Wells Fargo: A fumble in ethical and PR crisis
Wells Fargo in 2016 faced a crisis in employee ethics with the creation of over two million fake accounts credited to customers without their knowledge. The company’s employee compensation policies were based on aggressive quotas and individual employee sales performance numbers. In addition, poor oversight and corporate accountability helped to hide the problem. The story broke when on September 8th, 2016, the Consumer Financial Protection Bureau, the Office of the Comptroller of the Currency and the Los Angeles City Attorney accused Wells Fargo of fraud. Successive investigations revealed the depth of the fraud. The claim was that Wells Fargo between 2011 and 2016 had created fraudulent accounts and then charged customers fees without their knowledge.
Wells Fargo faced a number of problems as a result of the fraud charges and investigations. Some of those problems included legal and financial penalties by enabling stakeholders, low morale by functional stakeholders, a withdraw from partnerships by normative stakeholders, and criticisms, negative publicity and a class action lawsuit by diffused stakeholders. Wells Fargo as a brand suffered a blow to its s creditably and needed to reassure the public of its integrity and commitment to their interests. Adding to the crisis were a series of public relation mistakes made by the company. The challenges that Wells Fargo meant that their number one priority would be to earn back the trust of the publics and stakeholders.
One of the first steps the Wells Fargo’s public relations department likely conducted in preparing for a public relations campaign to combat the tide of negative press and loss of consumer trust was to perform a SWOT analysis. In identifying their strengths, weaknesses, opportunities and threats, Wells Fargo could better understand where they currently stood in the marketplace and gain a critical perspective about needed response.
Wells Fargo was established in 1852 when it began transporting its first loads of gold and gold dust following the gold rush in California. Henry Wells and William Fargo, along with investors from New York created Wells, Fargo and Company to meet the rising demand to gold from the isolated mines in California to the banks on the East Coast (History.com, 2009). The iconic stage coach used in their marketing material and later in their public relations campaign attempts to pull from the rich history of Wells Fargo and consumer trust when Wells Fargo stage coaches transported not just gold, but passengers and other packages.
Wells Fargo had several strengths in the marketplace in 2016. It had survived such the wild west and Indian attacks, Europe’s World War 1, the roaring 1920’s and the great depression of the 1930’s, prohibition, World War 2, the Savings and Loans scandal, the financial crisis of 2008 and a large number of other events that would prove catastrophic for other banks.
Wells Fargo in 2016 had climbed to the third largest bank in America with sum of $1.79 trillion in assets. While other banks were suffering due to regulations and shrinking profit margins, Wells Fargo showed a 6% growth (McDermid, 2016).
As a brand, Wells Fargo was well known for its golf championships and philanthropic work across many communities in America.
Wells Fargo was known as the “king of cross-sell”, a strategy of selling multiple products to an established customer
In terms of weakness, Wells Fargo was known as the “king of cross-sell”, a strategy of selling multiple products to a customer who already enjoy a product. While it was formally a strength which allowed the bank to see gains in terms of opened accounts and fees, had now become its greatest weakness due to fraud allegations. Other internal weakness included their employees who were under constant pressure to meet high quotas, as well as an internal monitoring process that had missed connecting corporate policy to employee behavior.
Wells Fargo had the opportunity to take the offensive in the market place by reminding consumers of its long history of trust and good will. Wells Fargo needed to become transparent with its operations and show how aggressively it took criticism.
The threats to Wells Fargo were numerous, including fines and regulations by the government, class action lawsuits, ongoing news cycle coverage which helped to generate negative press, high profile critics such as Warren Buffet generating negative publicity, businesses withdrawing their support from partnerships, and a rising tide of backlash from the publics as consumer trust decreased.
In analyzing its place in the market, Wells Fargo would also need to identify their stakeholders in this situation. Enabling stakeholders are those that have “control and authority over the organization” (Public Relations, n.d.). Those would be the board of directors, The Consumer Financial Protection Bureau (CFPB), the Los Angeles City Attorney and the Office of the Comptroller of the Currency (OCC). The functional stakeholders would be the employees, which would be considered input and the consumers which would be considered output. The normative stakeholders would be their business partnerships, competition such as Bank of America, JP Morgan Chase and Citi Group. These groups share a common interest with Wells Fargo. The diffused stakeholders are the publics which are composed of community residents, media, and critics.
