Wells Fargo, the San Francisco-based bank, has settled with regulators to pay a fine of $185 million (₹1,200 crore) because it opened about two million deposit and credit-card accounts without its customers knowing about it. The company had supposedly done this as part of its emphasis on cross-selling.

Wells Fargo describes itself as a provider of banking, mortgage, investing, credit card, insurance, and consumer and commercial financial services. Sales targets were set, and there was constant pressure to meet and exceed targets. This was done through interesting operational practices. Branch managers at times monitored their employees’ progress hourly. Branches would report to higher level managers at regional offices several times a day. Employees were encouraged to open accounts for their family and friends. Sales managers would look for potential customers at bus stops, retirement homes, and so on. Pre-selected wealthier customers were mailed credit cards, unsolicited, and told that it was just a way of the bank thanking them.

Bonuses were tied to meeting targets such as new cards issued or new accounts opened. So employees would create new email ids, request a new account be opened, move some money from an existing account, move it back, and close the account. All without the account holder being aware. Ditto with credit cards. Wells Fargo has been investigating these practices for about five years and about 5,300 employees have been fired.

The fallout The retail banking chief and senior executive vice-president who headed the operations where much of the problem occurred is retiring end of the year. Several law-makers investigating the problems are demanding that bonuses paid to her for meeting targets should be returned. Wells Fargo has announced that it will stop setting product-based sales goals. What is not clear is why senior management was ignorant about the problems in the company. The bank was widely known for its aggressive sales practices and for achieving high rates of return among its peers.

When the defeat software device in Volkswagen was discovered, top management pretended they did not know how such a thing could have happened. It is unbelievable that senior managers who knew that their current diesel engine would fail US testing standards, and who knew that a new engine was delayed would not have inquired into how their cars were suddenly passing inspection.

The problem lies in a managerial culture that has eviscerated the role of the middle manager. Mid-level managers are key to an organisation, translating the policies of the top to operational systems and procedures, and in reverse, interpreting and communicating issues and market intelligence from the bottom. Thanks to new ERP systems and misplaced process re-engineering, the role of the middle manager has been castrated. ‘Yes managers’ have come to occupy those positions. They tell their bosses only what the top wants to hear.

The writer is a professor at the Jindal Global Business School, Delhi NCR, and at Suffolk University, Boston

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