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Final Ethics Paper: Case Study

  1. Summary of the situation

Wells Fargo and Company is a publicly traded American multinational that deals in financial services. In 2017, the company was hit by what has come to be known as the fake account scandal. The company acted unethically and fraudulently by secretly opening fake bank and credit card accounts for thousands of its customers. This illegal and unethical practice was so widespread that by early 2018 it was found that 3.5 million fake bank and credit card accounts had been opened in their names of customers without their authorization or knowledge. Of the 3.5 million fake bank and credit card accounts, it was estimated that 190,000 accounts had been unnecessarily billed. The scandal was damaging for hundreds of thousands of customers with 528,000 customers being enrolled in an illegal online pay bill. Furthermore, over 570, 000 bank clients were forcefully enrolled into unauthorized auto insurance with tens of thousands (20,000) of these borrowers having their vehicles repossessed due to the fictitious insurance costs.

The unethical practice at Wells Fargo and Company has its genesis in actions of the higher-level management at the time. The CEO, John Stumpf, and other c-suite executives forced great sales pressure on lower level employees at the company. Lower level employees were a given a target to achieve with each required to create 8 accounts per the company’s customer. This tremendous pressure led to the creation of millions of fake bank and credit card accounts. The lower level employees did this out of the fear that would be rendered jobless if the demands of the CEO and higher-level management were not made. The fake accounts scandal profited the CEO and higher-level management individually. John Stumpf’s shareholding in Wells Fargo grew by over $200 million.

  1. What went wrong and why-Final Ethics Paper: Case Study

What went wrong was fraudulently opening fake bank and credit card accounts for customers with neither their knowledge nor authorization. It was wrong because it was misuse of customers’ personal details for personal gain. It was an unethical way of pursuing business success and profits because it breached the virtue of honesty that as a characteristic of ethical business practice.

The unethical problem was breaching the Consequentialist framework.  The Consequentialist framework is focused on the future effects that a particular course of action will elicit. Consideration is placed on the people who will be both directly and indirectly affected by the course of action. Ethical conduct is considered to that which will produce the best consequences for people both directly and indirectly. Ethical approaches under this framework are utilitarian, egoistic and common good approach.

The unethical problem of fake accounts scandal went against the utilitarian approach to Consequentialist ethical framework. The premise of the utilitarianism approach to ethics is that “actions are right in proportion as they tend to promote happiness, wrong as they tend to produce the reverse of happiness (John Stuart Mill, n.p). The utilitarian approach demands that a person should seek to take a course of action that will produce maximum happiness for most people and minimum pain for most people. The fake accounts scandal at Wells Fargo went against the basic tenet of utilitarianism or the greatest happiness principle. Utilitarianism focuses on the consequences of an action. The CEO and higher-level management of the company sought to maximize profits of the company but they committed illegal and fraudulent actions whose consequences produced unhappiness for many people and stakeholders. The actions committed by the higher-level management through the lower-level employees were an unethical because they produced overall unhappiness for hundreds of thousands of customers and other stakeholders. Direct customers of the company were negatively affected with 528,000 customers being illegally enrolled in an online bill pay without their authorization. Also, the actions created unhappiness for thousands of customers numbering about 190, 000 who were forced to pay unnecessary fees they knew nothing about. Hundreds of thousands of direct customers had to deal with the discomfort and unhappiness of fake bank and credit card accounts being opened in their names.Final Ethics Paper: Case Study

Furthermore, the actions surrounding the fake accounts scandal were unethical because they did a lot of harm for a wider ecosystem of stakeholders including the shareholders, employees and the government. This was in contravention to the principle of utility formulated by Jeremy Bentham and which states that “human actions and social institutions should be judged right or wrong depending upon their tendency to promote the pleasure or happiness of the greatest number of people” (Bentham). The actions were wrong because they produced unhappiness for the company, management and employees. The company suffered considerably following the disclosure the fake accounts scandal. The suffering has been in the form of hefty fines imposed upon it by industry regulators. The company was forced to pay $185 million as fine imposed by the Consumer Financial Protection Bureau (CFPB). Also, the company has faced numerous class action lawsuits from customers. Besides lawsuits and fines, the company’s stock price plummeted to new laws wiping away paper wealth for shareholders. Furthermore employees and management were forced to grapple with a depressed reputation of the company. The scandal also created widespread mistrust and unhappiness among members of society, government and other investors in the financial services industry. Government mistrusts the ability of providers of financial services to self-regulate. Calls of greater regulation of the industry have emanated from members of society who mistrust the industry and fear many scandals may plague the industry in the future.

