financial crisis…

  29. Addicted to Profit says:

    my girlfriend worked for them 2007-2009 and quit because of the constant pressure to get sales! She did not apply for a sales job, but was forced to do just that in a town of less than 20k. I would always get angry when she would talk about all the harassment and threats if a certain number was not reached. I would always say this can not be legal!!! HERE IS SOMETHING I NEVER HEAR TALKED ABOUT! They used to offer employee loans against their paycheck and i cant remember the % but it was really high. So well over half of the employees at that branch were always in the whole when payday came around! Once again i was screaming this cant be legal it was such a scam! Im beyond happy to see they got what was coming to them, except those big wigs still are sitting rich and pretty with all they made for doing nothing but shake down their own employees. Awesome video!!!

  30. Jim Eiden says:

    That’s an SEC Violation, SOX violation, etc

  31. Paul Blewett says:

    The ends always justify the means, but they don't justify "any" means.

  32. Bob Rees,Jr says:

    I would agree being a former Wells Fargo Home Mortgage employee and an inventor.

  33. Valuetainment says:

    The First LIVE Valuetainment Conference for Entrepreneurs is here. An event you won't want to miss hosted by Patrick Bet-David. For tickets and details visit: https://www.valuetainment.com

  34. Billie says:

    what was he doing before, leading it backward? lol

  35. Company Broadcast says:

    Where trust becomes a monopoly, the state has an immediate right to interfere

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