Wells Fargo Case Study

Group 4A - Wells Fargo

Established in 1852, Wells Fargo has grown into one of the largest and most respected providers of international banking and financial services. The company serves over 70 million customers throughout 35 countries while operating its headquarters in San Francisco. Wells Fargo displays a customer-oriented culture. Their vision of helping their customers attain financial success and fulfill their needs have nothing to do with money but rather, to establish lifelong relationships with their customers. They believe that if they make every decision with the customer in mind, loyalty and success are inevitable (Vision and Values -Wells Fargo, 2016). Ironically, they have faced much criticism over the past few months by illegally opening over two million unauthorized bank accounts in their customers’ names (Arnold, 2016). This paper will discuss Wells Fargo’s competitive environment and outline three key issues that may have led to their current situation along with potential solutions.

At the end of 2015, Wells Fargo was the third largest bank holding company in the United States (U.S.). Along with JPMorgan Chase, Bank of America and Citigroup, the “Big Four” account for approximately 35 percent of the United States’ bank deposits (Trefis Team, 2015). JPMorgan Chase is Wells Fargo’s main competitor. Together, they dominate corporate banking. The Bank of America and Citigroup focus more on investment banking and small businesses.

Wells Fargo states their “unwavering focus on customers” differentiates them from their competitors. They claim that although industry trends and competitors will continue to change, customers will always guide them to success (Our Strategy, n.d). This focus on ensuring quality of service has been in place since the founding of Wells Fargo. Prior to the scandal that rocked their ‘customer-oriented’ framework, Wells Fargo had a history of high customer loyalty rates valued at approximately 62.6 percent (Egan, 2016). Through an understanding of their customers’ priorities, followed by a proactive approach in providing the most relevant services, Wells Fargo successfully obtains and preserves a loyal customer base.

A major pillar of this competitive advantage stems from their sales technique, cross selling, which consists of the sales of a different financial product or service to an existing customer (Cross-Selling, n.d). Cross selling allows for low customer acquisition costs and is a major contributor to the aforementioned customer loyalty. It permits Wells Fargo to increase their revenue while maintaining a manageable customer base, by providing a ‘one-stop shop’ for financial services. Wells Fargo also uses this strategy as a regulatory body within their branches. They enforce a per-customer product rate to encourage their employees to look more intuitively at their financial situation. Cross selling is a trend that financial companies have begun to employ throughout recent years, increasing industry competitiveness. Wells Fargo and Wachovia Securities, the second largest brokerage firm in the U.S., merged in the early 2000’s, creating Wells Fargo Advisors (Wells Fargo, n.d). This merger formed the basis of Wells Fargo’s cross-selling culture, which allowed a more holistic financial services portfolio. Wells Fargo and Wachovia Securities were a notably successful merger, which is why cross selling continues to be such a large facet of Wells Fargo’s sales culture. Despite the positive financial impacts of cross selling on Wells Fargo’s revenue and customer loyalty, it may have led to many organizational behavior issues that will be discussed below.

Wells Fargo’s culture is a major issue due to the divergence between their espoused and enacted values (Jaeger, 2016c). They strongly emphasize their belief in ethics, honesty, and putting the customer first in order to maintain client trust and loyalty. Their website states, “we have to earn that trust every day by behaving ethically; rewarding open, honest, two way communication; and holding ourselves accountable for the decisions we make and the actions we take” (Visions and Values-Wells Fargo, 2016). Regardless, they violated their core beliefs and betrayed customers by creating unauthorized accounts in their customers’ names.  An anonymous Wells Fargo employee had stated that, “while the bank might not explicitly state their aggressive sales culture in their mission and values statement, it is well known for its cutthroat and aggressive sales environment” (Liberation Staff, 2016). Their aggressive internal culture is fueled by pressure and an emphasis on cross selling. Management pushed an internal goal known as the “Gr-8 Initiative” where employees were required to sell eight financial products to customers. Former employees mention how “the sales pressure from management was unbearable and “there would be days where we would open five checking accounts for friends and family just to go home early” (Egan, 2016).

Goal setting theory states that in order for goals to increase performance, targets must be difficult, yet realistic and accepted by employees (Jaegar, 2016a). Although Wells Fargo set periodic sales quotas for branches and employees, the staff viewed them as unattainable, which may have led them to partake in fraudulent activity (Reuters, 2016). Furthermore, employees weren’t motivated from within. Rather than relying on the more effective intrinsic motivation, management relied on extrinsic motivators such as salary and bonuses (Riley, 2015). In some cases employees were even threatened for underperformance. According to Herzberg’s two-factor theory, money and other external factors will keep people from being dissatisfied, however they will not promote satisfaction (Jaegar, 2016a).

Scare tactics were implemented which caused employees to fear losing their jobs if they did not meet management’s standards (Corkery, 2016). If the quotas were not met, they were harshly “reprimanded and told to do whatever it takes” (Egan, 2016). The use of leader punishment behavior and coercive power among management was widespread. Employees were forced by their managers to open unauthorized accounts and to apologize and say it was a mistake if customers called (Egan, 2016). A former employee even mentioned a case where a formal warning had to be signed upon failing to reach sales quota. They were told, “if you don't meet your solutions you're not a team player. If you're bringing down the team then you will be fired and it will be on your permanent record" (Arnold, 2016). Moreover, a number of employees who decided to complain about management and unethical behavior to the company’s “anonymous” ethics hotline were coincidently fired shortly after. A former Human Resources official from Wells Fargo said they “would find ways to fire employees in retaliation for shining light on sales issues” (Egan, 2016).

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