In this paper, I will argue for the need to regulate the major banks including Well Fargo to prevent potential financial crisis in the future. In 2016, Wells Fargo was involved in a scandal that led to concerns on the commitment of the banks in protecting the interests of their stakeholders. According to The Atlantic, the CEO was questioned on the company’s ignorance and unethical behavior to use pushy sales strategies, which were unethical and illegal. “The debate of regulating the major banks has been ongoing as some people argue overregulation reduces investment in the banking.” However, in the light of the Wells Fargo Scandal, there have been calls for stricter regulation of the banks to avoid potential financial crisis in the long-term period. The report will present arguments for and against the regulation of the banks to determine the best actions to be taken in reducing potential corporate scandals in the financial industry. Corporate fraud and corruption is a significant reason that justifies the implementation of regulation among the banks. Corporate fraud and greed as in the case of Wells Fargo could lead financial instability in the U.S financial industry. Financial regulations and laws will seek to ensure that the banks are accountable and transparent to its customers and other important stakeholders.
    Based on the details of the Wells Fargo, I think the CEO should be blamed for the unethical and illegal actions of the sales people. The CEO is expected to monitor and oversee the overall operations in the banking including the registration of new accounts. The CEO is usually involved in the setting of the goals and targets for the organization. After setting the targets, the CEO should work with the employees and other managers to ensure that the targets are achieved through ethical and responsible means within the organization. In spite of all, the low level sales people will also be responsible for their actions. The sales people have professional responsibility to perform their duties responsibly. Thus, the excuse of meeting unrealistic targets set by the company is not an excuse for them engaging in illegal activities.
    The persons responsible for the registering fake accounts should be fired and prosecuted for violating federal regulations and rules. The scandal adversely affected the confidence of the customers with the banking systems, more so Wells Fargo’s reputation was adversely affected. The customers will need to be prosecuted to clearly explain their actions and the key persons responsible. It is because the senior managers claimed that only the low-level employees were involved in the scandal. Prosecution of the employees involved would be a good action to prevent such unethical and illegal actions in the future. The SOX Act was passed to protect the interests of the customers and investors from fraud. The actions of the employees and failure of the CEO to prevent such incident is punishable under the SOX Act. The law changed the sentencing guidelines and rules significantly and thus, the scandal should be prosecuted based on the guidelines of the Act.
    As a sales person working in such pressuring and tough environment and I had a responsibility to feed my family, I would work through ethical means to meet the set unrealistic targets. It is always possible to perform while working in an organization through ethical means. However, I will engage the managers on the challenge of meeting the targets and reveal to the managers on the potential unethical and illegal practices being used to recruit more clients. Working in a challenging environment is a usually a positive thing that usually inspires good performance. Based on the facts, it is essential for the government to increase the regulations of the banks. The absence of the regulations will give the banking officers an opportunity to act unethically to meet their profit targets.
    Ethical Failures
    The ethical failures that can be identified from the Wells Fargo are similar to the ethical failures that were faced during the 2008 mortgage crisis. Numerous assessments of the 2008 mortgage crisis determined that the major ethical failures included poor risk controls, ignorance to bubble-like situations, and having too much leverage. Such ethical issues were proximate causes to the financial crisis that occurred in 2008. Similarly, Wells Fargo scandal was caused by similar ethical failures including the lack of proper control of the employee’s actions. The senior management blamed the employees for their unethical actions in registering fake accounts to meet the set targets. If the management of the banks worked on their controls, it would have prevented the employees from engaging in the unethical practices. The lack of commitment from the managers in protecting the interests of the public was a huge concern and an indication of the decline of ethical values in the businesses today.
    The main cause of the crisis in 2008 was the total failure of ethical behavior within the financial industry. During the period, the financial industry was not rooted on ethical responsibility and responsibility and the financial companies had the freedom to behave in any way without any control. With the collapse of the ethical behavior and responsibility the actions of the large financial institutions could be seen as unethical. For example, the financial institutions did not care to uphold a sense of fiduciary responsibility to its clients. Most customers expect integrity and responsibility from its financial partners such as banks. Both Wells Fargo and the 2008 financial crisis involved a behavior of easy risk-taking. Over time, clients got the notion that they are always protected from risk-taking behavior. Such ignorance allowed for adverse outcomes as the clients do not perform proper research about the financial institutions and banks before investing in them.
