Circling the Wagons: United States Department of Labor Requires Reinstatement and Back Pay for Wells Fargo Whistleblower

Circling the Wagons: United States Department of Labor Requires Reinstatement and Back Pay for Wells Fargo Whistleblower

By now we are all familiar with the widespread account fraud scandal banking giant Wells Fargo faced in late 2016 and early 2017. While the bank mires in fines and uncertainty, much of the compliance community is left wondering what happened to those employees who brought the fraud to light.  As we move further into 2017 we begin to understand the widespread fallout from the Wells Fargo scandal.


Related:  Wells Fargo Sales Abuses and Decentralization


 Last week the United States Department of Labor (“DOL”) ordered Wells Fargo to reinstate and provide back pay to a California branch employee (the DOL keeps names of complainants anonymous) who was fired after reporting part of the fraud that was going on within the bank. As a result of a complaint to the DOL, this employee will be reinstated and paid $577,000 back pay wages, damages, and other compensation.

In one of the first of undoubtedly dozens of similar complaints, last week’s order shows the parameters of how a company must handle retaliation complaints in the wake of a large-scale public scandal. In addition to paying hefty monetary damages, Wells Fargo must reinstate the employee it fired and ensure that he or she is made to feel comfortable returning to a working environment where he or she made well-founded allegations and was actually retaliated against. This is not always an easy task.


Related:  Wells Fargo Sales Abuses and Performance Management


Reinstatement is always an equitable remedy in retaliation and discrimination cases. While many employees who sue their employer (or make Government Agency complaints) are looking to separate from the company and make them pay financially for their illegal actions, some employees truly love their work and wish to return to active duty as soon as a jury, court, or agency finds that the employer was in the wrong. In cases such as the one discussed above, it is extremely important that companies train their managers and employees on not only avoiding retaliation at the outset but how to welcome a newly reinstated employee back into the fold.

Admittedly, returning an employee who made serious official complaints is not the easiest task, and is one that often leads to further charges of whistleblowing, ostracism, discrimination, and retaliation.  That said, there are effective methods of ensuring that your workplace is a healthy one for an employee who is reinstated, such as private meetings with managers who will supervise the employee to discuss any issues that may be present with co-workers who may have been subjects of the complaint, and how to legally and correctly address them.


Related: Wells Fargo Sales Abuses and the Business Model


All methods of preventing and correcting retaliatory employment action are of course discussed in Syntrio’s preventing unlawful retaliation course, which we highly recommend as part of a suite of employment law and human resources training at all companies we work with. Doing so will have you far better prepared if disaster strikes.


 Do you have questions about your current anti-harassment, anti-discrimination or code of conduct training program? Contact us and we can work with you to make recommendations to augment and/or improve your current offering.

Syntrio is a leader in both the ethics and compliance field, as well as human resources and employment law, and is prepared to help your company implement a compliance program aimed at reducing the potential impact of compliance violations within the organization. Syntrio takes an innovative philosophy towards compliance program design and strives to engineer engaging, entertaining, and thought-provoking content. Contact www.syntrio.com for more information about our ethics and code of conduct online courses and remember to follow us on Facebook, TwitterGoogle Plus and LinkedIn for daily updates on employment law and compliance that impact your company!

 

Written by Jon Gonzalez,  Esq., Chief Legal Counsel

Puerto Rico Meat Market Agrees to Change its Hiring and Recruitment Practices

Puerto Rico Meat Market Agrees to Change its Hiring and Recruitment Practices

Many United States companies incorrectly treat operations in Puerto Rico as extra-jurisdictional and “different” than the way they conduct business in the United States. The reasoning behind this is the fact that Puerto Rico has a complicated political status, in that it is an unincorporated territory of the United States. Even though U.S. federal laws such as Title VII, FLSA, ERISA and others have full force and effect within Puerto Rico, the territory has its own [very employee friendly] laws and statutes that have key differences from the way employment law operates on the mainland. This obviously complicates the crafting of policy and procedure within that jurisdiction. For example, the much adhered-to principle of “employment at will” on the mainland is not the law on the island.

