Wells Fargo & Co. is a big bank. As a bank, it likes making money. As a general rule, banks make more money as (1) they get more customers and (2) those customers open more accounts: A customer with a mortgage and a credit card and online checking is generally worth more than a customer with only a checking account. So Wells Fargo incentivized its retail-level bankers to sell more products and open more accounts. If you sold a lot of products each day, you were rewarded; if you did not, you were fired.
Due to difficulty of attribution and measurement and motivation, Wells Fargo did not mainly reward those employees for, like, the actual lifetime monetary value to Wells Fargo of the accounts that they opened. It just rewarded them for volume of accounts opened. Adding online banking to a checking account was a “product” that counted toward your quota of X products per day, same as adding a mortgage; a checking account with $1 in it that closed in a week counted as much as a credit card that carried a $20,000 balance for years. Really just a rough cut at measurement.
Knowing that, you can figure out what happened next. Wells Fargo bankers, struggling to meet quotas, opened a lot of low-value accounts. People who signed up for checking accounts got signed up for online access whether or not they wanted it; they got pushed to open credit cards too. And bankers often went a step further and signed customers up for accounts without their permission. Occasionally this helped Wells Fargo and harmed the customers: They had to pay fees on accounts that they didn’t want or know about, and Wells Fargo collected the fees. Sometimes this harmed the customers without helping Wells Fargo: Their credit got worse due to new debt accounts, but the accounts were never used and Wells Fargo never made any money. Often nothing happened to anyone — the customers had $0-balance accounts that were quickly closed with no money changing hands, or free “products” like online banking access that they never knew about or used — but the bankers got to meet their quotas.
The point is just that Wells Fargo had a crude measure (“products sold”) that was meant to approximate an important thing (something like “value extracted out of each customer”), and its overstressed retail bankers cynically optimized the crude measure rather than the important thing. And then Wells Fargo got in huge trouble and was fined a lot of money and it was, like, the major US banking scandal of the mid-to-late-2010s?
Here is a crazy story from Emily Flitter at the New York Times:
Joe Bruno, a former executive in the wealth management division of Wells Fargo, had long been troubled by the way his unit handled certain job interviews.
For many open positions, employees would interview a “diverse” candidate — the bank’s term for a woman or person of color — in keeping with the bank’s yearslong informal policy. But Mr. Bruno noticed that often, the so-called diverse candidate would be interviewed for a job that had already been promised to someone else. …
Mr. Bruno is one of seven current and former Wells Fargo employees who said that they were instructed by their direct bosses or human resources managers in the bank’s wealth management unit to interview “diverse” candidates — even though the decision had already been made to give the job to another candidate. Five others said they were aware of the practice, or helped to arrange it.
The interviews, they said, seemed to be more about helping Wells Fargo record its diversity efforts on paper — partly in anticipation of possible regulatory audits — rather than hiring more women or people of color. All but three spoke on the condition of anonymity because they were afraid of losing their jobs at Wells Fargo or their new employers.
In an emailed statement, Raschelle Burton, a Wells Fargo spokeswoman, said the bank expected all employees to follow its hiring policies and guidelines, which are communicated across the firm. “To the extent that individual employees are engaging in the behavior as described by The New York Times, we do not tolerate it,” Ms. Burton said.
Yeah! Well! That’s what you said last time! Wells Fargo really didn’t want bankers to open fake accounts; they wanted bankers to open real accounts, because real accounts are what make money! But it had a crude measurement system, overworked bankers and not enough oversight, and so it got millions of fake accounts.
Similarly I can believe that Wells Fargo’s senior executives would really like their teams to try to hire more women and people of color. And they implemented a crude but sensible metric to measure those efforts: Each team should interview at least one “diverse” candidate for each open slot. (Apparently Wells Fargo’s official policy applied only to more senior roles, but there seems to have been some ambiguity about that in practice.) And then people optimized for the crude metric, “interview one diverse candidate per job,” rather than for the actual goal, “try to hire more diverse candidates.” And so Wells Fargo got fake interviews the same way it got fake accounts.
I say “come on!” but, you know, this stuff is hard. Wells Fargo is a big bank. To some extent you have to manage a big organization with simple, crude, legible metrics. In a big enough organization, somebody will game those metrics. Ideally you create a culture that minimizes that gamesmanship, one where employees understand and buy into the organization’s real goals rather than just trying to maximize the dumb metrics. Wells Fargo seems to be having some trouble creating that culture.