Risk Consulting and the Wells Fargo Sales Scandal

Wells Fargo recently released an 110-page report, prepared by Shearman and Sterling, outlining issues around its Community Bank business unit's (CBBU) improper sales practices resulting in senior level terminations and clawbacks of executive compensation in excess of $180 million.

The report reveals that even though Wells Fargo was adopting some of the best practices in enterprise risk management and regulatory compliance, the organization still encountered significant issues due to a systemically poor culture of integrity in its Community Bank business unit (CBBU).  The root cause of the issues at Wells Fargo's CBBU was an aggressive sales culture that put undue pressure on salespeople to cheat by opening unwanted, unneeded or even fake accounts to meet sales targets.

The issue highlights a shift in regulatory focus away from technical, rules-based standards toward more subjective, value-based approaches.  Value-based regulations require organizations to prove that organizations not only comply with all applicable technical rules and reporting guidelines but also must demonstrate the effectiveness of the compliance program, itself.  This may involve demonstrating the existence and proper functioning of regulatory change management programs or it may involve proving the depth and breadth of ethical leadership in sustaining an enterprise-wide culture of integrity.