How does a firm rebound from the toll taken in reputational capital from a track-record of unethical practices? Paying $175 million to settle accusations without admitting any wrongdoing, such as Wells Fargo did in 2012, does not suffice, but neither does merely admitting culpability without real change going forward. The case of Wells Fargo may provide an explanation for how reputation recovers.
The U.S. Office of the Comptroller of the Currency announced on March 27, 2017 that it had uncovered “an extensive and pervasive pattern and practice of discriminatory and illegal credit practices across multiple lines of business within [Wells Fargo] bank, resulting in significant harm to large numbers of consumers.” The bank’s management had admitted six months earlier that over the course of several years, employees trying to meet aggressive sales quotas opened as many as two million fraudulent accounts. “Under pressure to hit aggressive sales goals, thousands of employees created unauthorized bank and credit card accounts in the names of real customers.” The unknowing customers were charged real fees. In the agency’s report, this conduct and at least nine other examples of “egregious” violations are cited. Overall, “the bank’s misdeeds were so glaring, the agency decided, that they overshadowed its achievements.” In terms of reputational capital, the bank was under water.
Grasping for buoyancy again, the bank offered better terms than it would otherwise have had to in order to attract and retain understandably weary customers. Earning less in interest and offering better terms on savings and checking accounts may be the real way in which a bank becomes competitive again after having abused customers in the past.
The nub of my tussling question is whether existing and prospective customers should essentially give such a bank a break simply because doing so entails getting better financial terms than otherwise. Should not the existing customers walk away on principle—intent on sending the management a message that inconvenient consequences follow from taking advantage of customers? Should not prospective customers be expected to resist the better terms? By “paying off” existing and new customers with better terms than otherwise, Wells Fargo’s response was essentially to buy back its lost reputational capital. Should an ethical reputation be so purchasable? Do better terms really make up for a sordid past?
1. Stacy Cowley, “Citing Misdeeds, U.S. Gives Wells Fargo Failing Grade on Lending,” The New York Times, March 28, 2017.