What Entrepreneurs Can Learn from Wells Fargo’s Fraudulent Sales Scheme


According to a settlement with regulators announced on September 8, 2016, Wells Fargo Bank fired about 5,300 employees over several years leading up to the settlement for opening more than two million checking, savings, credit or debit card accounts without customers’ knowledge or consent. The bank agreed to pay $185 million in fines (the bank’s quarterly earnings were averaging around five billion dollars at the time of the settlement), refund fees paid by customers on accounts they had not authorized (average refunds ran around $25 per customer according to the bank), and hire an independent consultant to review its sales practices.  E-mails from John Stumpf, the bank’s CEO, arrived in customers’ inboxes promising that the bank was “making it right” and the bank took out ads in nearly a dozen newspapers saying that it took “full responsibility” for the actions of its employees; however, the settlement did not include any official admission of misconduct.

Wells Fargo Bank is a large and complex global financial institution and the financial impact of the penalties for this event on the bank will be de minimis.  Time will tell whether the bank or its chief executive officer will suffer any substantial reputational damage.  There are, however, some important lessons for growth-oriented sustainable entrepreneurs as to what they should be thinking about as they lead their companies with launching their first product or service and seeking the favor of potential investors:

  • Critics of the bank have argued that either the people at the top knew about the fraud and did nothing or they should have known about it but didn’t because the bank has become too large to manage. At the startup stage, no detail of the sales process is too small for the CEO not to know, even if there is a separate senior executive responsible for sales.  The CEO should be participating in sales meetings with prospective customers, proactively coaching the sales team on how to make presentations and closely monitoring the progress of events with customers in the sales pipeline.
  • The situation with the bank reinforces the truism that customers should not have to pay for products and services they don’t want or value. In addition, customers were unhappy about having to spend extra time and effort to get the transactions undone.  While startups need to close sales deals to establish credibility in the market and with prospective investors, in the long run what they need more is a base of satisfied customers who have had good experiences with the company on both of use of the products and services and resolving problems.  Any issues raised by a customer need to be brought to the attention of the CEO and resolve quickly and fairly, with a bias toward “the customer is always right”.  Reporting upward must be encouraged from the very beginning.
  • News reports on the bank situation mentioned that aggressive sales quotas had been set for bank employees and that the bank had a history of employing aggressive sales tactics, including cross-selling. Again, sales are important for every startup and there is a natural desire to build up revenues quickly.  However, sales goals need to be set at reasonable levels and incentives for members of the sales team need to be based on balanced performance metrics that include customer satisfaction and retention.
  • Pundits from the capital markets suggested that the bank might need to do some work to convince investors that the fraudulent sales transactions and the aggressive sales targets were not an indication that the bank had run out of legitimate ways to grow its business. While the leadership of a large bank is probably in a good position to assuage investor concerns—the bank’s CEO had been widely praised before the event for his performance—the startup CEO has one chance to make a good impression and needs to realize that savvy investors will always look behind sales numbers to evaluate the sales process and assess customer satisfaction.  If investors lose confidence in the numbers they are receiving from the company, they’ll soon run out of patience with the leadership of the company.
  • Experienced early stage investors will interview customers to get a sense of how the company approaches the sales process and interacts with customers. Needless to say, while Wells Fargo Bank can and will survive this particular event, a similar story for a startup will be a “curtain closer” regardless of the glitter and dazzle of the company’s product or service.  CEO Stumpf was famously quoted a year before the event as saying “I don’t want anyone ever offering a product to someone when they don’t know what the benefit is, or the customer doesn’t understand it, or doesn’t want it, or doesn’t need it.”  An amazing comment in hindsight, particularly if he was aware of what his employees were doing, but actually a sound standard for the startup CEO to impose on his or her sales team and a good metric to use when assessing the quality of customer engagement.

As part of the post-mortem on the Wells Fargo situation, commentators took to lecturing customers on what they should have been doing in order to uncover the problems before the fees began to mount.  This is all good advice; however, sustainable entrepreneurs do not put their customers in a situation where they feel compelled to monitor the actions of the company.  Customers need to be able to trust the companies from which they purchase their goods and services and growth-oriented entrepreneurs need to begin building that trust from the first day that they open the doors.

Sources: To learn more, see A. Sorkin, “The Brazen Sham No One Noticed”, The New York Times (September 13, 2016), B1; K. Pender, “Why isn’t Wells’ CEO on the hook?”, San Francisco Chronicle (September 10, 2016); and M. Corkery, “Wells Fargo Offers Regrets, but Doesn’t Admit Misconduct”, The New York Times (September 9, 2016).


Dr. Alan S. Gutterman is the Founding Director of the GSE Project (“Growth-Oriented Sustainable Entrepreneurship”) (gseproject.org) and the Business Counselor Institute (businesscounselorinstitute.org). Further information about Alan is available at https://www.linkedin.com/in/alangutterman and more materials relating to the subject matter of the post can be found here.

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