Unfortunately, the closed system of Wells Fargo PR machine prevented its functional stakeholders from sharing information with its enabling stakeholders. In fact, the enabling stakeholders punished its functional stakeholders with termination if they shared information about its policies or issues with fraudulent behavior. This is behavior is an example unethical leadership, which encouraged unethical behaviors in some of the employees at Wells Fargo.
Following the news of the scandal, Wells Fargo began to set a plan in motion to address the scandal and mitigate its effects. There were multiple areas that Wells Fargo needed to address, including controlling what information became public, and showing that there were clear steps being taken to solve the issues leading to the unethical behavior of its employees. The first step was to inform the stakeholders and publics that they were responding to the situation, taking it seriously and were working to regain their trust.
Wells Fargo’s PR strategy was to show that they were eliminating the root cause of the scandal, the “controversial employee sales goals program that was at the center of the allegations” (Blake, 2016). The employee Product Sales Goals was an incentive-compensation program designed by Wells Fargo with the goal of increasing sales to help distinguish its self in the marketplace cross-selling banking products and services (Blake, 2016).
Wells Fargo also needed to control the damage of the scandal by controlling how often it was in the public sphere. Part of Wells Fargo’s plan to keep the scandal quiet involved the use of forced arbitration clauses written into the account agreements of customers (White, 2017). The arbitration clauses kept the cases from both the public and legal court radar and was a strategy that was continued as means to control what information became public.
Wells Fargo denied any wrong doing and any allegations brought up with regards to its practices and company culture. They wanted to paint a picture that the scandal the result of employee action, not bank policy. They tried to craft a narrative that Bank did not face ethical issues, and that its loyalty to both employees and customers were above reproach. This denial response can be seen when two former employees filed a lawsuit against Wells Fargo. They alleged that during their ten years working for Wells Fargo, they were “ ‘either demoted, forced to resign, or terminated’, for not meeting ‘impossible’ quotas the bank set as goals for employees to open accounts on behalf of customers” (Blake, 2016). Wells Fargo’s PR response was to go on the offensive stating that they “disagree with the allegations in the complaint and will vigorously defend against the misrepresentations it contains about Wells Fargo and all of the Well Fargo team members whose careers have been built on doing the right thing by our customers every day” (MrTopStep.com, 2016).
A series of emails, press releases and twitter posts were made as part of their initial response. A Twitter post from September 8th, 2016 states that “…Wells Fargo is committed to putting out customer’s interest first 100 percent of the time, and we regret and take responsibility for any instances where customers may have received a product that they did not request…” The post goes on to frame the fraud committed by its employees as mistakes. The post established that Wells Fargo was interested in moving past the scandal and that their loyalties lay with the customer. The post also highlighted a contract that Wells Fargo made with the publics that listed how they plan to change the culture of Wells Fargo and be open and transparent with the public.
A webpage and hotline number were made available for customers to visit and check if fraudulent accounts or credit cards were opened in their name as part of Wells Fargo’s drive towards displaying their transparency to customers.
By the end of September Wells Fargo had mapped out their communications strategy with what they called the “Commitment” campaign. This campaign was to include social media, television and print advertisements, press releases and direct mail. A Twitter post on September 29th, 2016 outlined their restructuring strategy in five steps. The first step was an announcement of new leadership for their retail banking business. Next, they addressed the behavior that lead to wide spread fraudulent practices by ending product sales goals in their retail branches. Steps two and three were efforts directed at being more transparent with customers and offering customers access to review their accounts. The fifth step was the hold two executives responsible by requiring them to forfeit pay.
There was a wide use of different channels to promote its PR messaging of change and trust. Some of the channels included tv, radio, social media platforms, digital and print media. Wells Fargo placed advertising and messaging across tv commercials, YouTube ads, press releases, active use of social media platforms like Twitter and Facebook, radio ads, tv interviews, media statements and articles.
