This September the financial industry was hit with a startling revelation: employees of the bank Wells Fargo had created over two million ‘fake’ accounts and credit cards for their customers without them knowing it.
After the scandal was confirmed, the Consumer Financial Protection Bureau fined Wells Fargo $100 million fine. The company fired 5,300 employees in connection with the fraud. In response to the news, the Department of Justice and the Labor Department began conducting investigations, and congress held committees in attempts to discover the extent of the deception. With blame being thrown around everywhere within the bank, the question of who will be held accountable becomes all the more important. This recent scandal illustrates the complications and hollowness of corporate accountability today and the need to enforce genuine punishments on corporations and their executives.
The fraud was linked to the high pressure and quotas within the bank, which tied employee pay to the amount of accounts they got customers to open. As a result of these rules, employees began using customer’s information to open new accounts in order to meet their sales goals. After the news came to light, thousands of Wells Fargo employees stepped up to tell their stories and share their perspective on the development. Some told gruesome tales about the intense pressure to sell and occasionally of management encouraging illegal practices.
As it turns out, accountability often lags behind outrage. When former Wells Fargo CEO John Stumpf — who retired on Oct. 12 — was brought to speak before a congressional committee he faced a congress seemingly united in their scorn for him. Republicans and Democrats alike continually asked the CEO tough questions and made even harsher accusations. Stumpf used the time to apologize, admitting that he “could have done more earlier” and that the company was taking steps to eliminate unauthorized accounts. This admission didn’t seem to placate the committee, as some legislators went so far as to compare Wells Fargo to Enron and declare that it was “basically a criminal enterprise” right in front of the CEO.
Despite the magnitude of the fraud, the punishment was quite lacking. The total fine of $185 million (the additional $35 million to the Office of the Comptroller of the Currency, and $50 million to the City and County of Los Angeles) is a drop in the bucket for Wells Fargo, a company worth upwards of a trillion dollars. In one exchange with congresswoman Elizabeth Warren, Stumpf admitted that not a single high-level executive had been fired while this was taking place. The little punishment that did come was from Well Fargo’s own board. The board asked Stumpf to give up $41 million worth of stock options he had earned during the scandal while Carrie Tolstedt, a Wells Fargo executive who ran the section of Wells Fargo where the fraud occurred, will retire early and give up $19 million in stock options. Neither of these measures are too devastating for either executive; Tolstedt can retire comfortably with more than $77 million.
Punishing those responsible is a difficult task in light of the complexities of corporate structure. It is hard to pinpoint who exactly is to blame when there is a huge number of managers involved, any of which could potentially see and correct the criminal activity. As a result, executives in charge during widespread corporate illegality can often claim ignorance of the extent of the crimes and end up leaving unpunished. This was a pattern we could observe following the 2008 financial crisis, when scrutiny of the banks failed to lead to the punishment of top executives.
We have to ask ourselves how we can set about the task of holding the executive responsible in light of these complexities. It is very hard to demonstrate that an executive was involved in any individual action in the company, but for fraud this common it is reasonable to suggest that the CEO should have intervened. The key may be to introduce laws that provide punishment to those who know about activity like this and fail to correct it. Handing out serious, non-monetary sentences like prison time to executives might do a lot to encourage other executives to stop this kind of activity in the future.
Ultimately, it is hard to judge whether or not we can hold Stumpf accountable for this scandal. He was in charge and oversaw the policies that set the fraud in motion, and he did fail to take any serious steps to stop it; which is unacceptable. This, if anything, should suggest that corporate accountability needs to be reevaluated.