Utilizing an incident from the year 2016 Wells Fargo Banking Scandal as an instance, this article examines the incident according to the fundamentals of three famous moral theory-makers: Plato, Kant, and Mill. It also offers ideas on how to improve ethical business practices.
Are We Looking at Business Ethics the Right Way?
In other words, What exactly are business ethics? What is the difference between it and any different kind of ethics?
The first step is to examine how we teach ethics to our students, who will one day want to conduct themselves ethically as business leaders. Does the education we offer them the tools necessary for the future of business managers?
Business ethics education in the present relies on the same basic ethical principles that ethics generally. In my personal experience in general and business ethics education courses can be divided into two broad areas:
What is the foundation of ethics? The focus is mostly on discussions of the philosophical thought processes that have been in place for centuries about ethics. How did Plato, Immanuel Kant, John Stuart Mill, and others think about the “why” and “how” of ethics?
How do we solve ethical dilemmas? In other words, in a moral dilemma, How do you interpret and determine the right thing and what is wrong and then make an informed decision?
In terms of an education that covers ethics in general and morality, these are probably the best places to begin. They have a lot of applications in business, too; however, I believe that as a base for business professionals who think about morality and ethics in their organizations, they’re not sufficient.
Are Traditional Views of Ethics Useful to Business?
The traditional ethical education system isn’t an ideal starting point. A fundamental education will benefit all people in their daily lives. However, let’s consider an instance from the world of business and examine how this knowledge of ethics and moral questions will fail in the real world of business.
The Wells Fargo Fraud Case
On September 8th, 2016, Wells Fargo was hit with the sum of $185 million in fines related to claims that its employees had set up millions of unauthorized credit and bank accounts without their customers having consent or knowledge. The company also had to fire around 5,300 employees who were dismissed due to their involvement in the scandal, the largest group of individuals to have been involved in this type of conduct. The video below provides an overview of the events:
The scandal was centered around an exchange program that the bank implemented for its retail accounts. The aim is to offer incentives for employees who deal with customers (mostly the tellers) to recommend additional services to customers who already have them. The goal was to set aggressive goals management to prevent cross-selling, and severe penalties were imposed in place for employees who did not meet their targets for performance, which, included the loss of their job.
The objectives set by the management turned out to be overly ambitious (and some would argue unattainable), which is why many employees decided to open fraudulent accounts on behalf of customers instead of cross-selling them into other services offered through the institution. These fake accounts were typically free and had very little potential for revenue to Wells Fargo but would technically be considered cross-sales and permit employees to reach their targets for performance. However, the bank faced an enormous risk of being regulated since the scrutiny of financial service firms increased after the Great Recession, and the establishment of unauthorized accounts is considered an offense by authorities (hence the hefty penalties and fines).
In the two years that followed the revelation of the scandal, the following incidents occurred within Wells Fargo:
The bank and a few of its executives were sacked and publicly criticized, as well as facing financial repercussions.
The CEO, John Stumpf, first gave up a salary of seven figures; afterward, he resigned.
The bank eventually agreed to pay the sum of $ 142 million to its customers relating to its conduct.
The Federal Reserve, in an unprecedented move, announced in 2018 that the bank would not be able to expand its assets until it had cleaned its act.
The board was revamped, with some members being eliminated.
They’re already an incredibly painful set of punishments for banks as they do not think about the costs to the bank in terms of bad press and the possible impact on its business due to losing customers.
On the other hand th, in the ledger, what is the sum of the revenue Wells Fargo made against all of these penalties, fines, and loss of goodwill? It is estimated to be about 5 million dollars. This is irrelevant to a bank that had approximately $1.9 trillion of assets in 2016. It is certainly small in comparison to the costs that are incurred as penalties.
COULD CLASSICAL ETHICS HAVE SAVED THE DAY?
Let’s take a look at three fundamental ethical principles that could have been used (or perhaps been unable to apply them) to aid Wells Fargo in avoiding this costly and ineffective scandal.
Plato
The idea of ethics that Plato proposed is the theory of Virtues. The theory suggests that people possess attributes (called Virtues) that are innate characteristics of human beings and that once they’re fully manifested in a human being, they are ethical. Plato took it further and identified four distinct qualities: the ability to temper, fortitude, prudence, and justice.
The fundamental premise of this concept is the notion that ethical behavior is a state of mind. Plato doesn’t necessarily attempt to establish what actions are correct or unjust (as Kant and Mill do); instead, he believes that someone who is possessed of Virtues will act in a manner that is morally right whenever faced with a choice. According to Plato, it’s about being ethically pure to the very core and then acting in accordance with your values.
Plato believes that the answer to Wells Fargo’s problems could have been to promote the development of Virtues within its employees. However, this is a noble but difficult goal to implement at this level. In 2017, Wells Fargo had about 260,000 employees – which is roughly the size of an average-sized city. As with any city, these 260,000 employees will comprise a wide range of individuals. The hope that everyone will choose to live a moral life and be focused on the development of their virtues (even with extensive coaching and training) isn’t a solid base to base any company’s actions on.
Immanuel Kant
The next significant school of ethics is one that Immanuel Kant suggested. Kant adopted a completely different view of Plato with regard to his philosophical system of ethics. At the heart of it lies the categorical imperative. The categorical imperative can be described as a moral phrase that holds regardless of the circumstances, and that can be relied on to determine if an act is morally acceptable. For instance, one could declare, “You should not steal.” This could be taken as a statement that applies to anyone and is considered to be true in all situations.
What do you think Kant has to say about his view on the Wells Fargo case? Kant is likely to suggest that the business create a code of conduct that is based on categorical imperatives and then implement that code of behavior. This is an easier solution than
