How Wells Fargo’s Cutthroat Corporate Culture Allegedly Drove Bankers to Fraud| Vanity Fair

An important analysis of the corrupt corporate culture that led to widespread fraud.

Hambek began to see things that shouldn’t have been happening: bankers persuading customers to take out large loans and then immediately repay part of them so that the banker could get credit for the bigger loan, for instance.

Source: How Wells Fargo’s Cutthroat Corporate Culture Allegedly Drove Bankers | Vanity Fair

Wells Fargo Accounts Probe Lets Board Off Easily But Proxy Advisory Firms Disagree – TheStreet

Ron Orol writes in The Street:

A report on Wells Fargo’s (WFC) fake-accounts scandal commissioned by the bank’s independent directors is far less critical of the company’s board than two studies issued last week by influential shareholder advisory firms. Instead, the 113-page analysis released Monday of how employees working to meet the San Francisco-based bank’s ambitious sales targets created more than 2 million unauthorized credit card and savings accounts over a five-year period lays much of the blame with former CEO John Stumpf and former community banking chief Carrie Tolstedt.

According to the report board “members believe they were misinformed” (note use of the passive voice, a telling indicator of a failure to accept responsibility). ISS sees it differently:

A report days earlier from Institutional Shareholder Services, the most influential shareholder advisory firm in the U.S., was less forgiving of the board. The firm recommended that investors vote against 12 of Wells Fargo’s 15 directors, including the four members who oversaw the investigation.

Members of two board subcommittees “failed over a number of years” to provide sufficient risk oversight at the scandal-plagued lender, the ISS report said, and the board overall failed to implement an “effective risk management oversight process in a timely way” that could have spared the bank’s reputation.

In our view, the compensation plan alone, rewarding the number of transactions instead of the quality of transactions, is sufficient reason to replace the entire board.

Source: Wells Fargo Accounts Probe Lets Board Off Much Easier Than Proxy Firms – TheStreet

Deutsche Bank Fined in Plan to Help Russians Launder $10 Billion – The New York Times

Deutsche Bank agreed on Monday to pay a $425 million fine to New York State’s main financial regulator to settle charges that it helped Russian investors launder as much as $10 billion through its branches in Moscow, London and New York.The punishment represents the latest regulatory black eye for Deutsche Bank, Germany’s largest. In the last decade, it has been implicated in several financial scandals, including pushing toxic mortgages on investors and manipulating London’s main lending rate for its own financial gain.

Deutsche Bank also agreed to pay 163 million pounds, or about $204 million, in civil penalties in a separate settlement with the Financial Conduct Authority of Britain in the matter, the bank and the regulator said on Tuesday.

In its investigation, the New York State Department of Financial Services found that between 2011 and 2015, a group of Deutsche Bank executives based mainly in Moscow and London helped wealthy Russians send money overseas by arranging stock trades that had no economic purpose other than disguising what the client was doing.

Citigroup to Pay $18 Million to Settle Charges It Overbilled Clients – WSJ

Citigroup Inc. will pay $18 million to settle Securities and Exchange Commission allegations that it overbilled investment advisory clients and lost client contracts…The SEC alleges that at least 60,000 clients were overcharged about $18 million in fees because Citigroup charged clients higher rates than the ones that were negotiated. The bank allegedly didn’t confirm that proper billing rates were entered into its computer systems over a 15-year period from 2000 to 2015.The regulator also says that Citigroup allegedly lost contracts for 83,000 advisory accounts opened between 1990 and 2012, and therefore couldn’t check whether clients were being billed at the negotiated rates.

Source: Citigroup to Pay $18 Million to Settle Charges It Overbilled Clients – WSJ

JPMorgan Chase to Pay $264 Million to Settle Foreign Bribery Case – The New York Times

Vying for lucrative deals in China, JPMorgan Chase deployed all the usual wining-and-dining tactics that big banks use to woo clients. JPMorgan, federal authorities now say, also had ways of sweetening the deal that crossed a legal line.

Federal prosecutors and regulators announced on Thursday a settlement of roughly $264 million with the bank and its Hong Kong subsidiary, accusing them of a vast foreign bribery scheme that may have spread to a number of Wall Street banks.

The case centered on JPMorgan’s hiring practices in China, where it hired the children of Chinese leaders to win business in the fast-growing nation. Some of the well-connected candidates were unqualified, the authorities said, and often “performed ancillary work” — telltale signs of hidden bribery.The case could lay the groundwork for the authorities to pursue penalties against other big banks as well. Banks including HSBC, Goldman Sachs and Deutsche Bank have hinted that they face investigations into their hiring practices in China as part of a larger sweep by the agency that began in 2013.

