9/21/2016 How Wells Fargo’s High­Pressure Sales Culture Spiraled Out of Control ­ WSJ

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At a sales meeting in Florida in 2014, Wells Fargo & Co. regional executives scoldedlower-level managers about an obvious problem that kept cropping up at the bank.Managers were told that their employees should never open accounts for people whodon’t exist, people familiar with the meeting recall.

One manager in the room saw things differently. In an email peppered with exclamationpoints and capital letters, she urged her employees to ignore the bosses and get sales upat any cost, says someone who saw the email.

For more than 15 years, selling more products to customers has been a driving force ofthe San Francisco company. The term “cross-sell” appears 20 times in the latest annual

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How Wells Fargo’s High-PressureSales Culture Spiraled Out of ControlHourly targets, fear of being fired and bonuses kept employees selling even when the bankbegan cracking down on abuses; ‘not a team player’

A Wells Fargo branch in Washington, D.C. Selling more products to customers has been a driving force at the bank formore than 15 years. PHOTO: GARY CAMERON/REUTERS

Sept. 16, 2016 3:10 p.m. ETBy EMILY GLAZER

9/21/2016 How Wells Fargo’s High­Pressure Sales Culture Spiraled Out of Control ­ WSJ

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report by Wells Fargo, which calls its branches “stores” and has the highest return onequity of any large U.S. bank.

The sales culture rooted itself so deeply among employees in Wells Fargo branchesthat it eventually spiraled out of control. Federal regulators and the Los Angeles

City Attorney’s office announced last week that Wells Fargo opened as many as twomillion deposit and credit-card accounts without customers’ knowledge. The problemsaffected most of the product types sold in the bank’s 6,000 branches, but few of theaccounts made money because customers rarely used them.

“If you could sell, you had a job,” says Scott Trainor, who worked at Wells Fargo inseveral different jobs until he quit in 2014. He says he was fed up with sales pressure andunethical practices. Managers suggested to employees that they hunt for sales prospectsat bus stops and retirement homes, according to Mr. Trainor and other former WellsFargo employees.

John Stumpf, Wells Fargo’s chairman and chief executive, denies that the company’sculture is obsessed with nonstop selling that ran amok. “Could we have done more,faster, better? Of course,” he says. Mr. Stumpf says he “feels accountable” but adds thatsome employees didn’t honor the bank’s values.

The scandal mars the reputation of a bank so renowned for its sales prowess that rivalshave long tried to emulate it. Large banks have become far more sales-conscious inhopes of squeezing additional revenue from customers.

Wells Fargo Chairman and Chief Executive John Stumpf at the Fortune Global Forum in San Francisco in November2015. He says the bank remains committed to cross­selling, though it will change its incentive system. PHOTO: DAVID PAULMORRIS/BLOOMBERG NEWS

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The mess at Wells Fargo isn’t likely to change that. The bank said this week it will makemajor changes to its incentive system but won’t back away from cross-selling.

Wells Fargo declined to comment on current and former employees’ descriptions ofsales practices at the bank. “We never want a customer to receive a product they do notwant or value,” spokeswoman Mary Eshet said Friday. “We are committed to fixing thisissue, to strengthening our culture throughout the company and taking the necessaryactions to begin restoring our customer’s trust.”

For five years, Wells Fargo conducted investigations into improper practices, hiredconsultants and tinkered with sales and compensation incentives. Its efforts typicallyfocused on specific offices and regions, but some employees say they got mixed signals,including at the Florida sales meeting in 2014.

The manager who encouraged subordinates to defy their superiors was fired in acrackdown that cost about 5,300 employees their jobs over five years, according to aperson familiar with the matter.

The firings were disclosed last week when Wells Fargo was fined $185 million for whatregulators called “widespread illegal” sales practices. The bank neither admitted nordenied the allegations.

Questionable sales tactics persisted, though, and were an open secret in Wells Fargobranches across the country, according to interviews with more than three dozencurrent and former area presidents, district managers, branch managers and other bankemployees.

They say many branch managers routinely monitored employees’ progress towardmeeting sales goals, sometimes hourly, and sales numbers at the branch level werereported to higher-ranking managers as many as seven times a day. Tension about howto meet the sales targets was common.

“If somebody said: ‘This doesn’t make sense. Where are you getting these sales goals?’then [the response] was: ‘No, you can do it’ or ‘You’re negative’ or ‘Oh, you’re not a teamplayer,’” says Ruth Landaverde, a former Wells Fargo credit manager in Palmdale, Calif.

