Wells Fargo, a bank that made more than $80 billion in revenue and has a market value of $277 billion, was fined $185,000,000 by federal regulators for creating 1.5 million fake credit card accounts. In the plea bargain that regulators made with bank officials, Wells Fargo admitted no responsibility for the financial misconduct. The company had fired more than 5,000 of their lowest-paid employees but neither the senior vice-president for community banking where the fraud occurred nor the CEO lost their positions. CEO John Stumpf, named in 2013 as Morningstar’s CEO of the Year and earning about $20 million a year, did face U.S. Senate Banking Committee questions about the phony accounts last week. In testimony, the CEO did say “I take full responsibility for all of the unethical practices in our retail banking business.”A member of the Banking Committee, Senator Elizabeth Warren (Dem.-Mass) said what the bank did was a “scam” and that Stumpf “should resign… and you should be criminally investigated.”
Looking back at the fallout from the Great Recession of 2008 in lost billions of investors’ dollars, millions of home foreclosures, and crushed hopes of a generation of hard-working American retirees–apart from one senior trader at Credit Suisse who was convicted and served 30 months—not one single CEO of an investment house, bank or insurance company hip-deep in deceiving and defrauding Americans was indicted or served a day in jail. Yes, federal regulators fined other banks like JPMorgan Chase and Bank of America billions of dollars but they like Wells Fargo admitted no unlawful conduct and took no responsibility for their actions (see here, here, here, and here). Contrast that with the savings-and-loan bank failure in the 1980s when over 1,000 bankers went to jail for fraud and similar charges. That was then, this is now.
Immunity from accountability is currently widespread in the private sector. But not in the public sector.
Take the case of the Atlanta Public Schools and the cheating scandal between 2009-2015. Superintendent Beverly Hall led the district between 1999 and 2010. In 2009, she was named Superintendent of the Year by the American Association of School Administrators. After an investigation by state officials in 2011 triggered by the Atlanta Journal-Constitution revelations in 2009 that nearly 180 teachers and officials in 44 schools raised students’ test scores, Hall and 31 teachers and administrators were indicted and stood trial. Most of these educators took plea deals; Hall died of breast cancer during the trial. Eleven educators accused of tampering with students’ test scores were convicted in 2015 and are now serving from one to seven years in Georgia prisons.
No immunity from accountability here.
Lawyers and historians say often that before rushing to judgment, one must become familiar with the circumstances, the organizational setting and the mind-set of those who committed the crimes. So what were the contexts for Wells Fargo’s fraud and Atlanta’s cheating scandals?
Beginning as early as 2009, individual employees, many of whom earned less than $15 an hour, were expected to sell Wells Fargo products (e.g., credit cards, over-draft protection, checking and savings accounts) to existing customers in order to meet their monthly goals. If they fell short, sales representatives were written up, reprimanded or let go. Managers put intense pressure on their employees to meet these targets. Rita Murillo, a bank manager who left the company said: “We were constantly told we would end up working for McDonald’s. If we did not make the sales quotas … we had to stay for what felt like after-school detention, or report to a call session on Saturdays.”
Wells Fargo quarterly profits continued to climb in the years following the Great Recession. Investors were pleased.
As the years passed, word of bogus credit cards, checking and savings accounts and angry customers leaked out. The Los Angeles Times published an expose of the practices in 2013. The intense race to meet monthly goals created a culture where sales staff were pushed again and again to meet their targets or else. Phone calls from bosses were dreaded. After newspaper articles appeared, managers fired employees. Even after the LA Times‘ revealing of these practices and the dog-eat-dog ethos at Wells Fargo, bogus credit cards and new accounts continued. Then state and federal regulators entered the picture. Fines were levied against Wells Fargo but not one senior executive was either admonished or forced to resign.
This is the context for Wells Fargo (see here, here, and here).
The Atlanta Public Schools
The high-poverty, mostly black district had struggled for decades with low graduation and high dropout rates and state test scores near the bottom of Georgia’s public school systems. Within the segregated district–there are a few largely white schools and the rest are largely black–academic gaps between white and black have been large and persistent (e.g., majority white Grady High School graduates 82 percent of its students while majority black Douglass High School is 42 percent).
Pressure to raise state test scores and graduation rates rose and fell as superintendents came and went in the 1990s. With the appointment of Beverly Hall in 1999 and the passage of the federal No Child Left Behind law (2002), that pressure increased considerably. Rewards and sanctions accompanied goals of raising test scores across the district. All teachers in schools meeting 70 percent of their goal, for example, would receive bonus payments. The superintendent’s contract had a similar provision for increases to her salary. Sanctions for low test performance under NCLB led to closed schools, firing principals and reprimands for district office administrators not meeting state and federal goals under Adequate Yearly Performance (AYP).
Hall was determined to improve Atlanta’s student performance. And the numbers rose over the years. Bonuses went to many schools and the superintendent. Rumors of tampering with test scores circulated and were dismissed. A number of teachers reported principals fiddling with test score results. Nothing happened except strong district office messages to be quiet or leave. A culture of fear blanketed schools. Then the Atlanta Journal Constitution investigated the rumors and published their startling report in 2009 on how much adult cheating occurred on district tests. State officials then completed their investigation in 2011 (see here).
The results of that investigation led to charging the superintendent, principals and teachers in over three dozen schools with changing student test scores. The report pointed to the high-stress placed on raising test scores and the pervasive fear among school employees of retaliation if anyone reported abuses. Some quotes from the state inquiry:
*“Throughout this investigation numerous teachers told us they raised concerns about cheating and other misconduct to their principal or SRT [School Reform Team] … only to end up disciplined or terminated.”
*“[T] message was: ‘Get the scores up by any means necessary;’ in Dr. Hall’s words, ‘No exceptions and no excuses.’”
*“In sum, a culture of fear, intimidation and retaliation permeated the APS system from the highest ranks down.”
At both Wells Fargo and in the Atlanta public schools hard-driving managerial pressures created fear-strewn workplaces where success-filled data became the goal. Similar contexts in a public and private institution turned up.
Yet accountability for fraud in these two institutions differed greatly. How come?
Part 2 tries to answer that question.