General Discussion Questions What should business leaders take away from this scandal? What could Wells Fargo have done differently to avert this cultural meltdown? Practice of Ethical Leadership Questions Modeling Character and Values: What values did Stumpf model to Wells Fargo employees? What impact might that have on the culture of Wells Fargo? Encouraging Ethical Conduct: What behaviors can leaders model in order to encourage ethical behavior in their organization? Designing Ethical Systems: Wells Fargo did have some systems in place, like the ethics hotline, to report unethical behavior, but it didn’t work. Why do you think that is? What steps can leaders take to design systems that encourage ethical behavior rather than unethical behavior?

From this scandal, business leaders should learn to:

(a) not encourage unethical practices directly or indirectly among employees.

(b) not set unrealistic targets for employees to achieve within an unrealistic time-frame.

(c) Institute measures to prevent unethical practices.

(d) Encourage honest employees to grow in the company.

(e) Honor adherence to regulatory framework as applicable to the company.

Wells Fargo could have done differently in these manner:

(a) When the first incident of aggressive sales practice was reported in year 2004 with identified incidents from year 2002, they could have instituted measures to prevent recurrence of such incidents. Some of the practical and workable measures are enumerated in succeeding paragraphs.

(b) Convene a meeting of senior managers to provide them with appropriate guidelines so as not to repeat such incidents.

(c) Instruct senior managers to advise their juniors to refrain from any such aggressive sales practices.

(d) Investigate to determine the extent of impact of aggressive sales practices as on 2004 and take remedial actions against those who are engaged in such activities.

(e) Promote the whistle-blower method of instantaneous reporting of an incident by anyone who has witnessed such an incident.

(f) Reward employees having honesty, integrity and moral values.

Practice of Ethical Leadership Questions

CEO John Stumpf’s model was to aggressively cross-sell products by any means. While leading the bank in doing so, he had compromised on the minimum value system that any financial institution or any company must adhere to. The cultural impact that had on Wells Fargo is listed below:

(a) Employees were pressurized for resorting to unethical practices.

(b) Employees reporting matters on unethical practices were punished.

(c) The performance management/ measurement system, in effect, encouraged dishonesty in employees.

(d) The compensation system was skewed in favor of bonus.

(e) Since, the supervisors pressurized employees, the structural dishonesty within the organization was evident.

Leaders can encourage ethical behavior in their organization in the following manner:

(a) Demonstrate personal ethics in their words and actions.

(b) Instruct senior managers to strictly adhere to the ethical norms to be followed.

(c) Instruct senior managers to communicate company’s ethical agenda to the supervisors/ other junior employees within their departments/ sections.(d) Monitor adherence to / violation of ethical practices on a regular basis.(e) Institute immediate remedial measures to prevent recurrence of any unethical practice.

(f) Encourage employees to report incidents of unethical practices.

(g) Reward honest and hardworking employees.

Well Fargo’s system of ensuring Ethical System within the bank, such as ethics hotline to report unethical behavior did not work because, the top management, led by the CEO did not pay any importance to prevention of unethical practices. Rather, they steered in an organized and structured manner to promote unethical practices.

Leaders can take the following steps to design systems that encourage ethical behavior:

(a) The top leaders must “think ethics”, “speak ethics” and “act ethics”. This is the top most fundamental step in the direction of designing systems to encourage ethical behavior.

(b) Matters on “what is ethical and what is not ethical” must be circulated across the organization.

(c) Periodic briefing must take place from the top management to the junior most employees in a structured and organized manner.

(d) Encouragement on reporting (whistle-blowing) incidents of unethical practices must be given.

(e) System of rewarding honest and hardworking employees must be put in place.

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