Wells Fargo sales misconduct: the CEO saw “only 1%”

The Community Bank’s sales model depended on year-over-year growth. Goals were set centrally and then pushed down through regions, branches and individual employees.

The report says leadership knew that some plans were not realistically achievable across the whole network.

They were commonly called “50/50 plans” because the expectation was that only about half the regions would meet them.

Once the goals were set, employees were ranked against one another, and incentive compensation and promotion opportunities were tied to performance against those goals. The report says this system created intense pressure, which some local and regional managers intensified further.

“Jump into January” began in 2003 as a campaign to start the year with strong sales. Daily targets were higher in January and stronger activity was emphasized and rewarded.

Witnesses described how the campaign changed over time and became associated with lower-quality behavior.

Employees identified friends and family as January prospects and also described “sandbagging” accounts that could have been opened in December so they would count in January.

The report’s data analysis also found January funding rates below the monthly average from 2008 onward, and higher employee turnover around the campaign period.

In Arizona, witnesses described frequent sales calls and rallies, with campaign-style pressure extending beyond January under names such as “Fly into February” and “March into March.”

The report also discusses a quality measure called the Rolling Funding Rate, which tracked the share of newly opened checking and savings accounts receiving more than a minimal customer deposit.

An Arizona leader argued against trying to reach a 100% funding rate and directed branches to stay above the minimum 87.5% standard instead.

The same leader was regarded as a strong sales performer, presented methods at internal meetings and was visited by executives from other regions, showing how high-pressure practices could be treated as successful models.

Long before the scandal became public, Carrie Tolstedt had identified a basic incentive-design risk.

In a 2004 email to John Stumpf, she argued that cross-selling needed an appropriate incentive structure and more than a single performance measure. Paying bankers only for sales volume, she warned, was “asking for trouble.”

The report then states that Tolstedt later failed to follow her own advice about the risk of rewarding sales volume without sufficient quality controls.

The point is not that she foresaw the later unauthorized-account scandal in detail. It is that the general risk of single-metric sales incentives was already recognized inside the business.

Shearman & Sterling reviewed 1,341 internal-investigation records involving employees whose cases resulted in termination or resignation. The records included unauthorized account openings, record falsification, funding manipulation and accounts that did not meet customer needs.

Friends-and-family accounts appeared repeatedly in those files.

In one case, a branch manager’s teenage daughter had 24 accounts, an adult daughter 18, a husband 21, a brother 14 and a father four — 81 accounts in all.

The report does not say that all 81 accounts were unauthorized. It presents the example in the context of employees using friends and relatives to help meet sales targets.

The internal-investigation records also show employees manipulating customer contact information to avoid negative quality-control feedback.

Some entered false phone numbers or substituted their own email addresses so customers would not receive surveys.

In one branch, a manager instructed employees to alter contact information, and at least 192 customer phone numbers were deleted to frustrate customer surveys.

This was one branch-level example in the investigation records, not a company-wide total of 192 cases.

In 2011, Community Bank HR leader Debra Paterson began a sales-integrity project involving HR, Internal Investigations, sales, Compliance and the Law Department.

The project delivered findings and recommendations to Tolstedt’s management team in 2012.

It reported that the employee-evaluation system used by branch and district managers contributed to sales pressure and fear of job loss, which in turn encouraged improper sales behavior.

The project leader recommended, among other things, not raising sales goals further, eliminating teller referral goals and reconsidering incentive compensation. Major changes were limited: teller referral goals remained, 2013 targets fell only slightly, and changes to incentive qualification remained modest.

The report concludes that Tolstedt tightly controlled negative information about the Community Bank and discouraged sharing concerns outside the business unit.

One example involved regional leader Lisa Stevens, who discussed sales goals and sales pressure with Chief Risk Officer Michael Loughlin.

According to the report, after learning of those conversations, Tolstedt told Stevens to stop speaking with people outside the Community Bank, including Loughlin.

Tolstedt did not participate in an investigative interview on advice of counsel, so the article treats the underlying account and the Committee’s broader assessment as distinct forms of evidence.

In 2012, Corporate Security leader Michael Bacon wrote that EthicsLine reports, complaints to senior management and confirmed fraud were increasing and needed continued escalation to senior management.

Community Bank risk leader Claudia Russ Anderson objected to how the issue was being characterized.

Russ Anderson responded that Bacon’s presentation made the problem sound “so much worse than it is.”

The report later concludes that Russ Anderson did not adequately escalate sales-integrity issues and related terminations to enterprise risk management and the Board.

By late 2013, CEO John Stumpf had been told that roughly 1,000 Community Bank employees a year — about 1% of the workforce — were being terminated for sales-integrity violations.

The report says he initially interpreted the figure positively.

Stumpf took the fact that roughly 1% were being terminated to mean that the other 99% were doing their jobs correctly.

The report says he does not appear to have initiated a follow-up investigation or inquiry in 2013 or 2014. In a 2015 email after the Los Angeles City Attorney filed suit, he wrote, “This is not systemic.” During the later investigation, however, Stumpf acknowledged that, in hindsight, even 1% was too high.

After the Los Angeles City Attorney sued in May 2015, the Board’s Risk Committee asked management for a detailed presentation. Stumpf himself requested figures on how many employees had been terminated for sales-practice violations.

A draft presentation included the statement that about 1% of regional-bank employees had been terminated for sales-integrity violations in 2013 and 2014, but that figure was removed before the meeting.

At the May 19, 2015 Risk Committee meeting, management presented a figure of 230 employees from a specific investigation; Internal Investigations had Community Bank-wide sales-practice termination and resignation counts of 1,229 for 2013 and 1,293 for 2014.

The 230 figure was not itself false. It referred to a particular 2013–2014 investigation that began in Southern California and expanded across retail banking. The Committee’s criticism was that the Risk Committee had asked for the broader figures, which were readily available but went unmentioned, creating what the report called an inaccurate picture of the problem’s scope. Several directors later said they felt misled.

By 2016, more complete numbers were finally reaching Board committees. In May, the Audit & Examination Committee received accurate figures showing 1,327 Community Bank terminations or resignations related to sales-integrity violations in 2014 and 960 in 2015.

The 2014 count of 1,293 in Sticky 11 was available during preparation in 2015; 1,327 appears in the May 2016 report. These passages do not explain the difference.

The longer cumulative figure, however, arrived through the external settlements.

On September 8, 2016, the Board first learned through the CFPB settlement that about 5,300 Wells Fargo employees had been terminated for sales-practice violations between January 1, 2011 and March 7, 2016.

The approximately 5,300 figure covers sales-practice violations broadly; it does not mean every employee was terminated for opening an unauthorized account. After the settlements, Board members pressed to eliminate retail product sales goals. Management announced the change on September 13, and the Board later pushed the effective date forward from January 2017 to October 1, 2016.