Assessed Blog 8 Wells Fargo-The ethic scandal

Welcome to my final blog,thanks to the teacher and my group mates.l really stimulate a lot from blog,not only concrete my knowledge,more importantly,it has develop a habit for me to read more business news around us.

Bank industry is a really complex environment,the inappropriate corporate culture and temptation from the outside finance area will led to the serious problem happen,for instance,the improper acquisition from RBS,and the LIBOR scandal.l have introduced Warren Buffet last week who is a greatest money marker in the world,and today here is a banking called Wells Fargo make Buffett’s company lose 14 billion in just one day because of the ethic scandal.  

According to the public,the wells Fargo scandal that involving fake accounts with real customer money was a corporate scandal unlike others which is to say,the scandal not only destroy the company’s reputation,but also make the customer suffer a great lose.Moreover,Instead of a select few doing bad things, the unethical behavior was widespread at the bank, with thousands of employees engaged in secretly creating new bank and credit-card accounts for customers without their knowledge, resulting in overdraft and other fees.In the market,we always say customer’s value should be set priority,but Wells Fargo try to damage the customer wealth for pursing higher target.So far,there is about 5300 employees had been fired over this scandal and the company also been punished by the regulator,the company’s share price plummet.

(Figure 2:Share price of Wells Fargo)

Company strategy

This kind of ethic scandal is always follow the inappropriate company strategy.In order to reach the high target of the company,in Wells Fargo,the employees all try to pursue the aggressive sales goal,for instance,a “Gr-eight”initiative has been advocated which is a push to increase the average number of financial products customers held from six to eight.A customer with eight financial products!!How does this possible?This kind of strategy is based on a sell method which is called cross-sell,by recommending another product to customer who is already consume in your company.Basically,this kind of sale can increase the possibility of remaining  your customer more than who have less financial product and reduce the cost of finding a new one.So,it is been spread all over the company.

Corporate cultural

Such serious banking scandal usually have the close relationship with the corporate cultural.If such high goal set by the top management just want to motivate their employees,then it is kind of acceptable,but the truth is,the management in Wells Fargo,according to the employees,is really tough.Everyone who did not achieve the goals,will face the possibility of being fired.The successful company like Alibaba in China and Google,except for their customers,they all think highly of every employees in their company,l mean,in such working atmosphere,workers are all inspired and motivated by their corporate cultural,subsequently,they can generate more ideas or possess high efficiency in doing their work.But in Wells Fargo,employees will suffer both from the unrealistic goals and tough manage from the top manager which is the reason force them to make fake accounts.However,the banking industry is quite different from the internet finance,employee’s salary is quite close with their performance,so l believe the CEO can advocate more welfare ,by showing more concern over their workers to reduce their pressure.

Unique banking scandal and the improper penalty

Unlike the scandal of RBS which is the mistake from the chief executive led the company into failure.Wells Fargo has stole their customer information to make money for themselves,it may not make company lose such money,but it did damage the reputation of the firm’s.In today’s market,most deals are based on the trust,it is the fundamental of a company.But what to my surprise,is what Wells Fargo did after the scandal and the punishment by the regulator,only 1.85 billion dollars penalty and 5000 employees being fired,1.85 billion dollars is a really tiny number to such a bank company,especially they have made such serious scandal.Also,l wonder why there is only 5000 employees being fired,l don’t believe there is no top manager,even the CEO know nothing about the operations before.If such serious ethic problems can be solved with this degree of punishment, l may think there are more scandals like Wells Fargo are hidden from the public,just we don’t find it.

After scandal

If we look at the share price of Wells Fargo,it has experienced a dramatic increase recent month.On the one hand,we can see that the reaction of the company after the scandal is timely,it said that the scandal is direct relate to the pressure from the cross sales to the employees,and Wells Fargo has already forbid that sales method.On the other hand,according to Buffett,when we evaluate a bank company,PB is not the important thing we should consider,we need to focus on the ROA of a company,and the ROA of the Wells Fargo is far exceed the same industry,as we can see from the Figure.

(ROA of Wells Fargo)

(ROA of citibank)

To sum up,in my opinion,l suggest company that care more about their CSR management,not just their profit.Moreover, a concern over the worker is necessary.