  1. Specific recommendations for successfully resolving the problem:Final Ethics Paper: Case Study

I would recommend that the management would have used the deontological or duty-based ethical framework of decision making to resolve the problem. The management and the lower-level employees who perpetrated the scandal should have acted with maximum rationality and discouraged fraud through the adoption of goodwill. Immanuel Kant is categorical that “Nothing in the world, indeed nothing even beyond the world, can possibly be conceived which be called good without qualification except a good will” (Kant’s deontological ethics). This proposition by Kant promotes the idea that we should seek to do what is considered right because doing good is the right thing to do. The CEO, higher-level management and the lower-level employees for Wells Fargo and Company were guilty or ignoring the good will premise. Instead, they focused on profit maximization at all costs including creating fraudulent accounts. Even though it was the duty of the company to protect the welfare of the customers and other stakeholders, they ignored this duty and went in overdrive of maximizing profits off the details of thousands of customers. Wells Fargo failed to do what was right and expected of them. Adherence to good will would have resulted in the company’s top hierarchy protecting customers at all costs and doing what was right for the right reasons.

Furthermore, it was the duty of the company to avoid encouraging and committing fraud. The company would have achieved by adhering to the Kantianism principle of Formula of Humanity. This principle states that “act in such a way that you treat humanity in your own person or in the person of another, always at the same time as an end and never simply as a means” (Kant’s deontological ethics). The principle opposes the exploitation of individuals to achieve a particular result. Wells Fargo and Company went against the principle of Formula of Humanity because it exploited direct customers in a well calculated scheme of fraud. The company used and exploited customers through creation of millions of fake bank and credit card accounts, unauthorized transactions, and the billing of unauthorized and illegal fees with the aim of profit maximization. As much as the end result was desired, it is not worthy pursuing at the disadvantage of key stakeholders such as customers, society, and employees. Acting rationally would have enabled the company to avoid exploitation of individuals. Instead the company would have relied upon alternative ways of profit maximization that are within the confines of ethical conduct. Abetting and committing fraud was purely irrational and against the principles of Kantianism or deontological ethical framework of decision making.

  1. Tempered radical (critical theory) approach (Zanetti, 2008)

Lisa Zanetti presents what she calls a critical approach to ethics. Some of her propositions agree with my case study. One of her theory’s component that agrees with my case study is the practices of responsibility. Zanetti notes that practices of responsibility place responsibilities and people “in context with respect to one another” and that “by pushing toward transparency, unequal, unfair, destructive and exploitative practices become revealed” (Zanetti, 2008). Zanetti’s proposition is that transparency is powerful because it reveals what is happening behind the scenes and causes embarrassment. The net effect of practices of responsibility is that they create opportunities for individual, corporate, or societal transformation.

The fake account scandal at Wells Fargo was due to irresponsibility on the part of the CEO and other c-suite-executives. The creation of fake bank and credit card accounts was an opaque undertaking that was not known to customers until the scandal became public. If the company had acted in a transparent manner, all the exploitative practices would have been revealed before they took root. This calls for transparency in executive decision making for companies as a way of preventing fraud and exploitative decisions. Furthermore, access to companies decisions by key stakeholders as a way of promoting transparency and dissuading fraud. It will possible to detect decisions that abet fraud and exploitation if key stakeholders can access them prior to their implementation. A whistleblower mechanism is also critical in promoting transparency. Lower level employees were in a great position to report fraud encouraged by the company’s management before it ballooned out. This would have been possible if there was a mechanism of protecting whistleblowers and safeguarding their positions.

Under the practices of responsibility component, every stakeholder is given specific responsibilities that they are expected to carry out. Failure to fulfill the expectations of their responsibilities will be theirs to carry. In my case, both the management and lower-level employees had individual responsibilities which they ignored to carry out. The management had responsibility of not using underhand tactics to achieve profit maximization. Likewise, employees had the responsibility of not being used as purveyors of fraud. Therefore, it was necessary to push towards transparency so that everyone’s responsibility could become clear to all the stakeholders.Final Ethics Paper: Case Study

 

References

Summary of Utilitarianism

Summary of Kant’s DeontologicalEthics

Zanetti, L. A. (2008). Practicing Critical Theory in Public Administration Ethics. Critical theory ethics for business and public administration, 55-78.