CEO John Stumpf eventually stepped down after both news coverage and public outrage continued for a few months ultimately accumulating in a congressional hearing. Wells Fargo for its part, continued to downplay the scandal, at times commenting that they were being unfairly dealt with by the press.
The response to their “Commitment” campaign on social media outlets were often met with heavy skepticism and criticism. One Twitter user responded, “Do not expect anyone to believe that 5,300 employees committed fraud without management knowing about it” (Wells Fargo News, 2016). Another Twitter user responded, “if you care about your customers start by caring about your employees so they don’t feel forced to steal from us” (Wells Fargo News, 2016). A sentiment echoed by many posts was reflected by a user who posted this statement, “this wasn’t a mistake…this was an organized heist” (Wells Fargo News, 2016).
Wells Fargo saw their stock price drop to a two and a half year low, dropping 10% since the announcement of the scandal. Adding to Wells Fargo public relations woes, class action lawsuits were filed by customers and former employees who believed they were wrongfully terminated, and more fake accounts were found (Egan, 2016).
While the “Commitment” campaign was a fast response to the crisis, its effectiveness was hindered by many other threats. Neither the public nor investors were buying into the messaging of the “Commitment” campaign. Some elements of the campaign were well executed, such as outlining the steps they were going to take to change both policy and attitude. However, an October 2016 study by the research company cg42 highlights just how ineffective the “Commitment” campaign was.
The online survey study conducted by cg42 included 1,000 Wells Fargo primary customers and 500 primary customers at ten other top U.S. retail banks. They stated that,
“Over 85% of consumers surveyed are aware of the scandal, and positive perceptions of the brand sunk from 60% before the scandal to 24% post-scandal. More tellingly, negative perceptions of the brand increased from 15% before the scandal to 52% post-scandal.”
(cg42, 2016)
A miss-step that Wells Fargo made during the detection stage of crisis management was not conducting a focus group to get a more accurate gauge of public sentiment regarding the bank. Gene Grabowski, a partner at KGlobal stated “The bank would be well-advised to conduct some focus-group research and monitor social media before lunging into a full-scale marketing program” (Pasquarelli, 2016). Focus groups would indicate how the public would respond to the “Commitment” campaign and allow Wells Fargo to avoid a resistance to the marketing push. It would also allow them to more accurately understand what the consumer wanted to hear and see from Wells Fargo.
Wells Fargo missed several opportunities during the containment stage of its crisis management, to connect with its stakeholders and communicate change. For example, Wells Fargo promoted someone from within the company to be its next CEO when John Stumpf finally stepped down. In the eyes of its publics, the entire culture of Wells Fargo was corrupt. Severe PR crisis often demand drastic solutions, in this case they could have hired a CEO from outside of the company (Carufel, 2016).
Wells Fargo likely measured its public relation strategy by sampling the publicity from media outlets, its stock value, surveys that gathered quantitative data, and the use of content analysis. Such sources can lead to a misunderstanding of fundamental issues.
In looking at the time line of the crisis, many commentators have pointed out opportunities that Wells Fargo missed to control the narrative of the crisis. However, the crisis ultimately began with corporate policy, which did not change after close to a decade of documented employee complaints and terminations related to fraud. Wells Fargo only changed their policies in response to government charges of fraud and public backlash. This reactionary approach to their public relations strategy is ultimately what amplified the crisis.
The new CEO Tim Sloan did communicate with the public about the steps Wells Fargo were taking to correct the policies and practices that lead to the scandal. However, not all communication related to the scandal came from the CEO. All statements related to the crisis should have come from Sloan, this would help to sell the idea that Wells Fargo was guided by strong leadership.
Another action that Wells Fargo should have taken was to submit an immediate apology that was sincere and took full ownership of their error. The public did not believe the “mistakes” as Wells Fargo call them were accidents. Blame was shifted to the actions of some 5,300 employees who were fired (Comcowich, 2016). To a degree, Wells Fargo attempted to garner public sympathy by with the use of “regret” in their communications, with the bank’s commitment to customer loyalty. Wells Fargo criticized the media for continuously keeping the scandal in the news cycle, often giving the impression that they believed they had paid enough for their indiscretions.
