Lessons from the Wells Fargo Scandal, Mismanagement, and Gaming the Numbers


14224371682_75e33ab829_zIt's been a busy fall so far. I've wanted to blog about the Wells Fargo scandal and management mess, but haven't had the time to really write a comprehensive blog post about it until now. In less busy times, I might have written a 3,000 word mega post about the situation… but this isn't that (and maybe that's good for you, the reader).

In a nutshell, thousands of Wells Fargo employees across the nation fraudulently opened unwanted bank accounts or credit card accounts for customers. Two million accounts. This probably hurt the credit scores of customers and they were with $2.5 million in fees for the unwanted accounts.

Why would these employees do that?

They were under a lot of pressure from bank managers and executives to hit arbitrary goals… eight financial products per customer.

Why eight? The CEO, John G. Stumpf, said (I kid you not), “It rhymes with great.” Employees are lucky, perhaps, that he doesn't know that nine rhymes with “fine?” Or that eleven rhymes with “heaven?”

Eight sounds like the perfect definition of an arbitrary goal, as Dr. Deming would say. Deming would ask, “By what method” would you accomplish such a goal? There apparently wasn't a method (at least a good one) provided by management.

This article summarizes and has other links:

Reports by the Los Angeles Times and the L.A. city attorney have made it clear that there has long been a culture of fear, born of threats to workers' livelihoods and impossible sales goals, at Wells Fargo.

Multiple employees have complained of a company culture that encouraged fraud by setting impossible goals in “crossing-selling” — ie. selling multiple accounts to the same customer — and then offering big bonuses to employees who hit them. Tuesday's hearing clarified that Wells Fargo's sales goal was eight accounts per customer, while most banks average only three.

When employees couldn't hit that arbitrary target organically, they realized they could cheat the system. You can't blame for them for wanting to save their jobs. They were only being paid about $12 an hour. They weren't financial wizards or criminal masterminds. There was no grand conspiracy cooked up by the CEO or other executives… but they should have anticipated how this could go awry.

Senator Elizabeth Warren said:

“You squeezed your employees to the breaking point so they would cheat customers and you could drive up your stock,”

I heard some analysis yesterday that if Wells Fargo did conspire to commit this fraud, that it was really dumb because opening and closing fake accounts added cost and didn't really add any revenue. The higher “accounts per customer” number gave the CEO something to brag about on earnings calls with Wall Street, which might have boosted the stock price… something that benefitted CEO Stumpf more than the employees.

Wells Fargo says they have fired 5,300 front-line staff and managers over the past five years. There's been a lot of blaming going on… the CEO blaming all of these employees for not living up to Wells Fargo's allegedly ethics and values (read their online statement to see how far off from reality this is).

The bank has been fined $185 million for the shenanigans.

Yet Carrie Tolstedt, the Wells Fargo executive responsible for the 6,000 branches during this time received a $126 million retirement package, even though these bank practices were under investigation for a while. So much for accountability.

5300 “bad apples” certainly sounds like a system problem to me… and that's leadership's responsibility.


Here are a few links to articles I've read:

Wells Fargo CEO Defends Bank Culture, Lays Blame With Bad Employees

Wells Fargo Warned Workers Against Sham Accounts, but ‘They Needed a Paycheck'

How Wells Fargo's High-Pressure Sales Culture Spiraled Out of Control

Wells Fargo's Incentives Go Awry

Wells Fargo under siege: Drops sales goals tied to bogus account scandal

‘You Should Resign': Watch Sen. Elizabeth Warren Grill Wells Fargo CEO John Stumpf

I called the Wells Fargo ethics line and was fired

Those links should give you a good sense of the situation… and how this could have been anticipated and avoided through better management.

As we've learned in other situations, when it's easier to game the numbers or to distort the system than it is to actually improve the system, bad things will happen.

I learned this from Dr. Deming's work and from Brian Joiner wrote in his outstanding book  Fourth Generation Management: The New Business Consciousness. As Joiner wrote, there are three things that can happen when you have a quota or a target:

  1. Distort the system
  2. Distort the numbers
  3. Improve the system

What's the lesson for managers in any setting?

When you set an unrealistic quota… and then pressure people to hit the quota (through threats or promises of rewards)… you need to anticipate how people might game the numbers or distort the system.

Below are some related posts and scandals involving “gaming the numbers”:

GM Got Gamed (Or, How to Fudge Your Production Numbers)

The Real #VAscandal is the Long Waiting Times & Bad Management, Not Gaming by Bad Apples

What Would #Deming Say? Polish Police Offer Fines Himself to Meet Quota

We Got Gamed (Lab Specimen Batch Sizes)

Another Sad Example of Gaming the System

Gaming the System: E.R. Targets

Gaming the Numbers in the UK, Again

A Vivid Example of Gaming the Numbers on “The Office”

Gaming the System at Starbucks

Gaming the System: Graduation Rates & Pneumonia Rates

Easier to Game the Numbers than Fix the System – in Education and Healthcare

Wells Fargo image via Flickr user Mike Mozart, used under Creative Commons license.