What does all of this mean? As with any multi-jurisdictional business, employers need to be very careful with how they craft their policies and procedures. Merely crafting “one-size-fits-all” employment policies is absolutely a recipe for disaster. When your business expands outside your home state, territory, or country, you are asking for trouble if you do not take a careful look at the way you are doing things to ensure that those policies comply with the law in the place you have employees working. The following example highlights the need to keep careful track of policies because failure to do so can prove very costly.

On July 24, 2017, an international meat market with a facility in San Juan, Puerto Rico agreed to a settlement with the United States Equal Employment Opportunity Commission requiring the company to pay an unspecified monetary amount to unsuccessful job applicants and revise its policy for recruitment and hiring to prevent Age Discrimination in its workplace. In addition to the federal age discrimination violations, there were also several key provisions of Puerto Rico law that appeared to have been violated by the defendant’s former hiring practices.

By failing to pay attention to the fact that U.S. federal law applies in Puerto Rico, and further ignoring the complicated and employee friendly Puerto Rico employment laws, the company operating the meat market opened itself to a variety of lawsuits and agency investigations that culminated in a multi-year EEOC investigation into discriminatory hiring practices by this employer in Puerto Rico. Had the meat market merely done a careful review of the laws in place (rather than treat Puerto Rico as a “wild” and “lawless” territory), it is very likely it could have spared itself a significant amount of monetary damages and public shame as a result of the practices it put in place.

It is always a good idea to implement careful training programs for managers who craft policies that are impacted by federal law. As part of its suite of employment law and human resources courseware, Syntrio provides online courses covering interviewing and hiring, employment discrimination training,  and a variety of other topics critical to managing your business within the complicated laws governing employment in the United States and its territories. We invite you to contact us at your convenience to learn more!


 Do you have questions about your current anti-harassment, anti-discrimination or code of conduct training program? Contact us and we can work with you to make recommendations to augment and/or improve your current offering.

Syntrio is a leader in both the ethics and compliance field, as well as human resources and employment law, and is prepared to help your company implement a compliance program aimed at reducing the potential impact of compliance violations within the organization. Syntrio takes an innovative philosophy towards compliance program design and strives to engineer engaging, entertaining, and thought-provoking content. Contact www.syntrio.com for more information about our ethics and code of conduct online courses and remember to follow us on Facebook, TwitterGoogle Plus and LinkedIn for daily updates on employment law and compliance that impact your company!

 

Written by Jon Gonzalez,  Esq., Chief Legal Counsel

Wells Fargo Sales Abuses and Decentralization

Wells Fargo Sales Abuses and Decentralization

Shearman & Sterling’s April 2017 “Sales Practices Investigations Report” for Wells Fargo’s independent directors addressed numerous deficiencies, one of which was the bank’s decentralized structure. The investigation identified the autonomy provided to each business unit as a major factor in the sales abuse scandal. These findings offer rich insights for companies in how ethics and compliance education can guard against such problems.

Tracing from Wells Fargo’s merger with Norwest Bank around 1998, the new company began operating with a decentralized business structure. The mantra was “Run it like you own it”, which allowed business unit leadership to determine each unit’s own activities. The business unit senior leader served as the “king” or “queen” of the business. This structure also dictated that each unit exercised control functions, such as Risk and Human Resources. Each unit’s leaders and risk and HR officers were the “first line of defense”.  Wells Fargo’s senior leadership believed that this model was the superior method for managing risk, as long as it functioned according to the bank’s Vision & Values Statement. The bank’s 2013 annual report stated: “Our risk culture is strongly rooted in our Vision and Values, and in order to succeed in our mission of satisfying all our customers’ financial needs and helping them succeed financially, our business practices and operating model must support prudent risk management practices.”

