Monday, September 11, 2023

In-class question (Ch1): Wells-Fargo

QUESTION:  In 2016, Wells Fargo was fined $185 million for fraudulent sales practices. The bank's employees had opened as many as 2 million unauthorized bank and credit card accounts in customers' names. Figure out what the problem is and select the best way to fix it.   

 1. Let someone else make the decision.
 2. Change the incentives.
 3. Give the decision-maker more information. 

1. Let someone else make the decision: Replacing the CEO and firing thousands of employees was part of the response, but it doesn't address the root problem - the sales-oriented incentive system. 
 2. Change the incentives: This would be the most effective solution. After the scandal, Wells Fargo had to review and change its sales practices and incentive systems to focus on customer satisfaction rather than solely on sales volume. 
 3. Giving the decision-maker more information: This alone would not have been sufficient. The executives were aware of the aggressive sales culture. The issue was the incentive system, which encouraged employees to open unauthorized accounts. 

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