Wells Fargo never owned up to its long history of incentive-based pay tied to sales with difficult quotas. Employees faced the real threat of termination for underperforming in their sales numbers. There was no effort to link corporate policy to employee behavior, instead for well over a decade, Wells Fargo fired employees that were caught engaging in fraudulent activities to meet the often inappropriate quotas (Comcowich, 2016).
Winning back the trust of the consumer meant they would need to change the behavior and attitude of its publics. This would be challenging as news of more scandals would add noise to its “Commitment” campaign and diminish its effectiveness.
September 2016 began with the fake account scandal which Wells Fargo responded to with their “Commitment” campaign. September also saw the Department of Justice fine Wells Fargo $20 million dollars for violating the Servicemembers Civil Relief Act several times between 2006 and 2016. Other scandals that contributed noise to Wells Fargo’s message include failing a “living will” test to demonstrate how they would deal with a bankruptcy, more fake accounts being found, failing a test for community lending revealing “violations across multiple lines of business with in the bank”, paying $5.4 million to a whistleblower who reported potential fraud in 2010, a law suit for overcharging small business retailers, a lawsuit filed by the city of Sacramento for discrimination, a $1 billion dollar settlement for auto-loan issues and mortgage practices, altering business information of clients without their knowledge, a securities-fraud lawsuit, and a computer glitch leading to hundreds of homes going foreclosure (Wolff-Mann, 2019).
One action that Wells Fargo should have considered was to allow a third party to conduct investigations into the organization and publish its findings to the public. Next, they should have had another third-party step in with the ability to suggest policy changes to the C-suite and report to the public with regular progress updates. The use of third-parties that are from outside of the company and objective would help stakeholders and the public to begin to trust the process of organizational change. Instead, Wells Fargo relied on internal investigations which was not effective in changing public opinion about Wells Fargo.
The “commitment” campaign was not successful and could certainly be considered a failure. There were a number of factors that contributed the its failure besides a long string of scandals that continued to plague the bank and its message. Perhaps foremost are its critical failures of stage one of PR crisis management which is detection, and stage two which is prevention/preparation. Wells Fargo is still stuck in stage 3 of PR crisis management which is containment (Fearn-Banks, 2009). It seems unlikely stage four, recovery will be reached any time soon.
Lack of a clear apology, failure to connect corporate policy and employee behavior, failure to use external sources for accountability, using employees and executives as scapegoats, failure to strengthen its whistleblower program and underestimating the crisis are all factors that lead to the failure of the “Commitment” campaign (Comcowich, 2016). Wells Fargo did not effectively show how they were changing their culture, although they eliminated the sales policy attributed to the unethical behavior of its employees. One communication’s expert, Mike Hatcliffe noted, “They seem to be treating this like a legal situation rather than a reputational issue, and that is a big mistake” (Dukas, 2016). It is that aspect of the “Commitment” campaign that is at the heart of its failure, using a public relations strategy that leaned more towards a press agentry model than a mixed-motive model. The press agentry model treats public relations more like a legal situation than a mixed-motive model that treats public relations more like a relationship where stakeholder opinions influence policy.
CEO Tim Sloan told congress October 3, 2017 “We recognized too late the full scope and seriousness of the problems. The bank’s leaders acted too slowly and too incrementally. That was unacceptable” (CNN, 2017). However, this admission came a over a year after the initial scandal tarnished Wells Fargo’s brand and image. Two years later in March 12, 2019, Wells Fargo’s enabling stakeholders, members of the House Financial Services Committee are still scrutinizing Wells Fargo as new reports showed that employees were “still breaking rules to meet performance standards tied to sales goals” (The Wealth Advisor, 2019). Rep. Maxine Waters, head of the committee stated, “All the changes that you said you have made are not evident”.
A pivotal lesson in public relations in looking at Wells Fargo could be summed up with the axiom, “You have to stop the bleeding first, before you can focus on healing the wound”. The continued scandals are continuing to bleed the good will stored in the Wells Fargo brand and image. An effective PR campaign cannot be effectively implemented until news of new scandals stop.
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