written 21
April, 2018
published 28 April 18
Ethics are rules we live by which
regulate our impact on others. The
Harvard Business School (HBS) has been instrumental in shaping the standards of
business, more than any other school. When
it opened in 1908, it was accepted that business had an ethical obligation to
society, customers, suppliers, and employees.
But teaching ethics was problematic, and ethical considerations were subordinated
over time to more quantifiable factors. These
days, HBS teaches that the only responsibility of business is to maximize
shareholder value, disregarding any other consideration. Wells Fargo Bank is a wonderful example of
this limited ethics at work.
Wells Fargo funds a number of
businesses with controversial social benefit.
They support the gun industry by extending credit to the NRA and major
gun outlets, making weapons easy to purchase.
They finance the private prison industry. The US, with 5% of the global population, has
25% of global prisoners, the highest per capita rate. Annual incarceration costs more than a
Harvard education. Wells Fargo invests heavily
in fossil fuels, including tar sands, the least energy efficient fuel, and are
funding the construction of the border wall.
While some people may applaud these investments, the bank's treatment of
their own customers and employees might give pause to reconsider.
Wells Fargo contributed to the
housing crash in 2007, by certifying over 100,000 loans for FHA insurance
between 2001 and 2005, without verify the borrower’s ability to repay these
loans. In 2002, more than 40 percent of
the bank’s FHA loans failed to qualify for insurance, but Wells kept the
defective loans secret, not reporting a single bad loan.
After the crash, their mortgage unit
made unauthorized changes to loans held by customers already in bankruptcy. These changes require approval by a
bankruptcy court judge, which Wells Fargo did not obtain, putting their customers
in danger of defaulting on other commitments they had made to the courts.
An investigation in 2013 revealed that,
as a result of aggressive quotas by bank managers to increase sales of bank
services, bank employees issued credit cards for customers without their
consent. Approximately 85,000 of the accounts
incurred $2 million in fees, adversely affecting customers' credit scores. Employees also create fraudulent checking and
savings accounts, and issued unwanted insurance policies. By Aug 2017, the
number of unauthorized accounts had reached 3.5 million.
By law, a bank is supposed to
investigate potential criminal activity when a customer complains of fraud. Instead, the bank closed the accounts and got
rid of the customer, who were prevented from pursuing legal action by mandated
private arbitration clauses.
When employees reported unreachable
goals, or inappropriate conduct, no changes resulted. Instead, employees who made such reports were
issued performance reviews which indicated that they had been complicit, which created
difficulty gaining employment at other banks.
Last week, Wells Fargo was
fined $1 billion for selling un-needed auto loan insurance, and charging home
loan borrowers extra fees when applications were delayed by the bank's own procedures. This is on top of almost $200 million fines
for previous frauds.
With annual profit of over $5
billion, these fines are manageable, and the recent Republican tax cut covers
about half of the recent fine. Bank executives
are confident that fraud will not hurt the company, and no banker has ever gone
to jail for their criminal actions. In
the last decade, Wells Fargo lost value from defrauding customers, but is worth
over $250 billion, and increased value after the latest fine, suggesting the
entire investment community is ethically challenged.
Wells Fargo is just one example of corporate
ethics and dualistic economics, which maximizes profits for a few, without
regard for the impact on anyone else. Big
banks feel customers have very little choice, as it is complicated to shift to
another bank, and other big banks may have the same limited ethics. But instead of feeling disempowered, we can
vote with our money. We don't have to do
business with criminal enterprises, but can shift our funds to a local bank or
credit union. California is considering
establishing a state charter bank to address the needs of the marijuana
industry, which will give another viable financial alternative.
