Financial Accounting: The Wells Fargo Scandal

CNN Money reports that Wells Fargo “has the highest market valuation among any bank in America, worth over $250 billion” (Egan, 2016, p.1). A company worth billions definitely warrants investment attraction from existing and potential shareholders. According to CNN Money “5,300 Wells Fargo employees were fired over two million phony accounts that were created since 2011, unknowingly in existing customers name” (2016, p.1). Essentially, customers were not aware that there duplicate accounts in their name or the different bank products they had signed on for. It was truly disheartening reading about the Wells Fargo scandal, because the gluttonous behavior the employees displayed, was a similar feel with that off the Countrywide home loan scandal.

I find it difficult to believe that the managers were not aware of the reoccurring fraudulent activities. A bank’s work environment is highly commensurate with that of a sales environment. Banks often have sales objectives aimed at credit cards, lines of credits, mortgages, and more. Therefore, with my experience working in the sales industry, I imagine that there are unattainable sales goals that are set and managers create pressure onto the employees to hit unrealistic sales goals. The agency problem plays a significant role since managers know that if their branch hit their sales goals it looks good to upper management, thus creating job security with the company. In the assigned lecture, Dr. Parnell defines agency problem as “a situation in which a firm’s managers, the agents of the owners, fail to act in the interest of the shareholders” (2016). The managers failed to act in the best interest of the shareholders by withholding any communication of the fraudulent behavior, since they did not report any suspicions to upper executives. This behavior could have been prevented if Wells Fargo managers created a harmonious work culture that did not value numbers over

A work culture that hones in on ethics would be ideal. I believe that Wells Fargo should communicate any perilous behavior to shareholders, especially if the issue affects thousands of employees and customers. Therefore, Wells Fargo also needs to implement transparency in their core values. The American Banker suggest the “company appoint a new CEO and a new CFO” (Lukomnik, 2016, p.1); which already seems to be an effective step to recovery, since CNBC News recently reported that “former CEO John Stump abruptly retired and COO Tim Sloan is now the new CEO” (Wang, 2016, p.1). As a banking customer, it is imperative to trust your banker and the banks’ business practices. Ultimately Wells Fargo need to re-establish trust with its banks customers, which will be a longer