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Wells Fargo's Phony Accounts a Cautionary Tale for HR

 Wells Fargo fired thousands of employees over the last few years due to a massive accounts scheme, but the scandal that recently came to light should serve as a lesson for other HR professionals.

Former Wells Fargo employees claimed they were pressured to open phony bank and credit accounts, or so-called ghost accounts, CNN Money reports. The bank collected fees off the accounts and allowed employees to inflate their sales numbers on more than 2 million bogus accounts. But employees who refused to partake in the scheme were punished, according to the CNN Money article. 

Bill Bado, a former Wells Fargo banker, says eight days after calling the bank’s ethics hotline and emailing human resources in September 2013, the bank fired him for being tardy. In his email to HR, Bado complained about the illegal sales tactics, writing, “I have been asked on several occasions to do things that I know are not ethical and would be grounds for discharge.”

Bado said his branch manager instructed him on “many occasions” to issue a debit card and sign up customers for online banking “all without the customers (sic) request or knowledge.” Documents show that Bado was fired for “excessive tardiness” eight days after sending out his email.

A Wells Fargo spokeswoman did not comment specifically on Bado and said that “everything submitted to the EthicsLine is investigated.” But a former Wells Fargo human resources official said that instead of protecting workers who spoke out, the bank had punished them.

The bank would find reasons, bordering on ridiculous, to justify firing employees “in retaliation for shining light” on bogus sales practices, the official said. “If this person was supposed to be at the branch at 8:30 a.m. and they showed up at 8:32 a.m., they would fire them,” the former official said, speaking anonymously for concern that he could hurt his career.

Wells Fargo paid a hefty price, agreeing to $185 million in penalties and apologizing. CEO John Stumpf agreed to give up $41 million in unvested stock awards, USA Today reports.

Carrie Tolstedt, former head of community banking who will retire at year-end, agreed to give up her $19 million in unvested stock awards and will be denied millions in retirement benefits. Stumpf and Tolstedt also will forgo their bonuses for this year. 

Recently, CtW Investment Group sent the bank’s board director a letter demanding that it claw back Tolstedt’s incentive pay, according to Pensions & Investments.

The letter also demanded that the board bring on two new directors with human resources experience. While the incident may usher in greater oversight at the bank, it also should remind HR of its role to stand up to C-suite executives and to a culture where such transgressions are allowed and encouraged.

But that is not easy, according to the Society of Human Resources Management. "HR and compliance professionals have a very hard job because they often have to tell upper management what it does not want to hear," said David Marshall, an attorney with Katz, Marshall & Banks in Washington, D.C.

Wells Fargo already has a long-standing code of conduct that disavows the behavior that landed it in trouble. In addition to an internal reporting system for employees to report illegal action, the bank’s compliance department is charged with reviewing complaints and bringing them to the attention of upper management, Marshall said. But Wells Fargo’s “widespread violations of consumer-protection laws and its gross abuse of customer trust show that this system was not working at all,” he noted.

“This is often the case in financial institutions, where upper management puts more emphasis on pressuring employees to hit their sales numbers than it does on training them to obey the law,” he added.

Wells Fargo’s HR officials likely heard from whistle-blowers about the rogue practices repeatedly over the years, Marshall noted. What HR needs to know and make clear to upper management is that “there are whistle-blower protection laws in place that provide strong protections for HR and compliance professionals who face retaliation for reporting these issues up the chain of command,” he said.

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