She says she often got the same response whenever she said a customer didn’t needanother credit card. “The answer was: ‘Yes, they do,’” she says. She quit after beingwarned she wasn’t reaching her sales goals, she says.

Employees at a Wells Fargo branch in Lincoln, Neb., had a daily goal to open two newchecking accounts and make eight other product sales, says Steven Schrodt, who worked

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there from 2010 to 2012.

Managers asked employeeswho had fallen short of thetargets if they could openaccounts for their mother,siblings or friends, accordingto Mr. Schrodt and otherformer employees. He says heopened about 15 accounts forfriends and family members.Mr. Schrodt says he decided toleave Wells Fargo because thesales pressure was toostressful. He is now in lawschool.

Bankers in branches who hitsales targets could earnbonuses of $500 to $2,000 perquarter, while districtmanagers could get $10,000 to$20,000 a year, according tosix Wells Fargo employees.

Bonuses made a big differencein the paychecks of branchemployees, whose basesalaries often were about$30,000 a year. According tothe bank, tellers are paid $12to $16.50 an hour, dependingon location and experience.

In Tucson, Ariz., some bankers met sales goals by using a list of wealthier, existingcustomers who were preselected for credit cards, according to a banker who was firedlast year for what the bank called unethical behavior.

The customers were told in phone calls that Wells Fargo planned to send them a newcredit card as a “thank you” for their business. If a customer didn’t want the card, he wastold to cut the card when it arrived in the mail, according to the former banker.

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She says those customers weren’t told that issuing each new card required a creditcheck, which can lower a person’s credit score.

Atthe end of last year, the average Wells Fargo retail customer had 6.3 products,according to the company. Inside the bank, cross-selling was the brainchild of Mr.Stumpf’s predecessor, Richard Kovacevich, when he led Norwest Corp., which mergedwith Wells Fargo in 1998.

Mr. Kovacevich wasn’t aware of any cross-selling problems before he retired as CEO in2007 or left Wells Fargo’s board of directors at the end of 2009, according to a personfamiliar with the matter.

In the 2010 annual report, Mr. Stumpf said he often was asked why Wells Fargo had set across-selling goal of eight. “The answer is, it rhymed with ‘great,’ he wrote. “Perhaps ournew cheer should be: ‘Let’s go again, for ten!’

Former branch manager Rasheeda Kamar says her Wells Fargo office in New Milford,N.J., had a goal of selling about 15 new products or services a day. If the branch didn’t hitthe goal, the shortfall would be added to the next day’s goal, she says.

Ms. Kamar says laggards were threatened with termination and sometimes criticized inconference calls. In February 2011, she wrote to Mr. Stumpf in an email: “For the mostpart funds are moved to new accounts to ‘show’ growth when in actuality there is no netgain to the company’s deposit base.” She says she got no reply.

After working for Wells Fargo and its predecessor banks for 22 years, she was let go in2011 for failing to meet sales targets, she says.

Richard Kovacevich, Wells Fargo’s former chief executive, in 1999. He emphasized constant selling while runningNorwest, which merged with Wells Fargo in 1998. PHOTO: PAUL HOWELL/BLOOMBERG NEWS

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The high-pressure salesenvironment defied the bank’sofficial policy. A 2007 internaldocument titled “Sales QualityManual” said customerconsent “for each specificsolution or service isrequired every time (includingeach product in a package).”

The document also said“splitting a customer depositand opening multipleaccounts for the purpose ofincreasing potential IncentiveCompensation (IC) is

considered a sales integrity violation.”

Despite the warnings, some bank executives noticed around 2009 and 2010 an uptick inbad sales behavior, according to people familiar with the matter. They noticed a rise inactivity when the bank was running its “Jump into January” sales program, which setbig goals in a month that usually was slow.

About a year later, employee-satisfaction surveys done for Wells Fargo by research firmQ & A Research Inc. showed that some bank employees felt uncomfortable about whatmanagers had asked them to do or when pushing customers to buy products, says

Wells Fargo was founded in 1852 and has one of the most storied histories of any bank in the U.S. It is the second­largestU.S. bank in stock­market value and has 40 million retail customers. PHOTO: CULTURE CLUB/HULTON ARCHIVE/GETTYIMAGES

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Shannon Purvis, who reviewed some of the surveys while working at Q & A. She nolonger works there. The research firm’s chief executive, Warren Pino, says its findingsare confidential.