    In 2008, the clients were concerned about the responsiveness of the banks to their needs and their accountability. Subprime lending was marred with significant ethical failures. People could get mortgages from their friendly commercial banks. The bankers were inefficient in reviewing the viability of the clients to get the mortgages. The approval of the mortgages was immoral and brokers adversely affected the process of lending the mortgages to the clients. In addition, the banks did not care about the applications made by the clients. The banks only review the applications without a goal of holding onto the applications. The banks were focused on giving out more mortgages to build more leverage in their overall balance sheets. The standards of underwriting declined significantly and the banks were using shoddy practices to lend money to the clients. The banks were keen on getting more money to keep giving mortgage loans without reviewing and continually assessing the applications.
    Personal ethical failures among people also contributed significantly to the occurrence of the crisis. Many people have argued that greed was the cause of the eventual crash as people were always seeking to make more money. A difference should be made difference greed and legitimate economic rationality that seeks to take advantage of the potential opportunities. However, “the society has been able to create protective measure against potential immoral behavior of people.” The social measures seem to have relaxed in the past few years leading to the deterioration of the corporate ethics and values. For example, the CEOs and corporate managers seem to have ignored their ethical responsibility as they perform their work in the companies. The government should work with the banking associations to ensure that proper regulations and standards to avoid potential financial crisis from corporate scandals.
    The ethics of the organizations have been declining significantly. In the aftermath of 2008 financial crisis, there was a significant crisis of governance among the organizations including the central banks, investment banks, and monoclines among others. The existing managers had bad governance and lack competence in performing their roles. The lack of competence and integrity limited the potential of the organizations getting quality leaders to enhance ethical responsibility and accountability. The ethical failures in leadership of the organization were depicted through the process of risk analysis sand management. Many financial organizations developed rigorous measures to define and evaluate potential risks. The measures sought to cover the potential portfolio risks exposed by the lack of good leadership in the financial firms. The lack of proper ethical guidelines and frameworks among the organizations allows for potential vulnerabilities in the management of the operations.
    The subprime lending banks were involved in unethical activities and behavior of predatory lending. The banks paid huge fees to brokers to get clients for the mortgage products without proper review of the borrowers. Such ethical failures were common in the case of Wells Fargo whereby the senior management did not bother review the credibility of the client accounts. Like the subprime lending banks, Wells Fargo was only concerned with results without reviewing whether the targets were met ethically. “The banks should always set clear policies and regulations to conduct their operations to prevent potential unethical transactions and activities.”
    The occurrence of the Wells Fargo scandal is a clear indication of the potential fraudulent actions that could occur without proper regulations. The U.S congress should work with the Fed to ensure that the financial institutions comply with all set rules. Compliance with banking regulations will reduce potential corporate scandals within the banking sector. In the case, the corporate managers and the CEO argued that they were unaware of the unethical practices being done by their low-level sales people. The creation of stricter regulations would hold the management responsible for any unethical behavior in the organizations. The senior management of the firms should assume ethical responsibility for the actions of their subordinates. Therefore, regulations are necessary to enhance corporate ethics and management of ethical guidelines and values.
    Preventing Corporate Scandals
    After the occurrence of the Wells Fargo Scandal, it was determined that bank employees had opened around 2 million bank accounts without the authorization of the customers. There were suggestions that the CEO and other senior executives at the bank should resign. The managers of the company were blaming their lower level employees for the fraud and 5,300 employees were fired. The board of the bank went ahead to rescind the compensation of the CEO and its former community-banking senior executive, Tolstedt. The executives were not keen on resigning, but rather hide around the situation arguing that they developed a customer-focused approach without proper input from the employees on their strategic goals. Unlike many banks in their situations, Wells Fargo was able to turn their ethical troubles easily and recovering their business operations.
    To prevent such scandals occurring, the banks should set realistic goals for their employees. Wells Fargo was determined to have set unrealistic targets that create a pressure and an incentive to engage in fraud. In dealing with fraud, the identification of the incentive is critical. In such a case, the unrealistic targets from the management made it difficult for the employees to work without engaging corruption to meet their targets. The business strategy should be designed in a good manner to avoid potential fraud and corruption. In addition, the companies should always involve their employees in the decision making process. Wells Fargo did not involve the employees in the process of setting goals. It would be meaningful and appropriate in designing effective strategic decisions. If the employees are involved, they would work well in achieving the business targets and objectives.
    The board of the banks should also supervise and ensure that the employees are helping the company in achieving their goals and objectives. The managements should work closely with the employees to ensure that the company goals reflect the mission of the company. The employees would have benefited significantly from the continuous assessment of the company goals. “Companies that engage the employees in reviewing the company goals are likely to report a higher business performance.” Moreover, the company should utilize the available data on the employees’ goals to review the performance and feedback from the customers. The best strategy for the banks to adjust their cultures and enhance employee engagement is to set proper goals and have relevant performance engagements with the employees.
