Fraud at wells Fargo: An Ethical Analysis
From 2002 to 2016, Wells Fargo employees were involved in massive fraud, in which several accounts were opened fraudulently in customer names, fake credit cards and bills were issued, signatures were forged, and fake personal identification numbers were created for customers. The reasons behind the fraud and the manner in which the bank officials handled fraud cases portray serious unethical business conduct both towards the customers and towards the investors.
The fraud that occurred at Wells Fargo between 2002 and 2016 was reportedly the employees’ way of responding to pressure. Flitter (2020) reports that during that period, the management at Wells Fargo subjected the employees to unrealistic targets, creating what was the equivalent of a pressure cooker environment. Meeting targets was applauded regardless of the means through which the targets were met. This pressure resulted in the decision of the employees to use any method to realize their targets (Flitter (2020). Poor remuneration at the bank additionally motivated more fraudulent actions by the employees. The bank increased the targets for the employees each year without consideration of the clear signs that they were unrealistic.
The actions of the bank after realizing the fraudulent activities that had occurred reflected a lack of concern for the investors and the customers. Upon the realization of the employees’ fraudulent activities, the bank did not take action towards notifying the customers of what had happened (Flitter, 2020). Instead, various actions were taken to deal with the fraudulent employees internally. Most of the employees were subjected to disciplinary measures. Thousands of employees were terminated on account of falsifying records while thousands more were disciplined in other ways such as through suspensions (Flitter, 2020). To hide the issues at the bank from the investors, the bank did not inform them of the fraudulent activities or the actions taken against employees but instead changed the company’s public description in efforts aimed at cross-selling (Flitter, 2020). The company also engaged in other actions including closing multiple customer accounts without customer authorization as part of the efforts to clean up the fraudulent activities that had occurred previously (Flitter, 2020). The investors, therefore, made decisions based on misinformation over the last five years of the fraud issues. Any concerns raised by various executives about the bank’s actions in response to the fraudulent activities were ignored by the executives at the helm of the bank’s management (Fritter, 2020). These actions indicate the bank’s focus on its self-interests without consideration of the effects of the fraud and the bank’s responses to it on other stakeholders, specifically customers and investors.
Ethical Analysis of Fraudulent Activity at Wells Fargo
The actions of Wells Fargo at different stages of the fraudulent activity indicate violations of moral obligations in several ways. To better understand the ethical concerns around the bank’s activity, various ethical perspectives have been used for analysis including utilitarianism, deontological ethics, and Kantian ethical perspective.
From the background story, it appears that all actions at Wells Fargo, both by the employees who engaged in fraud and the management who responded to the fraud in various ways, were driven by ethical egoism. The principle of ethical egoism is that an action is deemed right/ethical as long as it satisfies the pleasure of the actor (Shaver, 2019). In this case, the actor does not care about the effects of their actions on others or the reactions of others to those actions as long as they are satisfied. For the employees at Wells Fargo, their primary goal was to beat the targets set by the bank and later to satisfy their selfish needs. The lack of consideration for the harm done to customers and its effects on bank reputation were indications of virtue egoism, in that they felt they were doing right because their desires to meet targets were fulfilled. Similarly, the management at Wells Fargo acted in a morally unacceptable manner by hiding the truth from investors and changing the company’s public profile in a bid to protect the bank’s reputation and sustain investor support even after knowing that the bank’s status was not accurate as portrayed. The bank therefore knowingly subjected investors to misinformed decision making, which was harmful to the investors’ finances, confirming ethical egoism as their motivation. To the ethical egoist, the only motivation is that an action should be able to satisfy the greed of the actor (Shaver, 2019). Hence, all the pain felt by the recipients of the actions was meaningless to the bank.
The utilitarian perspective of ethics focuses on the outcomes of an action. It is described as a consequential ethical perspective, in which an action is described as either right or wrong depending on its outcomes (Marseille & Kahn, 2019). Ethical actions result in the greatest benefits for the largest number of people. The objective of any action according to this perspective would be to avoid harm and maximize benefits (Marseille & Kahn, 2019). As such, analyzing the Wells Fargo case based on this ethical perspective would entail a consideration of the different benefits associated with the decisions made during the case at hand as well as their negative outcomes.