Many companies have found great success with decentralized business structures. Insurance behemoth AIG (before its fall off during the Great Recession) built a worldwide business based on a decentralized model during the early part of the 20th century when communication with headquarters and between offices was difficult. In fact, for many years, Wells Fargo was successful with this structure.  According to the report, decentralization was attributed for helping the bank to weather the 2008 financial crisis. CEO John Stumpf credited Wells Fargo’s continued success with the structure’s agility in managing risk by spreading decision-making among the business units to getting important decisions closer to the customer. Stumpf was the principal advocate for the decentralized structure. For the Community Bank that later suffered the sales abuse scandal, this success ratcheted the up the reputation and authority of its senior leader, Carrie Tolstedt.

At the same time, the decentralized organizational structure also presents risk. Any time leadership amasses a great deal of power, the organization is at risk in how leadership exercises this power. The ensuing culture that this structure fostered whereby the business unit leader was viewed as a “king” or “queen” of their domain raised this risk. This structure created a culture of deference to business unit leadership whereby limited opportunity or encouragement existed to challenge or comment on significant issues under the leadership. In return, the report found, business unit heads could be insular and defensive and lack the willingness to share information with Corporate. In fact, in this instance, the report identified that the Community Bank’s “senior leadership resisted and impeded outside scrutiny or oversight and when forced to report minimized the scale and nature of the problem.”


Ask us about our compliance and ethics training.


Nevertheless, the bank’s past success with the decentralized structure led CEO Stumpf to stand back and let business units fix their own problems. With respect to the Community Bank’s sales abuse problems, Stumpf relinquished this control even as situation aggravated and threatened substantial reputational harm to the Wells Fargo enterprise.

Successful financial institutions are in the risk management business—understanding, constantly evaluating and managing risks that could harm their operations, capital structure, business-to-business relationships, and viability. So, control functions typically are well structured and staffed if a bank wants to safeguard its assets and reputation. However, in Wells Fargo’s case, the decentralized business structure also fostered a coordinate decentralized control structure. Each business unit maintained parallel control functions with that of Corporate, principally Risk Management and Human Resources. This meant that Corporate Risk and HR functions had reduced power over and insight into business unit activities and had to rely on these business unit functions for Corporate’s information. Little to no coordination existed among Corporate and the business units, specifically related to the emerging sales abuse scandal.

Because of this, as information on the sales abuse scandal slowly emerged, Stumpf and Corporate had little way to learn about what was unfolding—they had to rely on the Community Bank’s leadership for their information—and for responsive actions to emerging problems. Stumpf trusted the Community Bank’s leadership to fix the problem, partly because he counted on them to run their business—in any event, he had limited recourse to learn about what was happening.

As the scandal gradually unfolded and more and more information began to bubble up to Corporate, Stumpf began to both recognize the problem and local leadership’s unwillingness to acknowledge the extent of the problem and take appropriate action to stop and correct it. In response, Stumpf began instituting cross-business collaboration and increased centralization and authority for risk and control systems. But his actions came too late for the ensuing scandal and the comfort of the Board of Directors.

The Value of Education

It’s difficult to know how to respond to a situation that one hasn’t either experienced or learned about. This can be especially taxing for leadership that may be writing the book on new and innovative business approaches where seemingly no precedent exists from which to learn. Nonetheless, if leadership wants to avoid the pitfalls of turncoat organizational structures and broken business models, it must find a way to identify these lessons and quickly learn from emerging problems.  This is where certain educational approaches can provide value, including:

  • Case study discussions – While certain business approaches may be new, much can be learned from situations others have faced—and how to assess and respond to similar ones. The decision recognition/analysis/response method can take leadership a long way to building competencies that will assist with handling new business approaches.
  • Scenario planning – This more sophisticated approach to the ‘what if’ educational model involves foreseeing possible risks and their outcomes and then learning how to recognize and avoid them.
  • Stress testing – Leaders need to understand just how far they can stretch business strategies and processes before they show risk of failure—and what signs to look for regarding trouble.

