Is Your Whistleblower Policy Just Window Dressing?

Wells Fargo had an ethics hotline. Some employees reportedly refused to open unauthorized customer accounts and/or called the ethics hotline to report the creation of fake accounts.

A number of employees have told CNN they were either fired or demoted for their refusal to create fake accounts or for calling the hotline to report it. If those allegations are confirmed, Wells Fargo will likely face legal consequences for retaliating against whistleblowers, a violation of federal law.

To date, Wells Fargo has been fined $185 million for reportedly opening more than 1.5 million fake accounts without customers’ knowledge since at least 2011.

Bank faces consequences

The amount is a drop in the bucket for a bank that earns billions in net income each year. Nevertheless, the bank is reeling from the scandal on several fronts. In fact, on Wednesday, CEO John Stumpf resigned, effective immediately. President and Chief Operating Officer Timothy Sloan has been tapped as his replacement. Other repercussions:

1. Wells Fargo has suffered a market value drop of nearly $20 billion since the Consumer Financial Protection Bureau disclosed the settlement on Sept. 8. Wells Fargo is no longer the most valuable bank, showing that investors feel strongly about the case.
2. The Department of Justice has launched an investigation that could bring criminal charges against the bank for opening accounts without customers’ knowledge, forging their signatures and then assessing fees. As Sen. Patrick J. Toomey (R-Penn.) put it, “That isn’t cross-selling; it’s fraud.” One of the DOJ’s guidelines for pursuing criminal charges against a corporation is “the pervasiveness of wrongdoing within the corporation, including the complicity in, or the condoning of, the wrongdoing by corporate management.” Given that the bank has identified and fired more than 5,300 employees since 2011, it would be hard to blame the bogus accounts on a few bad apples in the organization.Under corporate criminal law, the employer is liable for the negligent, intentional or criminal acts of employees acting within the scope of its business.
3. The Department of Labor is investigating allegations of failure to pay employees overtime and other possible infractions. The agency has even set up a website for current and former Wells Fargo employees to help them file complaints about labor law violations. Workers with questions also can call the department’s toll-free hotline at 866-4USADOL or send an email to talktodol@dol.gov.
4. Six former Wells Fargo employees have filed a $7.2 billion class action lawsuit on behalf of workers nationwide who were fired or demoted after refusing to open fake accounts.
5. Meanwhile, on Sept. 27, independent directors on the bank’s board said they would conduct their own investigation. Stumpf agreed to forfeit $41 million in unvested stock options and forgo pay while the board pursues its probe. Carrie Tolstedt, head of community banking during the alleged fraud, agreed to forgo $19 million in unvested stock options and a lucrative retirement package.
6. California Treasurer John Chiang is severing most of the state’s ties to the bank. He announced on Sept. 28 that California won’t use Wells Fargo as a broker-dealer for buying securities, won’t buy any more Wells Fargo debt securities, and will no longer use the company to underwrite bonds.

Lessons to be learned

So what are the lessons employers should draw from this scandal?

Certainly, you should have a whistleblowing policy – but it has to be more than window dressing. You need an effective, adequate internal reporting mechanism. Ideally, you want to stop the activity before a whistleblower has to go to the government to report a problem or resort to filing a lawsuit.

So how do you create an open and honest organization? You can’t unless those at the top believe in it – and model it. Encourage employees to say something when they see unethical or illegal behavior. Follow up on allegations and take steps to ensure confidentiality and anonymity for those who do speak up, so they will feel safe in doing so. Rigorously enforce your anti-retaliation policy so whistleblowers won’t fear the repercussions of reporting.

Keep in mind that the idea behind cross-selling Wells Fargo products wasn’t necessarily to raise money. The company recorded only about $2.4 million in fees for the bogus accounts and credit cards, a modest amount of earnings (which the bank will reimburse under terms of the settlement).

The goal was to show steady growth to investors and drive up the company’s stock – which is a federal offense. The average Wells Fargo retail customer had six products at the end of 2015. On Wall Street, having multiple customer accounts means that Wells Fargo maintains deep relationships with its customers and will continue to earn revenue from them. And indeed, Wells Fargo stock doubled from 2011 to mid-August 2015, the period described in the fraud complaint.

In the end, Wells Fargo’s intense pressure on employees to open an unrealistic number of customer accounts appears to have backfired. The final chapter remains to be written, but the bank’s future doesn’t look particularly bright at the moment.

Is your whistleblower policy working? Contact Johnson Employment Law for guidance, 949-238-8044.