The worst of American corporate ethos was on display last week when the CEOs of two leading companies, Wells Fargo & Co. and Mylan N.V., were called on the carpet by Congress for deeply flawed cultures that put greed and profits over customers and clients.
Cross-selling, or selling a different product or service to a current customer in an attempt to boost revenues, has been rampant at Wells Fargo for the last several years and led to the shocking revelation earlier this month that the bank will pay $185 million to resolve claims that employees opened deposit and credit-card accounts without customers’ approval to satisfy sales goals and earn financial rewards.
The lender opened more than 2 million accounts that consumers may not have known about, according to the Consumer Financial Protection Bureau. Wells Fargo fired 5,300 employees over the improper sales practices but its senior executives, including its CEO John Stumpf, remain in place.
Senator Elizabeth Warren last Tuesday excoriated Stumpf for failing to take accountability for the cross-selling scheme in which Wells Fargo opened the unauthorized deposit accounts in the name of its unsuspecting customers and made hundreds of thousands of unauthorized credit card applications, allowing employees to qualify for bonuses.
Stumpf told the Senate Banking Committee that, as head of the firm, he was responsible. Instead of stepping down, he has fired thousands of employees for following the cross-selling policy.
Warren aptly called Stumpf out for his “gutless leadership” and invited him to resign and be investigated by federal authorities.
Warren also questioned Wells Fargo’s senior management’s capabilities. If they didn’t know about the fraudulent accounts, “then this is a bank that’s just too big to manage,” she said. Warren asked whether there would be claw-backs from Stumpf’s enormous salary and whether Carrie Tolstedt, the former head of Wells’ community banking division, should have her $125 million stock package taken away.
Scapegoating employees for following policy and refusing to take accountability is unconscionable.
William Cohan, in a New York Times piece, called the Wells Fargo corporate culture poisonous and a threat to its long-standing reputation as one of the most respected financial institutions in the country.
“Before this behavior was widely publicized earlier this month, Wells Fargo, based in San Francisco, was one of the most respected financial institutions in the country, viewed as a kindly, exceedingly well-run neighborhood-oriented bank with only modest aspirations for the rough-and-tumble world of Wall Street investment banking,” Cohan wrote. “That kind of folksy appeal attracted the attention of the billionaire investor Warren E. Buffett and his company, Berkshire Hathaway, the bank’s largest investor, with a 10 percent stake. Mr. Buffett’s imprimatur helped make Wells Fargo the nation’s most valuable bank.”
“But like Wall Street firms, Wells Fargo had an incentive system that rewarded “cross-selling,” which is banking lingo for selling more and more products to the same customer,” Cohan noted. “So, a checking account customer would be offered a Wells Fargo credit card, or a home-equity loan, or a mortgage. You get the idea. Wells Fargo employees got big bonuses for cross-selling. That is typical on Wall Street of course, which is not to say it is a good thing.”
Mylan Labs corporate culture is equally disturbing. The company has dramatically increased the price of EpiPen, which is a life-saving drug used by people suffering a severe allergic reaction.
In a hearing before the House Committee on Oversight and Government Reform last Wednesday, it didn’t escape House members that Mylan’s CEO, Heather Bresch, earned $18 million a year largely from raising of the price of EpiPen and came to the hearing in Washington in a private corporate jet.
“The hearing came after weeks of public complaints over the company’s decision to raise the list price on EpiPen, for a pair of the devices, to more than $600 today from around $100 in 2007,” according to a report in the Times. “Similar hearings were held in the last year with executives from Turing Pharmaceuticals and Valeant Pharmaceuticals International, companies that also sharply raised prices on some drugs. Critics have accused Mylan of price gouging because it controls most of the market for a lifesaving product for people who are at risk of a potentially deadly allergic reaction known as anaphylaxis.”
The two Congressional hearings last week detail the disturbing corporate cultures found at Wells Fargo and Mylan. These companies needs to revamp their policies to focus on clients and customers. If they fail to do so, they run the risk of losing the loyalty of employees, customers and investors.
Zamansky LLC are investment and stock fraud attorneys representing investors in federal and state litigation and arbitration against financial institutions.