International experts - Published: 09 May 2017
Isabelle Lang-Petitmengin & Jean-Pierre Piotet
International Attorney Paris Bar & Chairman of the “Observatoire de la Réputation“ -

In October 2016, Tim Sloan, the new CEO of Wells Fargo (WFC) and successor of John Stumpf who has been accused of allowing fraudulent practices to occur within Wells Fargo for years unobstructed, stated, “as the new CEO, my immediate priority is to restore trust and confidence in Wells Fargo. We are fully aware of the fact that it will take time and a lot of energy to rebuild our reputation. We have made mistakes and we apologize.”

The third largest American bank in terms of assets has been in the spotlight since September 2016 for having opened, between 2011 and 2016, up to 2 million “fake accounts” unbeknownst to the customers, which enabled employees to earn bonuses linked to the sale of new products and services, bonuses totally USD 2.6 billion. Upon discovery of the wrongdoing, 5300 employees were fired (which represented 2 % of the 265 000 employees). The price of Wells Fargo stock fell close to USD 42.00, a sharp decline from its high of USD 58.00 and WFC paid a global fine of 185 million USD to the US Regulators (Consumer Financial Protection Bureau, the Los Angeles City Attorney and the Office of the Comptroller of the Currency).

WFC has subsequently dissociated the roles of the Chairman from that of the Chief Executive Officer while giving up sales objectives which may have serious impact upon the business model of the retail bank.

Warren Buffett, WFC leading shareholder, sold more than 8 million shares on April 14, 2017 and plans to yield 1.8 million more to fall below the critical 10% threshold above which more stringent federal banking regulations apply.

At the General Meeting of Shareholders on April 24, 2017 all proposed WFC board members were elected in spite of the negative recommendations concerning 10 of the administrators by two major proxy advisor firms.

The Federal Reserve Bank and the Federal Deposit Insurance Corporation (FDIC), the Regulator which guarantees banks’ deposits, determined that by July 2017 WFC will have to face a new stress test provided for in the Dodd-Frank Act (which consists of testing the financials of a bank facing systemic problems which could lead to bankruptcy).

The scandal at WFC shined a light on the practice of cross-selling which involves customers who hold a check account being encouraged to then open a savings account, a mortgage, a car loan, insurance or other investment products…

Described for years by government regulators as an effective method of contributing financially to the economy, WFC saw its reputation, which had been built over 164 years, destroyed in under a month.

Henry Ford II wrote “a company’s main two assets are its men and its reputation.” And, more importantly, in a service-oriented business these two are inextricably linked.

A reliable reputation first attracts talented professionals who will design and offer the best products in the marketplace. A reliable reputation also enjoys acknowledgement from the financial community which generally leads to an increase of up to 5% of goodwill annually to the most reputable companies. (Analysis from the Observatoire de la réputation over the past 20 years – in French only). From a business perspective, a reliable reputation renders the business attractive and inspires loyalty.

In the banking industry, reputation is all the more important because it is a sector that does not benefit from a predisposition to favorable opinion. In addition, the products and services of a retail bank are less important than its reputation and vicinity, real or virtual, than the actual offer of services.

Building a reputation requires time and respect for certain values. The history of Well Fargo is written within the legend of conquering the West, undertaken by the pioneers. Founded in 1852, Wells Fargo borrows from this legend that it helped to create including through its mythical logo of six horses and a stagecoach charging across the American West. Founders, Henry Wells and Williams Fargo, opened their first offices in San Francisco and Sacramento and established themselves in the West to expand the business. They demonstrated very quickly the need to offer their financial services in different languages and thus implemented their business model as early as 1855. The company then got involved in land transport in addition to financial services by taking control of the Pony Express, a service for the speedy delivery of mail between Salt Lake City and Orlando. Numerous acquisitions assisted in the rapid expansion of the company (most recently Wachovia in 2008). The strength of Wells Fargo’s reputation came largely from the confidence it enjoyed from its customers. First, they delivered your mail, then your gold and now your money!

With respect to values, a company’s reputation develops through a coalescence of the morals of the time with the ethical conduct of the company. Without being exemplary, but taking advantage of its legend, Wells Fargo was recognized as a respectable company and among the top companies within its sector. (Annual rating by FORTUNE of American Most Admired Companies)

Due to its relatively limited exposure in speculative activities, Wells Fargo was able to largely avoid the disastrous effects of the sub-prime crisis of 2007, and, at its height, was designated the number one bank in the world over its nearest competitor, the Chinese bank, ICBC, with a market capitalization of 236 billion dollars.

The loss of market value, 70 billion USD in one month, is the epitome of a loss of confidence! There was a 40% decrease in the number of new accounts being opened in the fourth quarter of 2016…

Tim Sloan, Wells Fargo’s new CEO after spending 28 years with the company, is criticized however, as being a product of the very culture he is expected to change. And he did, in fact, over the course of his career at Wells Fargo, manage various departments including retail banking…

In April 2017, the internal investigation requested by independent directors of Wells Fargo’s Board led to a report which, in addition to highlighting the inefficacy of whistleblowing efforts (880 calls over the period in question resulted in a footnote at the end of the 110 page report!), concluded that John Stumpf, confronted by the scandal of “fake accounts”, was too slow in identifying the gravity of the practice, a practice linked to the aggressive sales objectives set by Carrie Tolstedt, former retail bank unit head, in an effort to improve her department’s reputation within the company.