In 2012, Wells Fargo’s community-banking unit assembled a special task force to lookfor suspicious patterns in sales practices and examine areas of the U.S. where customercomplaints were prevalent, such as Southern California, according to current andformer bank executives.

A former Wells Fargo human-resources executive says the review found that a localmanagement team in the Los Angeles area was “very aggressive” in the use ofquestionable tactics to do better on sales goals.

In early 2013, Wells Fargo fired about 200 employees. The firings rattled some directorsand executives who worked in other parts of the country. Some executives wondered ifsales goals were too high or if cross-selling was an underlying problem, the formerhuman-resources executive says.

The conclusion was no. “When we first started looking at it, we didn’t think it wasanything other than rogue junior players and a few rogue managers,” says someoneinvolved in the bank’s internal discussions.

Nevertheless, the community-banking unit’s risk-management team increased itsoversight and audit capabilities. Wells Fargo also changed parts of the compensationstructure.

“We were making changes as quickly as we could, as incrementally as we could, withoutblowing things up,” one Wells Fargo executive says.

In December 2013, the Los Angeles Times reported questionable sales practices at WellsFargo offices in Southern California. Los Angeles City Attorney Michael Feuer launchedan investigation, and the Office of the Comptroller of the Currency asked the bank tohire consultants to dig deeper.

Wells Fargo hired consulting firm Accenture and law firm Skadden, Arps, Slate, Meagher& Flom LLP to conduct an internal investigation, and Wells Fargo’s board was briefedregularly about the investigation’s progress, according to people familiar with thematter.

As a result, the bank lowered some sales goals and toughened procedures to ensure thatnew accounts were legitimate. At regional sales meetings, executives stressed the needto make sales properly.

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Despite the edicts, the dailyroutine and pressure to drumup sales in branches didn’tchange much, says RandyHolbrook, a personal bankerwho worked at two WellsFargo branches in Floridafrom 2012 to earlier this year.

“Every day around 3 p.m., allthe personal bankers werelooking at each other andsaying: ‘Who are you going tocall?’” he says. Mr. Holbrooksays missing targets meant

working extra hours when the branch was closed to make more calls.

In weeks when the office was closed for a holiday, all of the bankers would have to comein Saturday, Mr. Holbrook says. He says the branch manager shut off his access to theinternet when she saw him looking at a sports website instead of hunting for customers.He says the sales pressure caused him to quit.

Higher-ranking executives didn’t realize how much their strategic planning and goalswere based on exaggerated numbers, according to people familiar with the matter. AWells Fargo executive says the person in charge of creating a yearly sales plan for thecommunity-banking unit “had no idea of what was real and what wasn’t in the prioryear’s performance.”

In May 2015, the Los Angeles city attorney’s office alleged in a lawsuit that Wells Fargopressured retail employees to commit fraud. The allegations included opening accountsfor people who didn’t exist and charging customers for products without permission.Wells Fargo said it would defend itself.

Wells Fargo hired consulting firm PricewaterhouseCoopers to do an in-depth analysis.About a dozen PwC employees worked on the project for about a year, discoveringfraudulent sales practices that were prominent in Phoenix, Miami and Newark, N.J.

Throughout last year, the Consumer Financial Protection Bureau and OCC keptpressing the bank for answers. Earlier this year, Wells Fargo’s top executives anddirectors were told that the number of employee firings added up to 5,300. The firingspeaked in 2013.

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“We knew we had problems [and] knew investigations were going on, but we didn’tknow it was that many people,” says one person familiar with the matter. “How did thisget this far?”

The fired Wells Fargo employees include personal bankers, branch managers, districtmanagers overseeing about a dozen branches each and area presidents overseeingregions. It isn’t clear if any higher-ranking executives were fired or implicated in thesales scandal.

Earlier this year, retail-banking chief Carrie Tolstedt told Mr. Stumpf that she plannedto retire after 27 years at Wells Fargo and Norwest. He didn’t object, and Wells Fargomade it clear to regulators that she would be leaving, according to people familiar withthe matter. Her retirement was announced in July. She didn’t respond to requests forcomment.

The bank said Tuesday it will scrap all product-based sales goals in its retail branchesstarting Jan. 1, but Mr. Stumpf remains steadfastly committed to cross-selling. “That’show we’ve grown so much,” he says.

—Christina Rexrode, AnnaMaria Andriotis and Jim Oberman contributed to this article.

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