When multi-million- or multi-billion-dollar businesses go belly up, those lowest on the proverbial totem pole tend to be the ones hit the hardest. Similarly, when these organizations are caught doing something clearly illegal/unethical, the company’s stock will take a hit, negatively impacting shareholders (in addition, of course, to the victims of the larger malfeasance), and officers may get fired or are forced to resign, but often, top executives won’t be held accountable, with their corporations settling to avoid admission of guilt. Or these executives will be sent out of the door with a nice severance/benefits package, and perhaps an advisory or board position—and still no assignment of culpability. If you or I mess with or take someone’s money, we are thieves, criminals, destined for the jailhouse. If banks and other financial institutions play fast and loose with people’s savings, they not only aren’t liable to be challenged on taking risky positions, but may even be rewarded for their behavior. No blame, and little disincentive for them not to do the same with more clients. If you think this is unfair, you’re not alone. However, the notion this is allowed to continue unfettered, especially after the recklessness that caused a global financial crisis, perhaps says as much about the 99% as it does the top 1% pulling the strings and reaping the lion’s share of the benefits.
The latest exhibit in the annals of corporate/individual greed is the recently-revealed scandal surrounding Wells Fargo, in which thousands of employees created millions of fake accounts to charge unsuspecting customers, apparently in line with a company culture that prioritized sales and thus encouraged cheating to make numbers. The usual minimalist mea culpas were issued: we messed up, we’re sorry, we’re giving back money to the customers who were overcharged, we’re reviewing our process controls, we’re doing away with sales goals. You know the routine by now. And while the 5,000+ employees and managers directly responsible for the illegitimate practices have been let go, the figures at the upper echelons of the organization and ultimately culpable have not been held accountable, either being allowed to keep their positions or glide away on a golden parachute/retirement package worth tens of millions in salary and benefits.
Susan M. Ochs, writing for The New York Times, details how key figures have yet to be touched by this scandal, and it’s unclear if they ever will, at least not in a meaningful way. Carrie Tolstedt, who retired in July from her position as divisional senior vice president for community banking, allowed this unchecked manipulation of sales numbers to occur on her watch, and for her failure to correctly manager her responsibilities, she received a retirement package valued at nearly $125 million. Meanwhile, the head honcho of the entire company, CEO John Stumpf, has apologized, but hasn’t offered to resign. Imaginably, people who deal in policy involving the big banks and consumer protections, such as Elizabeth Warren, have demanded accountability from Stumpf and others high up on the Wells Fargo food chain. Moreover, it is not as if there aren’t consequences for Wells Fargo now and potentially in the future. In tangible terms, the bank was fined some $185 million in penalties by a consortium of federal regulatory agencies, and going forward, it and other major players in the banking industry stand to suffer from a backlash from a public that already approaches the top American banks with a measure of distrust and trepidation. Yet at Wells Fargo, authorizations—implicit or explicit—of shady cross-selling tactics are apparently treated as exemplary leadership. Attaboy or girl! You deserve even more stock options!
When someone, say, commits a violent crime or repeatedly violates drug laws, we are generally loath to release him or her into the public eye of his or her own recognizance. The killer cannot be trusted not to take the life of another person, so he or she must be kept behind bars, in a cell, cordoned off from good, law-abiding citizens. The junkie, the addict—he or she cannot be counted on to avoid relapse, and must be saved from himself or herself, or else presumably risk tainting those of cleaner habits and disposition. While not to diminish the potential destructiveness of these types of acts, however, we might consider that crime like the kind perpetrated by agents of Wells Fargo—and yes, I do consider what they did tantamount to theft and/or fraud—can impact yet more lives.
