What the Wells Fargo scandal teaches about pressure-cooker sales environments

By now, you have probably heard about the scandal affecting Wells Fargo. Over the course of many years, the company fostered an incredibly aggressive sales culture, with a major focus on upselling customers. The results of this culture are now playing out publicly, through journalist investigations, current and ex-employee interviews and even Senate committee meetings. Wells Fargo has admitted to terminating over 5,300 employees over several years who were responsible for “shady dealings”, are now facing multiple lawsuits and further investigations by the US government, and are facing a class-action lawsuit by their shareholders.

Let’s investigate some of the most important elements of how they got here.

Some Background

Wells Fargo holds their retail banking employees to several metrics. However, one metric in particular has been the primary focus of this ordeal. Number of accounts per customer.
Looking at investor relations documents, from 2010-2015, the average Wells Fargo customer had about 6 products. For 2016, it was exclaimed on an investor conference call that the goal was to get increase this to eight, “because eight rhymes with great”.

The real reason the bank wanted to increase the number of products per customer was because of how it affects their bottom-line. From more investor relations documents, it is clear that customers with more accounts are more profitable. So increasing accounts per customer should result in a positive outcome for the bank. However, there is an upper-bound as to how many accounts a single customer should reasonably have.

Were these increases realistic?

It makes sense that Wells Fargo wanted to increase the average products per customer metric, but was their goal of eight a realistic number? Compared to other banks, Wells Fargo was significantly outpacing them in products per customer already. It seems a bit strange to have the highest ratio of products to customers, a number that stays consistent for 5 years, and suddenly increase it 33% from six to eight. Perhaps the “eight rhymes with great” quote may give an indication about how critically the Wells Fargo leadership team thought about this goal.

While this may seem odd, it is actually fairly common with poor sales management. Many ineffective managers see goals and quotas as a lever they can pull to increase performance. If they need more production from their team, they will increase their team’s goals/quota without much consideration about how realistic the number is.

Why do sales managers set unattainable or unrealistic goals?

There are several reasons that sales managers will set bad goals for their team. The first and probably most common is laziness. It takes research, analysis, and experience to properly set goals for sales reps. Many managers don’t take the time to understand what these goals should be. With their own quotas increasing, they just pass the buck to down to their reps without much thought. Another leading cause of setting bad goals is lack of experience.

However, when the head of retail banking tells the entire national sales team that quota will continue to rise until it hits 100%, it is the sign of not just bad goals, but a bad sales culture.

Recognizing a bad sales culture

Consider some of the quotes coming from Wells Fargo interviews, according to an LA Times report, regional managers would hold branch managers to “hourly conference calls” to receive updates on daily quotas. If the employees at the bank were behind, they would have to stay late and work weekends to make up for it. Anyone that didn’t hit their quota after 2 months would be fired. “We were constantly told we would end up working for McDonald’s.” Does this sound like a way to motivate humans to do good work?

Unrealistic goals and poor management creates a dangerous sales environment

When sales reps see their quotas increase to unrealistic levels, and do not trust their management, they make ethical judgements about their situation. Specifically, that they are being treated in an unethical way. When sales reps believe they are being treated unethically, they will respond in kind. In the example of Wells Fargo, the result was rampant cheating of the system.

Employees figured out ways to open extra accounts using deceitful and even fraudulent practices. These sales people opened accounts without the customer’s’ knowledge, often resulting in extra fees for services the customers didn’t even know they had. “Some employees begged family members to open ghost accounts.” But it gets much worse, “…employees had talked a homeless woman into opening six checking and savings accounts.” Over the last 3 years, Wells Fargo admitted it has let go over 5,300 employees who engaged in these shady tactics. In total over 2,000,000 accounts were opened that should not have been.

The aftermath

While Wells Fargo has been able to brag on conference calls about things like increasing accounts per customers because “eight equals great”, their CEO did not seem too pleased when he was questioned by the Senate. Wells Fargo has had to pay $185,000,000 in fines for opening these fraudulent accounts. They have also presumably paid out commissions to all levels of sales staff who benefited from their creation. Their stock has dropped since this scandal broke, and they are now facing a class action lawsuit from their shareholders.
What can we learn?

When leading a sales organization, it is important to maintain a high level of ethics and accountability. By passing unrealistic expectations down from leadership, sales reps lose motivation and respect for the organization. Just as your middle management serves as a pass-through, so will these sales reps, onto your customers. In today’s customer-obsessed world, creating such a negative sales environment is a very risky proposition. It can also make it difficult to recruit prospective employees, sites such as glassdoor will expose negative environments very quickly.

As Wells Fargo has hopefully learned, pressure-cooker sales environments are risky, a symptom of poor management, and may cannibalize your customers. It is no way to run a successful sales team.

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