The Normalization of Corruption and Wells Fargo’s 2 Million False Accounts

14040090880_7ba42ec582_z[We’re pleased to welcome J.S. Nelson, Senior Fellow at the Zicklin Center for Business Ethics Research at Wharton, and an Advisor in the Center for Entrepreneurial Studies at the Stanford Graduate School of Business. Nelson recently published an article in the Journal of Management Inquiry entitled “The Normalization of Corruption.” From Nelson:]

My paper in the Journal of Management Inquiry’s upcoming special issue on corruption describes how corruption becomes a new norm across individuals, companies, and then industries. Entitled “The Normalization of Corruption,” the paper relies on findings from law, organizational behavior, and surveys of the workplace to describe the norm in terms of behavioral ethics, how it reproduces, and how it grows.

The discussion focuses on how the normalization of corruption is built by individuals, spreads to companies, and then to industries. It further describes how the very normalization of the corruption protects individuals singled out for their misconduct from punishment by the legal system.

The specific examples in the paper are taken from the financial industry and the 2015-16 Volkswagen emissions scandal. This week’s headlines about widespread fraud at Wells Fargo follow the same patterns: cheating became the norm at Wells Fargo because of intense pressure from top executives; those top executives deny personal responsibility; and the legal system gives us few options to prosecute them for behavior that is otherwise widespread. Systemic fraud ensues.  Wells Fargo created over 2 million unauthorized accounts for customers, charged at least $1.5 million in unwarranted fees for those sham accounts, and over 5,300 employees were involved.

Similar to the social pressures that fueled the 2007-08 financial crisis, managers inside Wells Fargo pushed their employees to lie, cheat, steal, and to bend the rules in any imaginable way to satisfy sales goals and make profit. Employees were told to sign up their mothers, siblings, and friends; instructed to hunt for sales at bus stops and retirement homes;and often targeted elderly clients and people who did not speak English well.When employees protested that “This doesn’t make sense” and “Where are you getting these sales goals?”managers would answer, “No, you can do it”or “You’re negative”or “Oh, you’re not a team player.”Ethical employees who reported to hotlines and through the chain of command were fired for insubordination. Wells Fargo human resources personnel admit that the bank had a playbook for watching any employees who reported and then finding ways to fire them for another reason.

Now the bank faces the growing threat of a private class action lawsuit by ethical employees who were fired, and two top executives will have parts of their pay clawed back by the company’s disgraced board. But the rest of the legal system appears paralyzed to effectively enforce consequences on key individuals.

How did we arrive at this point of broadly corrupt norms? And more importantly, how do we turn around a system that has normalized corruption? The “Normalization of Corruption” JMI paper delves into these questions with immediate application for today.

[Please look for the follow-up entry this week on the origin of the paper, “The Normalization of Corruption.”]

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*Wells Fargo Image attributed to Mike Mozart (CC).

One thought on “The Normalization of Corruption and Wells Fargo’s 2 Million False Accounts

  1. Pingback: Decisions and habitual dishonesty | Higher EDge

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