Ethics and compliance education is not just for the masses. Individuals at all levels, including senior leadership, have something to learn respective to their roles. In fact, a strong case exists for why leaders need more education requisite to their level of responsibility. Great influence requires heightened awareness of and competencies with managing that influence. As the Wells Fargo report demonstrates, the bank’s leadership across the board would have been well served from training to recognize, evaluate and respond to the emerging risks it encountered.


 Do you have questions about your current anti-harassment or code of conduct training program? Contact us and we can work with you to make recommendations to augment and/or improve your current offering.

Syntrio is a leader in both the ethics and compliance field, as well as human resources and employment law, and is prepared to help your company implement a compliance program aimed at reducing the potential impact of compliance violations within the organization. Syntrio takes an innovative philosophy towards compliance program design and strives to engineer engaging, entertaining, and thought-provoking content. Contact www.syntrio.com for more information about our ethics and code of conduct online courses and remember to follow us on Facebook, TwitterGoogle Plus and LinkedIn for daily updates on employment law and compliance that impact your company!

 

Written by Jason Lunday,  Vice President of Product Development, Syntrio

Silicon Valley’s VC Casting Couches

Silicon Valley’s VC Casting Couches

"Everyone has heard of Hollywood’s infamous casting couches. Recently, it seems like they are springing up in the Silicon Valley."

The Floodgates Are Opening

Over the last couple of months, there has been a slew of revelations about alleged sexual harassment claims from Silicon Valley companies, like Uber, forcing the unexpected resignation of its CEO, Travis Kalanick. Interestingly, multiple sources have cited that top venture capital firms who were invested in Uber demanded Kalanick resign.

This is slightly ironic, because, in the same time frame, there were Silicon Valley VC firms getting blasted by female entrepreneurs for alleged sexual harassment and misconduct while seeking to fund their businesses. Just last week, over two dozen women in the tech industry working with Silicon Valley VCs have gone public with their allegations in a New York Times article (June 30, 2017), "Women in Tech Speak Frankly on Culture of Harassment."

One female entrepreneur spoke of being propositioned by a Silicon Valley venture capitalist while seeking a job with him. Another showed the increasingly suggestive messages she had received from a startup investor. One CEO described the multitude of sexist comments she received from an investor while raising money for her online community.

High-Level Fallout

Ten of these women identified specific investors and VC firms and were able to corroborate their collective stories with emails and text messages. Chris Sacca of Lowercase Capital and Dave McClure of 500 Startups are two of the alleged perpetrators. Chris Sacca published an apology letter and Dave McClure stepped down from his leadership role.


Learn more about Syntrio's Preventing Harassment Training.


These women came forward not long after The Information broke the story on Justin Caldbeck’s co-founder of Binary VC firm and multiple allegations (six in total) of sexual harassment from women seeking investments in their entrepreneurial startups.  Major investors behind Binary Capital were leaning towards not funding a $175M second investment. Justin Caldbeck has resigned from the company. Interestingly, he had been accused of sexual harassment in two other VC firms where he worked.

Unanswered Questions

What drives this behavior? Why does this predatory behavior continue to happen and flourish? What allegations will come to light next? While we may never be able to answer all of these questions, one would have to believe there is some level of cultural acceptance of the behavior.  On the bright side, this spinning flywheel of stories of being shared might be the catalyst necessary to drive some true change in the VC community.

For a couple of years now a group of 30 venture capitalists have been drafting a code of conduct for members of the industry that will set clear standards for unacceptable behavior, such as sexual harassment of founders, and will outline penalties for violators. Part of the code includes a retaliation-free reporting channel for women who experience sexual harassment. This group plans to present the proposed code of conduct to the National Venture Capital Association (www.nvca.org) by September 30, 2017. The code also recommends creating a list of “bad actors” and “good actors,” based on their treatment of women and minorities.

Separately, the Caldbeck revelations have prompted at least two VC firms, including Upfront Ventures, to extend their internal sexual harassment policies to include relationships between VCs and founders. Two other firms, IVP and Foundation Capital, say they’re considering doing so. Sexual harassment laws apply to the traditional employer-employee relationships but not to startup founders raising money from VCs. According to The Information, of roughly a dozen VCs contacted last week, just two said their company guidelines prohibit sexual harassment between VCs and founders as well as between employees.