Wells Fargo’s actions both during the fraud and after finding out about the fraud portray unethical decision-making when analyzed from the utilitarian perspective. First, the motivating factor behind the fraud, which was the subjection of the employees to undue pressure, was unethical. Subjecting employees to extensive pressure had the potential of causing emotional and psychological harm to the employees. Additionally, the clients who were being handled by the employees were also bound to have negative experiences in one way or the other, even without fraud as research has shown that dissatisfied employees in the service industry transfer their frustrations to clients (Jeon & Choi, 2012). Other actions such as providing misleading information to the investors after the fraudulence also constitute unethical conduct as that action could have affected the well-being of the investors, the customers, and possibly even the employees. The actions of Wells Fargo management were therefore unethical as they not only cause harm but the harm was also experienced by many people. Both the customers and the investors who were affected in the saga have their families, and any harm caused to them was inevitably cascaded back to their families. On the other hand, only the bank benefitted from its actions both during the fraud (as high targets were met and the bank profited) and after the fraud (attracting more investors and profiting from unduly high costs of mortgages and loans). The number of people affected negatively by the actions was therefore far greater than the number of those who benefitted, hence the actions of the bank violated the principle of utilitarianism. All the bank’s actions regarding the fraud were therefore unethical.
Kantian Ethical Perspective
Kantian ethics is based on principles that focus on the morality of action itself. While Kantian ethics do not emphasize moral absolutism, they focus on the consideration of action as right or wrong based on common characteristics defined by a categorical imperative (Schulzke, 2012). The imperative describes ethical action as any action that satisfies the requirement for universality, which is defined based on the two premises of reversibility and consistency (Schulzke, 2012). Consistency relates to the fitness of the action for all people at all times. The questions to be asked to determine the consistency of the actions at Wells Fargo include whether the fraud that occurred at Wells Fargo is something that would occur at any other bank, whether the responses of the management at Wells Fargo to the fraud case reflected the possible responses of any other financial institutions to a similar case, and whether both the fraud and the responses would be acceptable when meted to anyone across the world. The fact that no other bank engaged in fraud as part of its day-to-day operations and that there was a public uproar regarding the actions of the bank suffice to confirm that these actions were out of the norm and thus violate the principle of consistency. Similarly, the actions violate the golden rule as it is obvious that the executives at the bank would not want to be on the receiving end of similar actions. The golden rule states that one should do unto others what they would be happy if done to them. The golden rule is often used as the determining factor for reversibility in Kantian ethics as it points towards impartial decision-making in an ethical dilemma. Since the actions of the bank violate both premises of consistency and reversibility, it is concluded that the actions were unethical.
The deontological ethical perspective similarly focuses on ethicality based on rules and regulations. Since deontological ethics focus on the rightness and/or wrongness of action itself, social rules and regulations are often used as pointers to the right actions (Playford, Roberts & Playford, 2015). Actions that adhere to social rules such as federal and state regulations are considered right. The actions of Wells Fargo both during the fraud and after the fraud were against the law as evidenced from the results of court proceedings, through which the company was compelled to compensate its customers to the tune of $ 3 billion in criminal charges (Fritter, 2020). The illegality of the actions, therefore, makes them unethical.
Ethical conduct in business is one of the key determinants of business sustainability and performance. Unethical conduct harms the reputation of businesses, resulting in losses of clients and profits. Wells Fargo gives a perfect example of the detrimental effect of unethical conduct based on the fraudulent activities of the company’s employees and the equally unethical responses of the company’s management to the fraudulent acts of its staff. The actions of Wells Fargo staff during the fraud and the responses of the company’s management have been shown to violate all the principles of ethical conduct based on major ethical perspectives including utilitarianism, Kantian, and deontological ethics. The actions were only aligned to the principles of ethical egoism, indicating the underlying greed and desire to satisfy the self-interests of the employees towards achieving targets and of the bank executives towards sustaining investment and maintaining organizational reputation. Such outcomes cannot be ascribed to a rational and ethical business, and the impacts of those actions on the reputation of Wells Fargo are understandable.
Flitter, E. (2020, Feb 21). The price of Wells Fargo’s fake account scandal grows by $3 billion. The New York Times. https://www.nytimes.com/2020/02/21/business/wells-fargo-settlement.html
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Marseille, E., & Kahn, J. G. (2019). Utilitarianism and the ethical foundations of cost-effectiveness analysis in resource allocation for global health. Philosophy, Ethics, and Humanities in Medicine, 14(5). https://peh-med.biomedcentral.com/articles/10.1186/s13010-019-0074-7
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Shaver, R. (2019). Egoism. Stanford Encyclopedia of Philosophy. https://plato.stanford.edu/entries/egoism/