We all know that bad things can happen to good people. And so it goes with corporations. Wells Fargo is a good company that has had bad things happen. Although it deserves to be castigated for the outrageous actions of its employees, managers and executives, we should resist painting the institution itself with too broad of a brush. As Congress and the media focus national attention on the scandal, we should not lose sight of the company's many positives.
Throughout its history, Wells Fargo has earned a reputation for community engagement, outreach and philanthropy. In 2015, it was one of the top corporate cash donors among U.S. companies, contributing more than $281 million to over 16,000 nonprofits. It supports community development, disaster relief, financial education, job training and environmental sustainability initiatives around the world. In terms of corporate citizenship, Wells Fargo has been consistently exemplary. But good news is no news at all.
Thus, we were all shocked when a wide-ranging and longstanding fraud was revealed. For a company that projects a "customer first" image, the creation of sham accounts and bogus fees by over 5,000 employees was a contradiction of criminal proportions. But this is not the first time Wells Fargo has experienced high-level criminal fraud. In 1981, one of the company's officers plead guilty to a $21 million embezzlement scheme involving phony debit and credit receipts and kickbacks. It was one of the biggest banking crimes of its time, and despite swift action by the company, there were signs, even then, that its compliance and oversight systems needed attention.
To be sure, every financial institution is prone to risk of internal self-dealing. That is the nature of the business and, sadly, human nature when allowed unfettered access to other peoples' money. But there is something about large retail banks that engenders monetary malfeasance. As one of the biggest, Wells Fargo should have been more alert to the prospect of abuse, particularly since it pushed employees to sell more and more of its financial services — apparently by any means. This burden fell on folks who earn a bit more than subsistence wages, who took advantage of lax management and supervisory oversight to the detriment of Wells Fargo customers.
It is hard to believe and accept that senior management did not know the existence or extent of a fraudulent enterprise, which clearly was no secret inside the bank. Even upon discovery, Wells Fargo failed to conduct basic due diligence and mitigation. It allowed the situation to linger longer than necessary, and appears to have hoped the problem would be shielded from outside scrutiny. For any conscious consumer, it will be hard to deposit money without at least thinking there might be another fraud behind the facade. Regulators, too, have a right to question Wells Fargo's adherence to basic banking regulations, including audit, risk and compliance protocols. After all, it received over $25 billion from the federal Emergency Economic Stabilization Act bailout in 2008.
With everything in the open, Wells Fargo now has a mandate for change. What happens next will determine its latter-day legacy as a responsible corporation. Putting semantics aside, the chairman of the board and lead director should step forward and fully acknowledge the problem. They should relieve the CEO of that task, since he has yet to shoulder responsibility. His dismissal is a matter best left to the board, on behalf of shareholders, not Congress.
The company next needs to make every affected customer whole — and then some. Restitution of any loss, including consumer credit profile and identity theft, should be the starting point. As class action lawsuits get underway, the bank should set aside a fund to compensate the victims and begin that process, immediately and proactively. In addition to reparations, Wells Fargo needs a top-to-bottom external audit, wherein its compliance with standard operating procedures is critically examined. Such a review should not be limited just to financial performance, but should include personnel, supervisory, management and data security as well.
And finally, the bank will need to spend a lot of time and capital to re-establish trust among the public it seeks to serve. While the phony accounts may seem quaint by Bernie Madoff standards, they are no less serious violations of corporate and consumer confidence.
It takes many years to establish a sterling reputation, and only one mishap to tarnish it. Wells Fargo has a strong foundation from which to rebuild reliability and trust, but doing so will require more than corporate philanthropy, clever advertising and a few mea culpas. Ultimately, we should measure Wells Fargo not by how low it has fallen, but instead how high it can rise in the aftermath of this scandal.
Hoffman is chairman of Business in the Public Interest and adjunct professor at Georgetown University. He is the author of "Doing Good: The New Rules of Corporate Responsibility, Conscience and Character."
The views expressed by contributors are their own and not the views of The Hill.