In April 2018, Wells Fargo continued to make headlines when federal regulators announced one of the largest fines levied against a financial institution: $1 billion for forcing customers into auto insurance and imposing unfair fees on mortgage borrowers. This, on top of the $185-million fine following Wells Fargo’s admission in 2016 that its employees had fraudulently opened millions of sham customer accounts, its $142-million class action settlement related to the same activity, and millions in remediation, consultants, lawyers, and more.
Now, we see Wells Fargo releasing commercials aiming to repair its reputation and “earn back your trust,” pronouncing that it was, “Established 1852. Re-established 2018 with a recommitment to you.”
Much can be said about what occurred, but the key teaching moment relates to why this happened—and how this can be avoided. In this analysis, we will focus on the following factors (which will sound familiar to fraud examiners) and how a strong corporate culture can counteract their negative manifestation:
- Perceived Pressure
- Perceived Opportunity
- Ability to Rationalize
Wells Fargo employees felt that they would lose their jobs if they did not meet the expectations set by management, regardless of their unrealistic nature. In my experience as a prosecutor, people often get involved in misconduct not because they are all bad apples, but because they believe the harm that would come from doing the right thing is greater than any harm resulting from misconduct.
Studies have shown that pressure creates an environment in which questionable business practices are almost twice as likely to be accepted. In a survey conducted by Ethics & Compliance Initiative, 63% of respondents saw questionable business practices rewarded (PDF), which often increases the likelihood of violations.
Employees saw a window into a scenario where they could reach unrealistic goals using questionable tactics that would remain under the radar. In other words, they chose to engage in an action to alleviate the perceived pressure that they thought was unlikely to be discovered by others. The fact that the opportunity existed in the first place is due to a breakdown in controls, but the fact that multiple conspirators engaged in systemwide abuse is a breakdown in corporate culture.
Ability to Rationalize
Most individuals who undertook this scheme would not think of themselves as criminals.
I have seen this repeatedly throughout my career and during internal investigations—employees rationalize bad behavior. This is likely some combination of “management gave me no choice,” and the thought that it was only causing minimal harm on a small scale, although those whose cars were ultimately repossessed would disagree.
This is what we call a justification. The employees found a way to align the practices with their moral compasses, reasoning that they were a victim of circumstance. Or perhaps they believed themselves to be a cog in the wheel of a big corporation, and because of their stature, these small decisions would have little impact.
Creating a Corporate Culture of Compliance
We could go through this framework for many of the companies who have been in the headlines recently, but let us now discuss how to counter these damaging pressures, opportunities, and rationalizations.
Yes, it is important to have controls in place that limit the opportunity, and it is perhaps equally important to review your objectives and review processes to ensure that they are not incentivizing misconduct. However, what this really comes down to is corporate culture.
A strong corporate culture, where doing the right thing is encouraged and rewarded, can go a very long way. Although forward-thinking companies recognize that an ethical culture is the best control that it can implement, many are still getting up to speed on fostering a “culture of compliance.”
A culture of compliance begins with an unequivocal tone from the top, a mission statement and/or statement of values, a code of conduct that articulates how to achieve these values, and—perhaps most importantly—encouragement for employees to speak up when they see something that is not right—without fear of reprisal.
Code of conduct is a particularly important component when building a strong culture, and the way that a company presents its code of conduct ties closely to how its culture of compliance is perceived. If you require a web-based annual code of conduct training that is boring, one-size-fits-all (i.e., not tailored to the particular audience), and lacking interactivity, it will likely be perceived as a waste of their precious time. Alternatively, think about a situation where the participant is engaged in an interactive training that is relevant to his or her position and presents real-world scenarios—including legitimately tough calls. This might even bring to mind a situation the employee has experienced but did not consider to be an issue.
Ensuring that employees understand their responsibilities under the law as well as their roles in creating an ethical, safe, and welcoming workplace is critical for companies in today’s marketplace. Avoiding the reputational crises faced by Wells Fargo begins with the development of a strong culture. One building block in this process is making your training approach relevant, customizable, and engaging.