Murder and drugs, beyond the obvious damage it can to do victim and perpetrator alike, can disrupt families and whole communities. In the case of corporate crime, meanwhile, not only do hundreds of thousands of consumers stand to be affected, as in the Wells Fargo scandal, but consumer confidence in financial institutions and the economy at large may suffer. As much as economists and other experts may point to high-frequency trading and “shadow banking” as instrumental in the economy’s near-collapse nearly a decade ago, “too big to fail” commercial and investment banks are not exempt from criticism, nor should they be as dangerously unregulated as they still are. In instances of egregious misconduct by top corporate executives, there is seldom an earnest admission of personal responsibility, and even the financial penalties levied on larger organizations may be little more than a drop in the bucket, or slap on the wrist, or whatever metaphor you’d prefer. Unlike drug users or murderers, too, they are permitted to keep reaching into the proverbial cookie jar and fueling the susceptibility of the public interest. Their addiction effectively is a gambling addiction, and company executives surely don’t mind playing when clients and taxpayers are providing the cash for the chips.
It’s at this point where we might consider why “white-collar crime,” as it may be broadly labeled, does not inspire the same sort of public outrage as others crimes about which we hear endlessly on the news. Smash-and-grab robberies. Shootings. Stabbings. Acts of vandalism. The answers, as they may be, are manifold. Certainly, as far as reporting on crime on the nightly news goes, there would seem to be an emotional/psychological component to which offenses get top billing, not to mention, frankly, a racial one. Tales of corporate misdeeds and, shall we say, creative accounting, are not quite as “juicy” as stories about armed assailants robbing convenience stores, or high school teachers having sex with their students, or drug dealers getting caught with sums of cocaine and pot in police busts. As for the racial component, the amorphous threat of the “unidentified black male” is so ever-present on these telecasts that he should get secondary billing on a lot of these 11:00 PM airings. While I would be misrepresenting things to act as if black males do not commit crimes, the agenda of a lot of media outlets at the local or regional levels appears to be in line with the building of tension by appealing to people’s fears and prejudices (“What commonly-used household product may be shortening your life span? Find out more after the break! The answer may surprise you!”), and assuaging that tension with the reassurance that criminals are being brought to justice for their bad behavior. Another “thug” behind bars. We can all sleep more easily tonight.
I think it’s more than all that, though. On one level, I think America’s love for the corporation—or at least its tacit acceptance of the place of big-name companies in our daily life—has inured many of us to corporate overstepping of bounds in its various forms, often brought about by greed or recklessness. Wells Fargo customers may not exactly be happy with the conduct of the company that manages their money, but how many of them are likely to switch banks outright? And unless they’ve decided to say the hell with it and keep all their earnings under the ol’ mattress, where do they go if not back to Wells Fargo? Chase? Bank of America? Citibank? Some other large bank which very well may have its own troubled history of doing business amid controversy?
Just thinking about my immediate circumstances, I can see all kinds of ties to big players in different industries in various products I buy and own. The cup of coffee I got from Starbucks. The Microsoft Surface from which I type this post. The Samsung Galaxy phone I carry around with me, which also now serves as my alarm clock and my camera, with service from Verizon. The Toyota I drive. Products and services from multinational corporations pervade much of what we do and how we live. When we’re in bed with corporate entities—perhaps literally if we’re talking about a mattress company or something like that—how likely are we to want to believe they are anything but good to us? Wal-Mart can’t do bad things—it’s where I get stuff super-cheap. Exxon Mobil can’t be bad—it’s where I get gas for my car. Halliburton can’t—OK, is there anyone besides Halliburton executives and energy industry lobbyists who are going to defend the company on the subject of ethics? I feel dirty just mentioning the name—though maybe that’s the oil talking. Or their connection to Dick Cheney. That picture might just haunt my dreams.
Another aspect of this toleration for corporate hijinks seems to be that companies can issue fairly standard apologies without admitting precisely what they did wrong, profess they will “fix” or “review” what led to the crisis, and the American public will go along with it. Or they won’t exactly go along with it, but they don’t know how much they rightly can do about it. Or they just don’t care. Whatever exactly defines the reaction of the average consumer to corporate scandals, businesses who do wrong are given leeway to restructure or otherwise make changes, afforded trust and discretion when a) they have violated our trust, and b) they have exhibited little to no discretion. Hearkening back to the discussion of the addict policing himself or himself, and on the heels of the worst global financial crisis of this generation, this doesn’t seem to make much sense for Fortune 500 companies, especially banks.
