Behavioral Science Lessons from the Wells Fargo Scandal: Devil in the Decentralization

Prior to the investigations and lawsuits, Wells Fargo had a sterling corporate reputation. Within the company, upper management felt confident in their place at the top, complete with happy employees properly incentivized and acting appropriately. However, beneath the sterling reputation lay toxic micro-cultures where fraudulent practices and unethical behavior found enough space to grow into actions that wound up costing Wells Fargo $185 million.

During a period of rapid growth, including acquiring 119 companies, Wells Fargo implemented a decentralized structure. This allowed individual business lines autonomy over staff and control functions, including risk and human resources. From a compliance perspective, this created a unique problem, ultimately allowing local managers to create their own micro-cultures, some of which grew to be toxic. These toxic micro-cultures eventually would be identified as 'key epicenters of fraud' by the Independent Board Report.

By observing the behaviors of those around us, the brain is wired to conclude that the behavior is appropriate, often without actually spending time on any critical thought. This behavior is referred to as conformity bias, a behavior that is intended to both save the brain time by skipping critical thinking, and to help humans survive by adapting to their environment. When examining these epicenters of fraud, employees and managers alike exhibited many of the classic signs of conformity bias.

For those that ask 'how could this level of fraud go on for this long without being noticed', the answer can be found in a few key places. For the Wells Fargo incident, we can look to their decentralization structure and behavioral science for answers. In part two of his three part series, FRA Manager, Matt Bedan, discusses how conformity bias, issue framing, and motivated reasoning all played into the culture that allowed fraud to happen.

Read the second instalment Behavioral Science Lessons from the Wells Fargo Scandal: Devil in the Decentralization in the latest The Anti-Corruption Report