A few days ago it was revealed that Wells Fargo Bank fired about 5,300 relatively low level employees for opening up unauthorized bank accounts. Tuesday Well Fargo’s CEO John G. Stumpf testified before the Senate Banking Committee. His testimony and facts revealed about this current scandal (and there will be more like it) reinforce an argument I have been making for some time – we need to put some CEO’s in prison. Let’s explore.
The only way to stop corporate corruption – make no mistake that is what we are dealing with – is at its source and that is the senior executives very much including the CEO! Fining the corporation is folly; the customers generate the revenue with which the corporation pays the fines so effectively they end up paying the fine not the executives who transgressed.
The Wells Fargo scam was particularly distasteful in that the top brass had the underlings doing the dirty work that greatly enhanced their bonuses. Here is what happened in a nutshell. Wells Fargo instituted a cross selling program, assigned unrealistic quotas to front line personnel and then pressured them to achieve said quotas to the point that they fraudulently opened account relationships that were not authorized by the customer.
Now let’s look at how a bonus program works. It is not that different from pyramid sales. The “bonus dollar” is divvied up down the line. The front line person who actually does the work gets a piece and so does every superior up the corporate chain of command; the more people who report to you the larger your bonus. Add to that the fact that senior management designs the program often skewing the distribution of bonus dollars to benefit themselves. Wells Fargo senior executives made huge bonuses off this program. All they had to do was pretend the numbers were real and accept the money; the dirty work was done several rungs below them on the corporate ladder.
When the proverbial feces hit the fan senior executives were left with deniability and actually fired those they had exploited to do their dirty work. 5,300 Americans lost their jobs; many of them hourly employees who were far from high wage earners.
My first real job was in commercial banking back in the 1970’s. Cross selling is neither new nor immoral, especially in a business like banking. If someone had a depository relationship with your bank and enjoys the experience it is perfectly legitimate to expand that relationship by lending them money or having them open up another account(s). The immorality came in when the new relationships were fraudulent and unauthorized by the customer. The reason the fraud occurred is that senior management placed pressure on the front line people. Make your number or lose your job was the word around the water cooler.
The scandal went on for 5 years and involved 2 million accounts. Good work by Los Angeles City Attorney Mike Feuer’s office and the Los Angeles Times broke it recently. When it broke no senior executives were fired or forced to pay back bonuses. In fact the division head involved, Carrie Tolstedt, was allowed to retire with a $125 million retirement/buyout package. Stumpf was paid $19.3 million in salary and cash bonuses in 2015. Who says crime doesn’t pay?
Putting 5,300 tellers and branch managers on the street neither solved the problem of corporate corruption nor helped the economy. What would go a long way toward cleaning up ethics issues in American business would be to jail some CEO’s. That applies to financial and environmental crooks. A kid sells a few ounces of marijuana and the felony conviction follows them for life. A low paid bank employee opens an unauthorized account in order to keep his or her job and they end up getting fired anyway. A bank CEO pockets millions in fraudulent bonuses and he gets to keep his eight figure job. There is something morally wrong with that picture!
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