How many “risk management fails” can Wells Fargo endure?

I have attached copy of my November 11, 2016 blog that appeared on LinkedIn.  At that time, I disagreed with the solution proposed by John Stumpf (CEO) and the Board of Directors of Wells Fargo.  Their initial solution was to discontinue the sales incentive goals.  If you remember the slogan, “Eight is great.”  This referred to a goal of 8 cross-sell products for each employee.  My point was that setting appropriate goals are fine if the goals have the oversight and reporting on “how employees achieve goals aligned with proper risk and compliance processes.”  The “how” must also include robust customer complaint monitoring. The Board and investors were clearly not informed on how goals were achieved.

My view is that Wells Fargo does not appear to have a robust risk management and compliance culture. The Washington Post has a great article by Renae Merle on August 31, 2017 titled “Wells Fargo finds an additional 1.4 million potentially fake accounts.”  These accounts show process failures going back for years with poor oversight as the customer impact is much larger than the estimate of 2.1 million fake accounts. Couple this recent finding of an additional 1.4MM fake accounts with the April 6, 2017 article, “Wells Uncovers More Abuses” reported by Emily Glass and Ruth Simon in the Wall Street Journal. The April report identified sales tactics problems (not included in the 3.5 million just reported) that were pervasive and not monitored. The evidence showed that Wells Fargo retail branch employees “pressured” small businesses into complex merchant servicing contracts by overstating the small business’s sales revenue to circumvent policies that verified the suitability of the contract for the small business customer.  The employee attained greater cross-sell product sales but at a detriment to the small business customer.

I strongly recommend that the Wells Fargo Board of Directors read my initial blog ” Sales Incentive Plans that Align with Regulatory Guidance – November 11, 2016″  to improve their risk and compliance oversight.

 

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