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Monday
Oct032016

Mike Scher: How should compliance officers handle the Wells Fargo scenario?

For compliance officers wondering about Wells Fargo and their own companies and careers, here’s my advice. Put aside your personal politics or ideals and look deeply into your company’s core values. These are the values expressed by the Board through the codes of conduct.

You will discover an inherent conflict of values between what’s in the public interest and what’s best for commerce. In the 1990s Peter Eigen, the founder of Transparency International, urged business competitors to work together to maximize both values. For the last two decades, the U.S. Federal Sentencing Guidelines revolutionized the compliance field with incentives for companies to create real compliance programs. (Joe Murphy explains value choices in compliance in a recent law review article.)

Balancing these core values became an ongoing mission for the compliance profession.

Wells Fargo came to grief because it wouldn’t face this conflict. There were two kinds of problems -- unauthorized accounts openings and the poorly managed ‘lawful but awful’ sales quotas. (Tom Fox explains Wells Fargo’s sales quota program and summarizes the expanding controversy.)

First, about the unauthorized accounts -- the company knew it had a problem. Wells Fargo wasn’t trying to build revenue from consumer fraud. The bank added training, tried to detect and fire the cheating employees, and brought in outside investigators -- but they couldn’t stop it. Despite an unsolvable management problem, the CEO and Board supported the sales program, apparently unchanged for five years.

To the public, it looks like the company treated this consumer fraud as “collateral damage” to a sales program they had every right to use. It turns out that the only way to stop the consumer fraud was to end the sales program.(Richard Bistrong explains how hard it is to set ethical sales quotas.) But responding to public outcry, Wells Fargo has ended the sales quota program, at least until it can figure out how to reform and properly manage it.

Second, the "lawful but awful" sales quota program has escaped the attention it deserves. Did Wells Fargo use pressure sales techniques to sell customers credit cards they didn’t need and couldn’t afford? Did the company pressure customers to open accounts they didn’t want or need? As one employee protested: ‘Where are you getting these sales quotas?’ Were the quotas balanced and fair to customers or just numbers to grow profits? When and how did Wells Fargo debate the core values for its sales program?

My argument is that compliance officers need to force a debate on balancing all the core values. If not, there will be more scandals over the core values of public and commercial welfare. This will be a new process for compliance officers and management. There will be conflicts and push back.

But beware. The compliance officers who force this debate have a 50/50 chance of committing career suicide, based on what’s happened before to compliance officers and whistleblowers. Think carefully about your family and your own life. Compliance is a career with a mission but it’s not a blank check drawn on your right to a decent life. There is the option to vote with your feet and change jobs.

If you decide to fight it out, my advice is to document everything you do to force a debate about core values; keep your personal ideals out of it; maintain all your legal duties of loyalty and confidentiality; build a network of compliance officers and friends to encourage your mission; and hire a lawyer if it comes to illegal threats, retaliation or before going to the regulators like the SEC’s whistleblower office.

Compliance keeps growing. We do post mortems from scandals. We use the lessons learned to create innovations in compliance programs to fix the gaps. From Eigen’s Transparency International, the U.S. Federal Sentencing Guidelines, and norm of restructured Compliance 2.0, the mission evolves.

Compliance officers who explain how core values work and how they must be balanced are an essential innovation for the future.

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Michael Scher is a senior editor of the FCPA Blog. He has over three decades of experience as a senior compliance officer and attorney for international transactions. He'll be a speaker at the FCPA Blog NYC Conference 2016.