It seems shocking that this can be the case, but it does help explain how some of these alleged transgressions could have occurred.

These revelations of alleged sexual harassment and the work to establish a code of conduct for VCs could be the impetus for true change in that industry, especially if the NVCA can support, market, and reinforce this code through its association.

 


 Do you have questions about your current anti-harassment or code of conduct training program? Contact us and we can work with you to make recommendations to augment and/or improve your current offering.

Syntrio is a leader in both the ethics and compliance field, as well as human resources and employment law, and is prepared to help your company implement a compliance program aimed at reducing the potential impact of compliance violations within the organization. Syntrio takes an innovative philosophy towards compliance program design and strives to engineer engaging, entertaining, and thought-provoking content. Contact www.syntrio.com for more information about our ethics and code of conduct online courses and remember to follow us on Facebook, TwitterGoogle Plus and LinkedIn for daily updates on employment law and compliance that impact your company!

 

Written by Darin Hartley, M.Ed., CPLP Fellow, Director of Marketing, Syntrio

Wells Fargo Sales Abuses and the Business Model

Wells Fargo Sales Abuses and the Business Model

Shearman & Sterling’s April 2017 “Sales Practices Investigations Report” for Wells Fargo’s independent directors addressed numerous deficiencies, one of which was the bank’s business model. The investigation identified the bank’s business model (sometimes called “sales model”) as a major contributory factor to the sales abuse scandal. These findings offer rich insights for companies in how ethics and compliance systems, especially educational efforts, can guard against such problems.

The Business Model and Its Role

A company’s business model serves as the go-to-market strategy for how it will compete—informed from an understanding of the market, customers’ needs, the company’s competencies and available resources, among other considerations. Consider the following examples:

  • Apple’s heavy focus on product design and user interface to attract a groundswell of customers.
  • AIG’s entrepreneurial mindset that led its companies and offices to quickly innovate insurance products to meet local needs.
  • Ritz Carlton’s ‘customer first’ approach that pushed it to the top of the major market hotel chains.
  • McDonald’s franchise model that allowed its restaurants to quickly proliferate across the country—and the world.

Critical to a business model is ensuring its ongoing viability as market forces, customer expectations, internal operations, and other factors change. A danger also exists in blind adherence to a business model. Leadership’s job is to regularly assess whether a business model is working, tweak it to generate better performance or change it to turn around performance if troubling signs indicate doing so.

The Wells Fargo Community Bank Business Model

As the report states: “Senior management in the Community Bank [Wells Fargo’s retail operations] had a deep-seated adherence to its sales model. The model generally called for significant annual growth in the number of products, such as checking accounts, savings accounts, and credit cards, sold each year.” The report added that the bank’s decentralized structure put too much control with business unit leadership, with corporate seemingly only concerned with results, not how they were achieved.


Want to learn more about Syntrio's online courseware?


As reported in many press articles, Stumpf and the bank bought into the notion that an appropriate average number of accounts per person would be eight, because “eight is great”—he liked the rhyme. At the time of the scandal, the bank had been, through cross-selling, incrementally raising this ratio in the upper 5’s and lower 6’s—still not too close to the goal of eight. (See: “How The Wells Fargo Phony Account Scandal Sunk John Stumpf,” Forbes, Sept., 23, 2016.)

When the business model began to break down under stress, the report states that the Community Bank’s senior leadership “distorted the sales model and performance management system, fostering an atmosphere that prompted low-quality sales and improper and unethical behavior.” Over time, this led to employees pushing customers to open accounts they didn’t ‘need and, in many cases, opening accounts without the customer’s authorization. “Keeping the sales model intact and sales growing meant that the Community Bank’s performance management system had to exert significant, and in some cases extreme, pressure on employees to meet or exceed their goals.”

