Fraud is Not an Ethical Dilemma: Avoiding Scams Like the Wells Fargo Fake Accounts

by | Nov 29, 2016

Clear moral principles, such as honesty, make the right—the self-interested, win-win—course of action so much easier.

When the Wells Fargo fake accounts scandal—two million unauthorized accounts created for clients by bank employees under an unrealistic incentive scheme—erupted earlier this fall, I wasn’t compelled to blog about it. Yes, it was major scam that had been going on for more than a decade and led to the firing of 5,300 Wells Fargo employees and the resignation of CEO John Stumpf. Yet, it did not qualify as an interesting case for classroom discussion for me (except perhaps at the very beginning of my business ethics course). Why not? Because the case presents such a straightforward fraud that anyone having a basic grasp of ethical principles could not find it a challenging managerial moral dilemma, just a blatant moral breach. However, it did happen and went on undetected for several years, and thousands of low-paid employees succumbed to the sales pressure in the hope for incentive pay. So it is worth discussing the ethical principles involved and how such a large-scale fraud could have been avoided.

Former CEO Stumpf’s financial compensation was also tied to the achievement of the aggressive sales goals, which were apparently more than 20 times higher than those of competitors (according to one report, 7,500 new accounts per a branch each quarter, versus 300 new accounts for a competitor’s branch). Large personal financial gains can be tempting for a CEO and other executives, even when based on unrealistic, fraud-inducing incentive schemes for the rest of the employees, as at Wells Fargo—but only as long as they are willing to evade the moral principles involved.

Once an executive (or a manager or a front line employee) identifies the relevant moral principles, the choice of action becomes clear, and the moral dilemma vanishes. The central principle in Wells Fargo’s case is honesty, which in Ayn Rand’s definition means not faking reality to gain a value. The faking at Wells Fargo, from the CEO on down, was the pretense that creating unauthorized savings, checking, and credit card accounts equaled real sales. The value they hoped to gain was the incentive compensation from the phony sales.

But as Rand explains (and I elaborate in my book), values cannot be gained by faking reality. Although executives and other employees managed to obtain financial incentives for a while from faking, in the long term, they lost it all. The front line employees lost their jobs and Stumpf was forced to resign (or he would have been fired, too). All hurt their reputations, and their job prospects are poor. Although the frontline employees may find excuses from having merely done what managers and executives “forced” them to do under the incentive plan, they were still free to refuse and go work elsewhere instead, and maybe even blow the whistle on such a fraudulent practice. Potential future employers would be wise not to hire the former Well Fargo “yes” employees—unless they can show that they learned from the experience and have embraced the principle of honesty.

Stumpf is financially independent and does not need a new job for financial reasons (he walked away with $130 million); however, his reputation is ruined for the rest of his life. As the CEO, he had no excuse of ‘just obeying orders’—he was the one who created or at least sanctioned the orders and the dishonest incentive plan that faked reality. He is utterly disqualified for any CEO or other executive jobs. There is also the potential of law suits (on which I don’t have expertise to comment but hope that Stumpf will he held liable—which the Board’s lack of oversight may prevent).

Clear moral principles, such as honesty, make the right—the self-interested, win-win—course of action so much easier.

Clear moral principles, such as honesty, make the right–the self-interested, win-win–course of action so much easier. Had Wells Fargo’s Stumpf grasped this from the outset, the dishonest incentive schemes and the fake accounts debacle would have been avoided.

Changing an organizational culture that condones immoral practices can be more challenging. Getting rid of Stumpf and the managers and front line employees who chose to go along with his plan was a good first step. One can only hope Timothy Sloan, Stumpf’s successor and long-term Wells Fargo employee, has a clearer grasp of moral principles and objective moral values and wherewithal to change the bank’s culture. He would be wise to follow the model of BB&T, where former CEO John Allison built a strong ethical culture based on his own rational values.

Jaana Woiceshyn teaches business ethics and competitive strategy at the Haskayne School of Business, University of Calgary, Canada. How to Be Profitable and Moral” is her first solo-authored book. Visit her website at

The views expressed above represent those of the author and do not necessarily represent the views of the editors and publishers of Capitalism Magazine. Capitalism Magazine sometimes publishes articles we disagree with because we think the article provides information, or a contrasting point of view, that may be of value to our readers.

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