Wells Fargo is once again making national headlines for its less-than-ethical business practices.
Recent headlines bowled me over: Wells Fargo being forced to reinstate employees – whistleblowers – who reported the ethics issues to their superiors, and pay their back pay! Their Board of Directors report decision laying the responsibility of the 2 million plus unauthorized bank and credit accounts on the bank’s former CEO, John Stumpf, and the former community banking executive, Carrie Tolstedt, and levying substantial penalties and I mean substantial! I’m amazed.
The Department of Occupational Safety and Health Administration (OSHA) took some strong steps recently regarding Wells Fargo that has the bank reeling and many observers cheering them on.
On the surface, it looks pretty promising and appears the government is getting tough in holding at least some banks accountable. Let’s hope this is the start of a trend that does not go out of fashion. The decision which concerns a bank whistleblower who was retaliated against and abruptly dismissed could set a precedent for whistleblower cases that stick.
Last week, OSHA announced the largest individual whistleblower award in its history when it ordered Wells Fargo to reinstate a former Los Angeles wealth manager and pay him $5.4 million in back wages.
The manager (name undisclosed) was “abruptly” forced to leave the bank in 2010, after he told superiors he suspected two of his subordinates of bank, mail and wire fraud. The manager also called the bank’s ethics hotline. The results? Even though management encouraged employees to use the hotline, he was fired!
Last year OSHA put Wells Fargo on notice that it was considering asking for the reinstatement of Ms. Claudia Ponce de Leon, a bank manager in Southern California who was dismissed after she blew the whistle on the malfeasance she observed at the bank. This reinstatement also looks promising. Yet as one of my Bank Whistleblower United co-founders and former bank regulator William Black says “it is rare” to see reinstatements.
However, this could all signal a much more aggressive strategic approach by the government. Still, it’s ironic in that it is rare for OSHA to find for whistleblowers. OSHA may be feeling the heat and this is dictating their present decisions. OSHA had internal investigators who were told to close Wells Fargo cases, without really digging deep and fully investigating the banks’ cases of reported malfeasance. Last year, Former Secretary of Labor Tom Perez ordered a review of the bank’s cases and so this may be the beginning of more progress and reinstatements.
The case of Wells Fargo – a bank that flew under the TBTF radar, came to the public’s attention last year when it was fined $185 million to settle initial lawsuits for creating 2 million plus unauthorized bank and credit card accounts to meet unrealistic sales targets.
The fallout? The bank fired 5300 employees who were involved and paid $185 million to settle lawsuits. The bank had ignored years of internal warnings by employees about their aggressive sales practices. Those who spoke up and in some cases went straight to the top to John Stumpf, the former CEO, were fired.
Mr. Stumpf was forced to retire late last year. The bank’s Board said it would investigate the allegations and follow up on all the facts and make the findings public. (Was there a choice?) The bank faces an additional dozen plus more probes, inquiries and lawsuits linked to the scandals. The Department of Justice and the SEC is also conducting investigations.
An independent board investigation was put in place, with the Board promising to “follow the facts wherever they lead” and to make the findings public.
The results and decision: a scathing 113-page report that makes it apparent that all the warning signs of the problem had been very apparent. Shearman & Sterling, the law firm hired to conduct investigations, interviewed 100 current and former employees and reviewed 35 million documents. They found that the bank was too decentralized with department heads ( which included Ms. Tolstedt ) having virtual carte blanche, given the mantra of “run it like you own it.” They were given the authority to ignore questions from superiors, subordinates or lateral colleagues.
The bank said it would take back more than $47 million in pay from Ms. Tolstedt and $28 million from John Stumpf. This was in addition to the previous canceling of $41 million in stock options from Mr. Stumpf and $19 million from Ms. Tolstedt.
Ethics pays. However, once again, ethics and common sense were not part of this company’s code. The bank offered an “ethics” hotline expressly for the purpose of reporting behavior they suspected as suspicious or fraudulent; then they retaliated against those employees who did just that.
The 2012 Great Place to Work® Institute report claims the stock price growth of the 100 firms with the most ethical cultures outperformed stock market and peer measures by almost 300 percent. According to studies, researchers have shown that a firm’s culture is the strongest predictor of how much market value that firm will create for shareholders’ investments.
Yet, in spite of the evidence, in at least half of our workplaces, employees report seeing unethical or actual illegal practices (Ethics Resource Center). Lapses in ethics costs trust and erosion of employee confidence and customer confidence. Lack of ethics includes financial consequences as you can see from the Wells Fargo debacle – fines, loss of business, bankruptcies, and more. Yet, unethical practices continue, despite the costs.
Is the position taken by OSHA and the Board of Wells Fargo too late? Maybe.
Yet maybe it’s also a step in the right direction.
Richard Bowen is widely known as the Citigroup whistleblower. As Business Chief Underwriter for Citigroup during the housing bubble financial crisis meltdown, he repeatedly warned Citi executive management and the board about fraudulent behavior within the organization. The company certified poor mortgages as quality mortgages and sold them to Fannie Mae, Freddie Mac and other investors.