The report adds: “Even when challenged by their regional leaders, the senior leadership of the Community Bank failed to appreciate or accept that their sales goals were too high and becoming increasingly untenable . . . Community Bank leadership resisted and impeded outside scrutiny or oversight and, when forced to report, minimized the scale and nature of the problem.”  

Interestingly, an important control over the business model would seem to be that same separation between corporate and business units. If the business units would operate independently, this could provide corporate with the independence and objectivity to properly review the Community Bank’s sales model. But, the report continues, CEO Stumpf “was Wells Fargo’s principal proponent and champion of the decentralized business model and of cross-sells and the sales culture . . . [but was] too late and too slow to call for inspection of or critical challenge to the basic business model.”

On this point, the report concludes: “It was convenient instead to blame the problem of low quality and unauthorized accounts and other employee misconduct on individual wrongdoers and poor management in the field rather than on the Community Bank’s sales model.” As this investigation confirmed, “the only way definitively to address the broken sales model and the root cause of sales practice abuses was to emphasize other metrics for performance and to abandon exerting pressure through sales goals and sales-driven incentive programs.”

The Value of Education

As stated previously, it seems reasonable that a principal duty of leadership is to ensure the company operates with a sound business model and one that pivots where needed to adjust to market conditions. No one else in the organization will have the overall perspective to perform this role. It must reside with leadership. In exercising this responsibility, leadership needs to:

  • Understand the business model and how it’s intended to work.
  • Understand and have the ability to exercise the tools that promote the business model, such as performance management systems.
  • Have the ability to regularly assess the business model for success, or how to adjust or change it if found to be losing its effectiveness or is improperly applied through the requisite tools and resources.

There’s an old notion that the vast majority of people are ethical, which they develop in their early years, and that only a very small fraction of people are ‘bad eggs’.  The regular scandals that we read about in the news, most recently Wells Fargo, Volkswagen, Takata, Toshiba, and many others, argue against this. Rather, it appears that all levels of management face ethical challenges; one’s ability to successfully resolve these increasing challenges the higher up one goes requires increased levels of knowledge and skills. The entry level employee may not understand a company’s code of conduct and so requires this training. And the higher up one goes, the greater mastery of ethical issue recognition, evaluation, and resolution that is needed to respond to increasingly subtle, difficult and vexing problems.

In Wells Fargo’s case, leadership needed the skills manage the business model, not simply set it in motion and hope for the best. These leaders required an ability to ensure the model’s ongoing viability, manage performance systems in line with the model and respond to the bank’s other control systems (such as its code of conduct and policies) and identify when the model or performance systems were off kilter from objectives (and not just financial objectives). These skills are sometimes gained on the job, during lower-risk problems, but also can come from well-designed training that incorporates ethics and compliance elements to challenge operational practices and alternatives.

In short, ethics and compliance training is not just about knowledge of legal and corporate standards of conduct. In its best, this training involves applying these standards and related instruction to situations that a company is likely to face (to address the high-probability risks) and that may be existential risks (perhaps low probability in occurring but high probability in harming the company or others). Meaningful training is about building skills and influencing behaviors related to one’s specific responsibilities.

The Wells Fargo scandal provides one more compelling reason why senior leadership needs to take ethics and compliance education relevant to its specific responsibilities very seriously.

 


 Do you have questions about your current ethics and compliance training program? Contact us and we can work with you to make recommendations to augment and/or improve your current offering.

Syntrio is a leader in both the ethics and compliance field, as well as human resources and employment law, and is prepared to help your company implement a compliance program aimed at reducing the potential impact of compliance violations within the organization. Syntrio takes an innovative philosophy towards compliance program design and strives to engineer engaging, entertaining, and thought-provoking content. Contact www.syntrio.com for more information about our ethics and code of conduct online courses and remember to follow us on Facebook, TwitterGoogle Plus and LinkedIn for daily updates on employment law and compliance that impact your company!

 

Written by Jason Lunday, Vice President of Product Development, Syntrio