Source: JPMorgan Chase to Pay $264 Million to Settle Foreign Bribery Case – The New York Times

Karla Jo Helms on CSR as a Brand

VEA Vice Chair Nell Minow interviewed Karla Jo Helms for the Huffington Post:

Karla Jo Helms, CEO of Tampa Bay-based international PR firm JoTo PR, says many companies are missing opportunities to tie national or community-focused programs to the company’s bottom line.

She says that 91% of global consumers will switch to brands that support a social or environmental cause. Another 90 percent will boycott a company if they think its business practices are immoral or irresponsible. Companies like Wells Fargo and Volkswagen have suffered incalculable damage to their reputations — and their brands — due to legal and ethical violations. The trust of the consumer is as vitally important as the value of its products. Helms says that 42% of a company’s reputation is based on consumer perceptions of the firm’s corporate social responsibility (CSR) efforts. She strongly encourages companies to not only give back, but communicate their CSR activities to increase the trust and public perception.2016-11-15-1479181677-2535438-151025KarlaJoHelmsHeadshotshootbyFelixKunze2362websize.jpg

In an interview, Helms explained what helps consumers and shareholders evaluate a company’s social/environmental record and what companies can do to use CSR to enhance their brands and strengthen their relationships with the people who buy from and invest in them.

How do consumers and shareholders find out about corporate social/environmental records?

Google and other Search Engines tell the story of a company’s persona. Goodwill stories, publicity pieces, news clips of stories and social media that push out those stories, videos and pictures of corporate social responsibility efforts with comments and kudos are a big social proof factor – good news spreads.

There is no better return on investment (ROI) than third-party credibility. Media articles carrying unbiased stories about a company’s greater good efforts are one of the biggest brand strengtheners and corporate reputation protectors today. In a world where everyone is looking for their news and information from credible online sources, publicizing CSR on digital platforms gains the best word of mouth.

55% of global online consumers in 60 countries pay more for products and services provided by companies that are committed to positive social and environmental impact.

Publicity and social media are key to retaining that “memory” in the search engines.

What do data show about how they respond to companies that they feel are not in line with their social and environmental views?

Actions taken by internet users worldwide in response to a company’s CSR efforts have been studied extensively:

• Bought a product with a social and/or environmental benefit 63%
• Boycotted a company’s product/services upon learning it behaved irresponsibly 53%
• Told friends or family about a company’s corporate responsibility efforts 47%
• Researched a company’s business practices or support of social/environmental issues 37%

Again – without publicity and social media, how would consumers know?

What are some examples of companies that have lost market share due to consumer social/environmental concerns?

Volkswagen: September 2015, the EPA discovered that many diesel engines of VW cars sold in America had a “defeated software” that was able to detect when cars were being tested and to change the performance of the engine, to improve the results of the test. The company at the highest levels deliberately set out to deceive emissions control to give the company an unfair advantage over its competitors; meanwhile it was poisoning the planet.

Wells Fargo: It was found that their customers nationwide were paying fees on a ghost account they didn’t even sign up for. Federal regulators said Wells Fargo (WFC) employees secretly created millions of unauthorized bank and credit card accounts – without their customers knowing it – since 2011.

Monsanto: Monsanto has a long history of generating public ill will. Today, Monsanto is perhaps most hated for its role in creating and utilizing GMO seeds and herbicides. Just look up any memes about Monsanto or the Millions Against Monsanto on Facebook and you see the public distrust and discord.

GrubHub: A 300-word email sent to the online food-ordering company’s 1,400 employees last week by the CEO led to a viral backlash with calls to boycott the food delivery service. The hashtag #boycottgrubhub was trending on Twitter through much of the next day. Whether Matt Maloney meant to or not, he made a statement about employees’ most basic social responsibility, which was their freedom and right to vote for whom they choose.

What are the social and environmental issues that matter most to consumers?

In the New Economy, studies show that being socially responsible has become essential for companies looking to meet consumer demand. Consumers say being socially responsible is an influence in their purchase decisions, rating

o “Being green” (83%);
o Reducing consumption (81%) and
o Contributing financially to nonprofits (65%) as important actions.

A study by Cone Communications and Echo Research of 10,000 global consumers found that 91 percent of shoppers worldwide will likely switch to brands that support a social or environmental cause. On the other hand, 90 percent of shoppers will boycott a company based off moral or irresponsible business practices. Hence the backlash on GrubHub.

What are some examples of companies that have incorporated social and environmental sensitivity in their brand messaging?

Starbucks: Starbucks did practically no advertising, but built its brand through good PR efforts. When annual sales hit around $1.3 billion, their advertising expenditures over a 10-year period totaled less than $10 million. See their site for all their CSR efforts and awards they do around the globe.

TOMS: Privately-owned shoe maker TOMS built its business model around social responsibility, giving a pair of shoes to a child in need for every pair purchased. Tom’s has given over 60 million pairs of shoes to children in need. (NOTE: Tom’s Shoes sell for $40 – $140 per pair.)

