Case Study on Wells Fargo Ethical Problem

Introduction

In 2017, a new scandal emerged at Wells Fargo, a bank which had been hit by numerous scandals in the recent years. According to the Federal Reserve Bank in San Francisco, Wells Fargo had been refusing to refund the Guaranteed Automobile Protection money owed to people who paid off their car loans early or the vehicles were repossessed. Guaranteed Automobile Protection (GAP) is a form of insurance issued by Wells Fargo to customers who finance automobile loan through their bank. Under this insurance, the Wells Fargo commits itself to cancel the remaining loan balance when the customer's automobile is damaged beyond repair, or it is stolen, and the insurance payout does not cover the outstanding balance of the loan (Morgenson, 2017). In simpler terms, it means that through the GAP insurance Wells Fargo caters for any difference between the amount the insurance company pays out and the amount outstanding on loan.

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However, in the cases where the customer pays off the loan earlier than agreed upon or cancels the GAP before the end of the loan term, the Well Fargo is legally obliged to issue a refund. Despite this legal obligation, investigators found that Wells Fargo systematically failed to return the unearned GAP fees in cases of early termination of the underlying loan or repossession of the vehicle. The Wells Fargo executive team had acted illegally and against the business ethics by failing to inform the customers that they were entitled to a refund of the unused portion of the GAP insurance (Morgenson, 2017). However, the company came forward and addressed this claims where it admitted of the wrongdoing and through its spokeswoman Jennifer Temple, it guaranteed the affected customers of a refund and further improvements that would ensure that similar cases would not happen.

Main Stakeholders Involved in This Crisis

The primary stakeholders involved in this claim are the GAP insurance customers, the Wells Fargo dealer services department and Federal Reserve Bank in San Francisco. The customers were the aggrieved party who had been denied a refund by the Wells Fargo once they had completed the loan payment or their vehicles had been repossessed. On the other hand, the Wells Fargo insurance department were the culprits who had sat back and kept the funds to themselves, knowing very well that they had an obligation to issue a refund to their customers in specific cases of unused GAP (Morgenson, 2017). On the other hand, the officials at the Federal Reserve Bank of San Francisco were involved in the investigation of the corporation's unethical practices and contract breach. According to the company's response through its spokeswoman Temple, she assured the clients that the company was doing its best at ensuring that the necessary refunds had been issued. However, the company did not explain to the clients why it had decided to withhold those refunds. By Wells Fargo issuing refund to the customers, it will be the ethical thing to do and goes as per the United States federal insurance policy. However, in cases of repossessed cars, having denied the customers an earlier refund which could be used to pay the loan impacts the customer negatively as they have already lost the car.

CEO’s Performance During the Dilemma

The Wells Fargo chief executive officer's (CEO) response during this crisis was insufficient in restoring the confidence of the customers who had invested with the insurance. In this statement, Timothy Sloan said that "to regain the trust we have lost, we must continue to be transparent with our stakeholders and go beyond what has been asked of us by our regulators by reviewing all of our operations" (Morgenson, 2017). This statement despite being reassuring is not convincing considering less than a year after this scandal another crisis had been exposed at Wells Fargo where employees were found to have created millions of credit card and bank account without the knowledge or the approvals of the customers. Instead of just giving statements, Sloan could have laid out an elaborate plan on how the management intends to handle the crisis thus restoring the confidence of the public (Kumar, 2017). Further, an explanation could have been given on why the corporation decided to keep quiet despite the guidelines from the regulators, how many customers had been affected by the actions of the company and for how long had the malpractice been going on (Cortina, 2017).

Wells Fargo Governance Mechanisms and Solution to Their Problems

On the other hand, the Wells Fargo management did a poor job at aligning the interests of the top managers with those of the stockholders as demonstrated by this crisis. In every company, the client should come first, for the satisfaction of the client translates into the success of the company (Cortina, 2017). However, the Wells Fargo management placed their needs above those of their customers and took advantage of their trust by keeping the customers share to themselves. However, if I were the CEO of the company, the needs of the customers would always be my priority (Zhironkin & Guzyr Kubiyeva, 2016). I would ensure that every policy that the company formulates and adopts is in the best interest of the client and that company would be of service to the customers and not the other way around.

Personal Commitment to Business Ethics & Corporate Social Responsibility

I believe that all organization should strive to maintain favorable business ethics and organizational responsibilities. It is immoral for business entities to engage themselves in practices that harm their customers and damage their reputations. Such corporations are doomed to fail as such bad practices promote loss in public confidence and a decrease in the competitive abilities in the market (Kumar, 2017). It is vital to have social responsibility by ensuring that all the proper guidelines that have been laid down by the federal agencies are followed as they protect both the customer and the organization. Besides, positive business ethics bolster the image of the company and helps it build a brand. For a student to make an impact in the business world in the future, it is critical to ensure that ethical standards and social responsibility are adhered to at all times. As a business leader, I will ensure that all the policies and procedures laid down are followed and that every decision is made to the best interest of the customer (Zhironkin & Guzyr Kubiyeva, 2016). As a leader, I am well aware that building relationships with customers is the key to a successful company, and the trust that they have on an organization should never be taken for granted.

References

Cortina, A. (2017). Corporate Social Responsibility and Business Ethics. Corporate Citizenship, Contractarianism, and Ethical Theory, 69-78. doi:10.4324/9781351161008-5

Kumar, R. (2017). Wealth analysis of Wells Fargo. Strategic Financial Management Casebook, 387-411. doi:10.1016/b978-0-12-805475-8.00013-6

Morgenson, G. (2017, August 7). Wells Fargo, Awash in Scandal, Faces Violations Over Car Insurance Refunds. Retrieved from https://www.nytimes.com/2017/08/07/business/wells-fargo-insurance.html

Zhironkin, S., & Guzyr Kubiyeva, V. (2016). Social Responsibility of Business - an Important Factor of Continued Wellbeing. doi:10.15405/epsbs.2016.02.22