At the McCombs School of Business I teach an MBA course entitled “The Legal and Ethical Environment of Finance.” I fear that I may have to retitle it “The Illegal and Unethical Environment of Finance.” The finance sector seems to be a cesspool in so many ways, unfortunately.Yesterday I had no sooner finished reading a horrifying article in The New Yorker about Deutsche Bank’s role in helping Russians funnel money offshore to evade taxes and hide corruption (after paying more than $9b in fines in recent years for other wrongdoing)(Caesar, 2015), than I saw the headline come across the Internet: “Wells Fargo Hid Over 1.5M Fake Accounts.” It turns out that Wells Fargo Bank employees–some 5,300 of them, at least—have been creating fake accounts and applying for credit cards in their customers’ names without the customers’ knowledge. This generated fees for Wells Fargo and compensation for the employees, but was rather costly for the bank’s customers. Wells Fargo was fined $185 million by regulators, including the Consumer Financial Protection Bureau.As our video “Conflict of Interest” indicates, it is often in an employee’s best interest not to do what benefits his or her employer. At some level, many employees may conclude that their own interests would be best served by doing as little as possible to keep their jobs and continue to collect their pay checks. In order to address this conflict, employers often do what Wells Fargo did—create incentives in an attempt to align employee interests with the employer’s interests.

Unfortunately, human nature is such that if incentives can be gamed with little chance of detection, they probably will be, as indicated in our “Incentive Gaming” video, also scripted and narrated by Washington University of St. Louis professor Lamar Pierce. The managers at Wells Fargo should have watched this video and heeded its advice, because the problems it warns of came to fruition at Wells Fargo. According to the New York Times:

Wells Fargo is famous for its culture of cross-selling products to customers—routinely asking, say, a checking account holder if she would like to take out a credit card. Regulators said the bank’s employees had been motivated to open the unauthorized accounts by compensation policies that rewarded them for opening new accounts; many current and former Wells employees told regulators they had felt extreme pressure to open as many accounts as possible.

This scandal was quite predictable, given human nature and the impact of social and organizational pressures in the workplace. It is well known that one of the most intractable problems in the workplace is to hit the right compensation balance that will encourage hard work and activity that advances the employer’s goals without creating both the incentive and the opportunity for corrupt behavior that games the incentives. Wells Fargo must go back and try again. It missed rather badly this time, and it missed while recklessly pressuring employees to cross-sell products and services that its customers probably neither wanted nor needed.

The bank must also work on its culture. This was clearly a widespread problem and not just 5300 “bad apples.” Our “Conformity Bias” video makes the obvious point that people take their cues as to proper behavior from those around them. Wells Fargo has a lot of places it can start to make improvements.



Lucian Bebchuk & Jesse Fried, Pay Without Performance (2004).

Ed Caesar, “Deutsche Bank’s $10-Billion Scandal,” The New Yorker, Aug. 29, 2016.

Michael Corkery, “Bank is Fined For Setting Up Sham Accounts,” New York Times, Sept. 9, 2016.

Cheating in the Workplace: An Experimental Study of the Impact of Bonuses and Productivity

Why Incentives Are Irresistible, Effective, and Likely to Backfire

Financial Incentives and Bonus Schemes Can Spell Disaster for Business