The internal report states that Carrie Toldstedt ignored the systematic nature of the abuse and accuses her of obstructing the board’s efforts to mitigate the situation. However, the report exonerates board members saying: “the conclusions indicate that the board took appropriate measures based on the information they had.”

Tim Sloan confirms that “we plead guilty by requesting the changes needed to ensure that this situation will never happen again”.

In total, WFC recovered 180 million USD that had been earmarked as bonuses or stock options to various executives.

WFC insists that these decisions will stay in the annals of American business as it tries to restore the confidence of individual customers and investors.

To understand the breadth of the scandal, more than 100 interviews took place with current and former employees and 35 million documents were analyzed as part of the internal investigation. When asked about the abusive practices, executives blamed a decentralized management structure along with an aggressive sales policy. The executive committee decided to fire eight executives who had been involved in the scandal as well as 5300 other employees. In addition to these firings, Wells Fargo paid out 5 million dollars in damages to WFC’s clients who had been adversely affected by the abusive practices.

The investigations demonstrated that this financial and human drama could have been avoided when, in 2006, several managers tried to warn the regional manager about the opening of an account without the client’s permission. It was not until five years later however, that WFC‘s management informed the board that they had been made aware of the practice.

In an effort to support WFC, the department of Labor placed Wells Fargo on its official website in order to receive whistleblowers’ reports from WFC employees. It is interesting to note that this page disappeared from the website four days after the election of Mr. Donald Trump to the Presidency.

Ultimately, the practice of cross-selling and aggressive, incentivized sales were not beneficial to the company. They were in direct contradiction to its traditional business practices. Despite several public statements of apology to its clients, and reiterations of the importance of client satisfaction to Wells Fargo, its reputation has been severely damaged and badly managed.

There has been no report on the status of Wells Fargo’s reputation published over the past few months.

On the other hand, in 2017, Wells Fargo does not appear on FORTUNE’s list of Most Admired Companies which is worrisome for a company with over 200,000 employees!

To determine whether WFC’s management of its reputation was effective we can look at sales and financial figures. With respect to sales, the primary impact can be observed in the 40% drop in the opening of new accounts without even mentioning clients who decided to leave the bank. In a sector where acquiring new clients is such an expensive process, this consequence will be very costly. In the financial sphere, loss of value is more easily measured: it took 8 months for the stock exchange to exhibit WFC’s value pre-September 2016. Over the same period, WFC’s competitors gained an average of 20%.

These statistics have resulted in a market value loss for Wells Fargo of 50 billion USD!

The “good news” is that the slide in value appears to have halted for the time being.

It is once again acceptable to associate with Wells Fargo, at least on Wall Street.

The expression, “reputation gives you a second chance” could apply to Wells Fargo, even if the decision to retain the existing board members indicates a certain reluctance to evolve in either issues of governance, compliance (particularly with respect to the code of conduct) or behavior.

Finally, the case of Wells Fargo illustrates the major errors made by a major retail bank not even exposed to significant financial risk when it ignored systemic dysfunction within the board, by the CEO and a huge gap between sales practices and corporate culture.


Isabelle Lang-Petitmengin
International Attorney
Paris Bar

Jean-Pierre Piotet
Chairman of the “Observatoire de la Réputation“

May 2017



This article is available in French


The ETHIC Intelligence Expert’s Corner is an opportunity for specialists in the field of anti-corruption compliance to express their views on approaches to and developments in the sector. The views expressed in these articles are those of the authors.


Isabelle Lang-Petitmengin is an international lawyer who specializes in governance, ethics and compliance. She is currently counseling corporations on how to develop appropriate benchmarks for evaluating corporate compliance and remediation measures given the publication of the new SAPIN II law on financial transparency in France but also in line with the requirements of the American FCPA and UK Bribery Act. Mrs Lang-Petitmengin served with State Street France Financial services as Deputy CEO, General Counsel and Chief Compliance Office and, while there, initiated proactive international compliance reviews. She also spearheaded efforts to strengthen compliance controls. She served as Senior International Counsel at Crédit Agricole Banking Group, leading the M&A division in Europe, the US and Asia and participated in a number of due diligence reviews. Jean-Pierre Piotet is the president of the Observatoire de la Réputation, an association created in 1994 whose mission it is to better understand the mecanisms involved in the creation and development of reputation as it pertains to both people and companies. With Jean-Noël Kapferer, he created the Fondation sur les Rumeurs of which he is the Chief Executive. He is an acclaimed speaker and the author of several reference publications. Mr Piotet was a judge at the Paris Commercial Court and has received the distinction of a Knight of the National Order of Merit.

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