Orenda Point of View – Wells Fargo and the Cost of Trust
January 18, 2019
Efforts over the past two years to make up for the Wells Fargo’s unethical practices has not restored lost trust from their fraudulent behaviour.
Wells Fargo employees were expected to sell products to customers that they really didn’t need in order to meet unrealistic sales targets. Eventually, out of fear of losing their jobs coupled with the growing pressure to meet their expected targets, employees began ‘gaming’ the system in order to manipulate or misrepresent their sales numbers. For over a decade an estimated 3.5 million accounts were affected by the fake-accounts scandal, where Wells Fargo employees enrolled their clients in products they weren’t aware of, where they would have to pay fees for accounts and services they did not authorize.
According to Alistair Gray’s article in the Financial Times, the entire scandal cost Wells Fargo more than $1 bn in net income from 2016-17, as well as adding $1bn in operating costs for the year to cover settlements, fines, lawyers and other professionals to deal with the aftermath. At the time when the article was published, Wells Fargo’s return on equity had hit its lowest point in nearly 7 years, with the fallout from the scandal being the main cause of the trend.
People should be able to trust their bank. When people realize that their bank engages in illegal and unethical practices to inflate their sales numbers it is a betrayal of trust. People don’t want to be treated coldly as a customer, if our bank is offering a service or product it should be in our best interest. Wells Fargo compromised their clients and the public’s trust in them. Whenever dealing with them in the future, clients will likely be sceptical if not doubtful that they can ever place all of their confidence and trust in the bank.
So, what is the cost of trust? Even after a year of down profits, paying back customers, fines, and increasing operating costs to remediate the scandal, the amount of lost clients over a lifetime factors into the total cost, the impact will be observed for decades.
When it comes to the relationship between a business and their consumers, building and maintaining trust is essential in establishing a strong brand. We also know that the strongest brands have earned and maintained trust over generations by reliably meeting or exceeding their consumer’s expectations.
For Orenda, we are curious in knowing how would this have all unfolded had Wells Fargo been working with the actual sales performance? Had sales been that poor, with the right data they could have engaged with their customers and utilize feedback to identify what services and accounts were needed and how to best win new clients by meeting those needs. The process would not have been as immediate, but if built on trust we are confident that those accounts would last for the client’s lifetime.
The alternative to the fake-account scam was for Wells Fargo to accept that they weren’t meeting targets and learn the reasons why, in this case evaluating the target benchmarks may have prevented the scandal entirely. Instead of demanding that sales people meet their targets or face punitive consequences, they could have identified the values that resonated with their client base and built rapport and sales tactics around them. Not only would accepting the truth have put them in better positions with their existing clients, but they would have taken action to help their employees develop as well. Accepting the truth and improving where required is something that strong brands do well.