And yet the banking/investment industry, as deservedly low as the public confidence is in it, points in its political lobbying to the notion it is overregulated. Now, to be fair, given the chance, Congress can surely regulate the shit out of things. As it has been argued, small businesses in the United States and elsewhere, imperiled by the unwillingness of lenders to extend credit after the Great Recession, have further been stifled by regulatory red tape, a problem the Obama administration, despite its successes, has not adequately addressed. Still, this whining about restrictions from commercial and investment banks, some of whom were contributors to the credit crisis, rings hollow with John Q. Public—especially when they are in a more precarious state than they were before the subprime mortgage meltdown threatened to bring the global economy to its knees. According to a recent Brookings Institute paper co-authored by Natasha Sarin and Lawrence Summers of Harvard University, despite regulatory measures designed to alleviate risk of an economic collapse or another near-collapse as it was in 2007 to 2009, information from financial markets yields little evidence that major financial institutions are significantly safer than they were before the crisis—and may actually be worse off than they were pre-crisis.
The knee-jerk reaction, of course, from reading the preliminary conclusions drawn from this data, is that the regulation is thus ineffective, and so it makes sense to abandon stricter rules for banks and other lenders. Sarin and Summers, however, in cautioning against complacency in thinking that increased attention to regulation necessarily leads to increased security, also advise against treating these observations as a case against Dodd-Frank, Sarbanes-Oxley and other legislation intended to bring greater accountability to the American financial sector. After all, maybe the problem is that the regulations aren’t targeting the right aspect or don’t go far enough in what they aim to prevent. Then again, maybe Wall Street banks and other high-profile financial institutions still aren’t following specified guidelines like they should. Which is great, except wasn’t that part of the problem to begin with?
So, what’s the lesson here? That is, where do we go from here? Wells Fargo is by no means the only financial institution to serve as a culprit in the use of shady tactics to satisfy sales goals, and undoubtedly, it won’t be the last. The aforementioned Carrie Tolstedt. whose exorbitant retirement benefits package has drawn the ire of many critics, including the likewise aforementioned Elizabeth Warren, should be called on to, at the very least, forfeit/return the $7.3 million bonus she received in her final year of work for the bank. CEO John Stumpf and CFO John Shrewsberry, meanwhile, should resign, and this shouldn’t even be a talking point. If it were a few bad actors perpetrating the fraud at Wells Fargo, it could be rationalized that they were rogue employees and there is or was no culture problem within the company, but with 5,000+ abusing an already-flawed system? It’s evident the organization has an issue with setting the right tone at the top, such that Stumpf and Shrewsberry should go, and Wells might even need to hire from outside the current ranks to secure a chief executive candidate untouched by its current controversy. On top of personnel issues, Wells Fargo should be independently observed to verify it meets its new standards for its “process controls” and that it keeps its promise to abolish its previous sales-incentive model, and it shouldn’t even be negotiable. You don’t want so much oversight and so many regulations? Try doing the right thing for a change.
Looking at these matters more holistically in terms of corporate benefits and pay, Wells Fargo’s golden parachutes/retirement packages for Tolstedt and others, and similar rewards even in the face of abhorrent conduct for executives in comparable companies, need to be addressed by some sort of legislation or other safeguard which specifies a limit for bonuses and certain performance incentives. Furthermore, as specifically regards banks that provide both commercial and investment banking, they should be broken up by way of a re-enactment of Glass-Steagall or another similar provision. How should they do it? Let them figure it out! “Too big to fail”? Even more reason to break them up, and either way, they shouldn’t be too big to jail! At a point in time in the United States when income and wealth inequality are worsening, and mistrust of various institutions, including banks, is incredibly high, Wells Fargo’s actions leading to the scandal could and should be a tipping point for large-scale reform of corporate business practices. As Patrick Watson, writing for Forbes, believes, this fiasco foretells another financial crisis larger and worse than the one leading to the Great Recession. When it hits, those individuals at the top of their respective companies and those with golden parachutes will be fine. As usual, it’s the 99% on the bottom who will bear the brunt of the damage. “Together we’ll go far”? The f**k we will.