Wells Fargo's Fake Accounts Scandal and Its Legal and Ethical Implications for Management

By Cavico, Frank J.; Mujtaba, Bahaudin G. | SAM Advanced Management Journal, Spring 2017 | Go to article overview

Wells Fargo's Fake Accounts Scandal and Its Legal and Ethical Implications for Management


Cavico, Frank J., Mujtaba, Bahaudin G., SAM Advanced Management Journal


Taking a comprehensive view of the 2016 Wells Fargo "fake accounts" scandal, the authors detail the bank's legal, ethical, management, and social responsibility transgressions. Civil and criminal charges are explored--some of which have been settled. Ethical and immoral aspects are examined in light of four theories: ethical egoism, ethical relativism. Utilitarianism, and Kantian ethics. Other lapses are analyzed in terms of corporate social responsibility and sustainability. Numerous recommendations to management may help the bank overhaul the corporate culture, restore customer trust, repair the breach with employees, and improve its social and environmental profile. Above all, leadership must make sound business decisions that are also legal, moral, and socially responsible.

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In the last few years, the world has witnessed major business scandals involving giant companies that perpetrated massive fraud and deceit against their customers and other stakeholders. First, in 2015, was the Volkswagen deceptive diesel emissions scandal (Cavico and Mujtaba, 2016B); and now, in 2016, the Wells Fargo fake accounts scandal has emerged. Accordingly, this article is a legal, ethical, social responsibility and sustainability, and leadership analysis of the Wells Fargo fake accounts scandal. The authors examine the actions of the bank based on the aforementioned criteria, and provide appropriate recommendations to management.

After this introduction we provide the key facts and the current status (as of the time of this writing) of the Wells Fargo fake accounts scandal. Next, there is a legal analysis of all the laws and regulations--federal, state, civil, and criminal--that so far have been, and potentially could be, violated by the bank, to wit: breach of contract, negligence, common law fraud, invasion of privacy, conversion, regulatory as well as criminal law, such as theft, identity theft, "hacking," and securities fraud. After this legal analysis the authors discuss the morality of the bank's action pursuant to four major Western, secular-based, ethical theories, to wit: ethical egoism, ethical relativism. Utilitarianism, and Kantian ethics. The concept of whistleblowing is examined from legal and ethical perspectives, and a principle of morally required whistleblowing is presented. Then, the notion of social responsibility is discussed in its traditional "corporate social responsibility" meaning as well as its more modern conception of "sustainability." These are discussed in relationship to business generally and to Wells Fargo specifically. These values of legality, ethics, morality, social responsibility, and sustainability are then addressed in the context of leadership in business.

Based on the facts of the case, legal and ethical analyses are provided, and in the discussion of social responsibility, sustainability, and leadership the authors make several suggestions to help the bank regain its reputation and be a legal, moral, ethical, socially responsible, and sustainable banking entity. Finally, the article ends with a brief summary.

Facts of the Scandal at Wells Fargo

In September 2016 the gigantic bank, Wells Fargo, headquartered in San Francisco, California, was engulfed in a massive scandal. It was accused of extensive fraudulent sales practices. The bank's employees, in order to meet aggressive, and perhaps wildly unrealistic, sales targets, fraudulently opened bank and credit card accounts, transferred money between those accounts, and created fake e-mail addresses for online banking accounts to sign up customers for the bank's accounts. All this so-called "cross-selling" activity was done without the customers' knowledge and consent; and therefore was unauthorized, fraudulent, deceptive, abusive, and illegal. Moreover, debit cards were issued and activated, and PIN numbers created, again without the customers' authorization (Sweet, 2016). Millions of fake accounts were opened for customers over a five-year period (Kelly, 2016). …

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