    Other ways of preventing such fraud is the employing of additional controls on transactions. If the bank had triple controls on the registration of bank accounts, it would have been difficult for the employees to register fake accounts. Multiple controls usually include the confirmation of the account information and the following of the set procedures and processes. The bank should also increase awareness about potential fraud that could occur in the organization. “The education of the employees and customers is critical in preventing such corporate fraud scandals.” Conducting intelligent authentication, prevention of the potential tampering of the transactions and relying on the machine learning would also help in dealing with the potential corporate fraud scandals.
    Deterioration of Corporate Ethics
    In the recent times, the number of corporate scandals reported has been increasing. The corporate scandals are actual scandals as they involve illegal and unethical activities that lead to unacceptable outcomes. In most occasions, these corporate scandals lead to significant losses to the customers and their shareholders. For example, the Wells Fargo corporate scandal adversely exposed the personal information of the clients as their details were used to create multiple bank accounts. However, the CEOS and the consumers have diverse perception on the true nature of the corporate scandals and corporate ethics. Many CEOs argues that the corporate ethics have improving. On the other hand, the consumers argue that the corporate ethics have been deteriorating due to the rising number of corporate scandals reported in the business environment today. The CEOs might feel that they have instituted organizational measures to deal with the corporate scandals including proper ethical codes that influence moral responsible behavior among its employees.
    However, the consumers are always seeking for additional measures to eliminate potential unethical employees in the organizations. When their concerns for the ethics of the corporate organizations, the management should invest in education and awareness on the nature of corporate scandals and how they are preventing such incidents. However, the level of media exaggeration could explain the perception on the deterioration of the corporate values and ethics. The consumers usually depend on the need to form their perception about their ethical responsibility of the banks. The media usually reports on sensational stories and might not report issues of elimination of corporate fraud.
    Today, the business ethics are becoming irrelevant to the corporate managers. The culture of doing the appropriate things has been deteriorating as the corporate managers being forced to focus on the maximization of the company’s wealth and profits. Even today, the corporate managers are being trained about the code of ethics and review of the business environment. However, “the corporate managers are unable to review the nature and implications of corporate fraud on the organizations.” The trend of unethical behavior and practices among the corporate managers indicates the pervasive nature of unethical corporate activities and failures. It is critical that the companies will implement proper ethical responsibility and compliance to enhance productivity and performance in the long-term.
    Some of the opposition to the regulation of the banks includes the regulation undermines the principle of laissez faire. The critics of the regulations suggest that the current laws and regulations do not directly address the key causes of financial crisis. For instance, some claims that the financial crisis was not caused by the ethical failures of the banks, but the continued underpricing of the risks caused by the corporations that had taken too much debt. “The experts opposed to the regulations of the banks also claims that other factors including increased cash from foreign investors and low interest rates hurt the financial sector.” Based on these arguments, the bank regulations would not be able to prevent the occurrence of potential crisis. The opposition towards regulations is for the bank to protect their earnings. The regulations of the commercial banks are relevant in promoting the process of ethical responsibility in the financial sector.
    The support for regulations is that the belief that the setting of rules and legislations will help in improving financial stability. Intelligent regulation is good for the banking sector as it will help to improve accountability and credibility I the sector. With the setting of new regulations, it would offer some guidance to the bankers to enhance stability in the sector while punishing violators of the regulations. Apart from the banks, evidence from other financial institutions indicates that it is important to regulate the banking sector. Investment firms and credit institutions have engaged in predatory behavior while handling money. Such behaviors are risky and promotes greedy that leads to potential financial crisis. Largely, I believe that policy and regulatory interventions are relevant in reducing the potential of diversification that is critical to counter potential systematic risk exposures. The government has moral responsibility to protect the investors from potential losses. Thus, the setting of regulations for the banks is relevant to enhance ethical responsibility and accountability.
    In summary, the benefits of regulations of the banks outweigh the costs of non-regulation of the banks. The example of Wells Fargo scandal makes a strong argument for the regulation of the banking industry. Any corporate scandal in the banking sector hurts the confidence of the consumers within the commercial banks. Today, most corporate managers are unwilling to review the implications of corporate fraud on the organizations. Multiple controls usually include the confirmation of the account information and the following of the set procedures and processes. The bank should also increase awareness about potential fraud that could occur in the organization. The business strategy should be designed in a good manner to avoid potential fraud and corruption. Moreover, the companies should always involve their employees in the decision making process. Wells Fargo did not involve the employees in the process of setting goals. Performing intelligent authentication, prevention of the potential tampering of the transactions and relying on the machine learning would also help in dealing with the potential corporate fraud scandals. As a result, the regulations of the commercial banks are critical to enhance ethical and corporate responsibility.

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