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Mark Graban is an internationally-recognized consultant, author, and professional speaker who has worked in healthcare, manufacturing, and startups. His latest book is Measures of Success: React Less, Lead Better, Improve More. He is author of the Shingo Award-winning books Lean Hospitals and Healthcare Kaizen, as well as The Executive Guide to Healthcare Kaizen. He also published the anthology Practicing Lean that benefits the Louise H. Batz Patient Safety Foundation, where Mark is a board member. Mark is also a Senior Advisor to the technology company KaiNexus.

  1. Mark Graban says

    From the Deming Institute blog:

    Using Outdated Management Practices Can Be Very Costly

  2. Mark Graban says

    Comment via LinkedIn:

    Trevor Waldo: I agree with your perspective Mark. The system is the underlying root cause, not the employees working within the system. It’s not about “metrics” either… Just because something is measured does not dictate gaming / cheating / manipulation will occur. The key is how the system reacts to the metrics, the degree to which the employees are incentivized to meet or penalized to miss. The Freakonomics book series and podcasts explore many facets of incentive impacts – absolutely fascinating!! They truly explain why so many things are “the way they are.”

    My response:

    Right… metrics + lack of a method + undue pressure = gaming and cheating

  3. Mark Graban says

    More from LinkedIn:

    Barry Alexander:

    My experience indicates that management sets unrealistic goals yet insists on meeting them. This creates conflict between ethics, results, and keeping your job. Bad things result yet management seems to never learn. Perhaps jail instead of fines would work better.

    Michael Bremer:

    I’m not big on blame, although I’ll admit it is sometimes (very rarely) appropriate. Mostly people work within the constraints of the process. This includes the specific rules/procedures for doing the task. And the management support systems (policies/procedures) that guide the way work gets done. The latter includes metrics. Most people do not promote doing something blatantly unethical, a few do. Generally it’s the processes. And when organizations are not in touch with the actual reality of their processes, sometimes goofy things happen.

    My reply:

    I think “avoiding blame” (my thought) is not the same as never holding anybody accountable. Have you studied the “Just Culture” approach from healthcare, Michael? There is a time to hold an individual accountable if they made a bad choice that they knew would cause harm. One test is “Would another person in that same situation make the same mistake?” At Wells, that certainly seems to be the case, times 5300

    S. Max Brown:

    When people are driven to get results by any means possible, the unstated values and behavior prevails. When behavior isn’t what we want, it is the leaders responsibility to consider the system that is promoting that behavior (including the metrics and unstated values). Accountability for the systems that drive the behavior — that is leadership’s role.

    There is no mea culpa when you promote the system and metrics that produce the behavior and outcome. Those employees who did refuse or even called the ethics line, were often fired soon afterwards. The culture of fear and survival (to pay the bills and keep a seemingly attractive work resume) keeps many from jumping.

    What are the rewards for executives to behave this way? For years, they made MILLIONS under this system — it worked for their own pocketbooks and so it was promoted. Today, over 5000 lose their jobs and senior executives get hundreds of millions in incentives.

    Petri Huitti:

    I dont know what are the proofs etc. but I feel management was more consciously driving the fraud from up to down than comes out from your article. When managing with fear, people may do funny things, they even support war, destroyment of distant countries claimed to be threat. When warriors, workers, leaders, one by one, start taking their inner force into use, not obeying the fear pushing from outside, they start to make the right thing, what they feel right, in their hearts. Then wars, misusing people, nature, communities will stop. Peace will come into the world, piece by piece. This is revolution, revolution of love we can all participate. And the world will look quite different after that, after few years.

  4. Mark Graban says

    More in the news:

    Ex-Wells Fargo Employees Sue, Allege They Were Punished For Not Breaking Law

    Two employees are named in the lawsuit, filed on behalf of all the bank’s employees in the past 10 years who were penalized for not making sales quotas.

  5. […] Look at what happened at Wells Fargo. […]

  6. Mark Graban says

    Stumpf is out as CEO, but is probably taking home a huge retirement payout.

    This NY Times article tells some of the stories from people who lost their jobs and really had their lives affected by the quotas and pressure. Sad stories on many levels.

  7. Mark Graban says


    Wells Fargo Fires Four Executives Following Probe of Sales-Practices Scandal
    Terminated executives won’t receive 2016 bonus and will forfeit unvested equity, bank says

    (via WSJ)

    “Within Wells Fargo, employees expressed satisfaction that the bank appeared to now be calling higher-level staff to task. “No one who was directly managing this has been held accountable except for lower-level team members,” said a current retail-banking executive.”

  8. Mark Graban says

    Wells Fargo is now running ads asking people for a second chance.

    The ad says they’ve ended “sales goals for branch managers.”

    I’m glad they’re focused , it seems, on the system instead of running ads saying they have fired all of the bad people.

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