Nutiva: Nutiva aligns their CSR program with environmental and sustainability issues. Before ‘social responsibility’ was a Silicon Valley buzzword meant to put a face on faceless companies, John Roulac, CEO of Nutiva, has not only been outspoken about health fads and mainstream environmental causes, but has thrived on them, creating an empire.

Should CSR branding be closely tied to the industry or product?

What does your company do that can help in a broader way throughout the nation or in your own community? Does it align with your passions and the purpose of your company? What is your story for supporting it? If it doesn’t align with your company’s direction, you are really going to have to tell your story for getting behind it even better. CSR for the sake of CSR is as distasteful to the consumer public as lying, so companies need to have their CSR efforts make sense to the consumers and easily connect the dots on WHY they are doing it.

But sometimes it is the passion of the CEO that drives it – or a nationwide issue that employees get behind. Like with Outback Steakhouse (OSI Partners, LLC) when they made a $1 million donation in 2010 to Operation Homefront, a non-profit organization providing everyday and emergency support for active troops, veterans and their families. In June 2002, OSI launched Operation Feeding Freedom, sending a team of 15 Outbackers to Afghanistan to feed American troops stationed there. Over 100 members of the OSI team made another six trips serving troops in Djibouti, Afghanistan, Iraq, Kuwait and aboard the USS Nimitz in Bahrain. Overall, 137,000 troops were served at numerous bases and forward command locations. But as you can see, it still involved feeding people, so aligned with Outback Steakhouse’ line of business.

I have never been one to advocate PR for the sake of PR. In fact – I hate PR for those reasons. Public relations done to manipulate public opinion is for the birds, a crapshoot and the truth be told, the public can see right through it when it is superficial. So make it align – and if it doesn’t, really tell the story, because you will have to connect the dots for your consumers.

Five Steps for Wells Fargo to Rebound from Scandal | Bank Think

Jon Lukomnik has some good advice for Wells Fargo.

Wells Fargo has been knocked off its pedestal, but it is imperative that the company move forward and put this episode behind it.

His recommendations include replacing the CEO and CFO (we would add the head of HR who designed or approved the compensation that incentivized the creation of the fraudulent accounts) and installing a board-level independent monitor.

Source: Five Steps for Wells Fargo to Rebound from Scandal | Bank Think

How Wells Fargo exploited a binding arbitration clause to deflect customers’ fraud allegations – LA Times

[T]he most important consequence of Wells Fargo’s over-reliance on arbitration is that it brings home the drawbacks of allowing big businesses to saddle their customers with clauses the latter probably don’t read and certainly don’t fully understand. If Congress wishes to extract a silver lining from the Wells Fargo scandal, it could do worse than outlawing binding arbitration that keeps aggrieved consumers out of court, entirely.

Source: How Wells Fargo exploited a binding arbitration clause to deflect customers’ fraud allegations – LA Times

To Disclose or Not to Disclose? Wells Fargo Woes Shine Light on a Knotty Problem – WSJ

Wells Fargo didn’t disclose anything publicly about its “cross-selling” abuses or looming settlement with regulators before the pact was announced Sept. 8—including in its second-quarter Securities and Exchange Commission filing weeks earlier, on Aug. 3. Three Democratic senators who grilled the bank’s chief executive last week now have asked the SEC to investigate whether Wells Fargo misled investors by failing to disclose the issue sooner.

While the bank’s management had known since 2013 that some employees had created deposit and credit-card accounts for customers without their knowledge, the accounts were a tiny portion of Wells Fargo’s business. The settlement, which included a $185 million fine, was less than 1% of last year’s earnings. The matter was “not a material event,” Chief Executive John Stumpf told a Senate panel last week.

That is true in terms of the bank’s income statement. Not so its reputation or share price. The bank and Mr. Stumpf have faced a political and public furor and the stock has lost nearly 10% since the settlement, or about $23 billion.

Source: To Disclose or Not to Disclose? Wells Fargo Woes Shine Light on a Knotty Problem – WSJ

California Suspends Ties With Wells Fargo – The New York Times

Citing Wells Fargo’s “venal abuse of its customers,” the California treasurer took the unusual step on Wednesday of suspending many of its ties with the San Francisco bank as it continues to reel from the scandal over the creation of as many as two million unauthorized bank and credit card accounts.The state treasurer, John Chiang, said he was suspending Wells Fargo’s “most highly profitable business relationships” with the state for at least a year, including the lucrative business of underwriting certain California municipal bonds.

On Tuesday alone, he said, he had pulled Wells Fargo off two large municipal bond deals.

“How can I continue to entrust the public’s money to an organization which has shown such little regard for the legions of Californians who placed their financial well-being in its care?” Mr. Chiang wrote in a letter on Wednesday to the bank’s chairman and chief executive, John G. Stumpf, and the bank’s board members.

Source: California Suspends Ties With Wells Fargo – The New York Times