Introduction
This email addresses Wells Fargo’s corporate governance challenges. Moreover, it is crucial because it establishes a set of guidelines and procedures that regulate how an organization functions and how it balances the interests of all of its players. As such, corporate governance is a structure that governs the behavior of the individuals inside a company (Mitchell, 2017). Wells Fargo was a well-run organization until 2016 when it was mired in difficulties due to its cross-selling strategies and the immense strain its leadership imposed on its staff to guarantee its success (Ramachandran, 2019). In this way, corporate governance was applicable because it was established to govern all participants in the business. Furthermore, effective corporate governance contributes to ethical practices in the industry, which contributes to a company’s financial sustainability.
After the Wells Fargo crisis, there have been trends in corporate governance requirements to keep pace with the quickly changing business environment. For instance, Atkins (2022) insinuates that boards heightened scrutiny from all interested parties who have grown tired of deceptive operations. In 2018, alleging a despicable scandal, the Federal Reserve Board placed a severe cap on the firm’s total assets, banning it from expanding over the $1.95 trillion it had unless it improved corporate standards (Tayan and Tayan, 2019). Moreover, during the pandemic, corporate governance ensured enterprises exercised flexibility in reimbursing stakeholders. For instance, Batish et al. (2020) emphasized that corporations modified CEO compensation, bonuses, long-term incentive schemes, and director fees. This is a bid to keep the organization afloat amid the economic strains.
Additionally, there is an aspirational tendency toward using technology for corporate boards. Digital board platforms are becoming conventional tools for directors (Stambough et al., 2020). In this same regard, stakeholders such as the government have ensured stringent rules to uphold ethical considerations. After the scandal, the US government issued a $3 compensation for the victims who befell the malpractice of Wells Fargo’s enterprise (Justice, 2020). Conversely, they have set rules and policies that govern the welfare of employees and ecological issues.
Wells Fargo’s ineffective leadership alignment shortcomings exposed the company to boards’ risk blindness and inadequate governance on ethos and culture. Therefore, to litigate such scandals, the practitioners ought to have ensured transparency among their members (Stacchezzini et al., 2020). Since such fundamentals were overlooked, Wells Fargo executives pressured employees to reach rigorous sales quotas, and personnel opened phony accounts using clients’ identities (Gutterman, 2022). Overall, corporate governance is a fundamental aspect of organizations; a fracture in its system will subject such firms its collapse.
Corporate Governance
The Agency Theory and 4Ps of Corporate Governance
Institutional shareholders (people) frequently back management provides an agency issue in corporate governance. This results in limited voting democracy and low attendance at yearly meetings. For example, Wells Fargo’s autonomous management in 2016 contributed to the company’s catastrophe (process). Prior to the onset of the problem, the board used the agency theory of high risk and reward, which led to Wells Fargo’s decentralization throughout the scandal (purpose). One of the managers with Stumpf’s approval implemented this form of management, and CEO dualism is positively associated with the likelihood of organizational failure (perfomance). Consequently, management supremacy had risen, in which a manager effectively dominates the directors owing to their expertise in day-to-day operations.
Stewardship Theory and 4Ps of Corporate Governance
According to stewardship theory, people are inherently driven to labor for others or organizations to complete the duties and obligations with which they have been entrusted. Brooks and Dunn (2017) posit that individuals are more collectively oriented and pro-organizational than selfish and consequently strive toward the corporate, group, or societal objectives since doing so provides them with more happiness (purpose). In the case of Wells Fargo’s 2016 fraud scandal, the absence of applicability of why steward leadership (process) is vital for one’s own and the firm’s long-term success and pleasure was exemplified by the company’s former CEO (Rajeev Peshawaria, 2021). This is unopposed if the previous CEO was a best-in-class steward leader who could have developed long-lasting organizations centered on the spirit of stewardship and maintained their success over time (perfomance).
In this case, Amazon’s leaders oversee corporate choices consistent with the stewardship theory. In several domains, corporate governance and strategic planning are inextricably linked. Managers and firm executives guarantee that lower layers of administration adhere to corporate governance principles (Warrick, 2017). At Amazon, corporate governance’s most crucial aspect is guaranteeing that customers are constantly happy. Amazon’s corporate governance strategy requires them to make bold investment choices for strategic and long-term advantage. These ideas inspire their planning process, aiding their corporation’s success.
On the same note, this contrasts with the Volkswagen AG case. Tolerance of illicit activity may lead to crises like the one that rocked Volkswagen AG in September 2015 (Welch, 2019). The scandal showed that the carmaker had consistently and intentionally manipulated engine emission devices in its vehicles for years to falsify pollution findings in the United States and Europe. The agency theory of practice might account for this malpractice. The purpose of the supervisory board was to oversee management and approve business choices. However, it lacked the autonomy and power to carry out these responsibilities effectively.
Ethical Considerations in Corporate Governance
Ethical Corporate Governance refers to a company’s methods and policies for managing and doing business. This must be matched with rules to guarantee a corporation chases profit without immoral behavior (Nakulenge et al., 2018). In the past, firms may have abused their market advantages to hinder competition or endanger local communities, a notion ethical corporate governance prevents. A corporate governance policy should include and bridle CEO conduct (Nakulenge et al., 2018). Furthermore, corporate governance provides compliance, fiduciary obligation, audits, and control (Nakulenge et al., 2018). Investors may only care about a company’s performance and profitability, but weak corporate governance might signal more significant issues. The corporation may have manipulated receipts to increase profit margins through Wells Fargo’s fraudulent activity. As a result, it was a clear indicator that control activities had collapsed.
Financial Consideration in Corporate Governance
As corporations grow and expand in established and developing financial markets, the importance of corporate governance has evolved in the modern era. The function of the audit committee has been emphasized further. As such, this is to verify that the industry’s financial disclosure meets the standards of the corporate governance council (Kyere and Ausloos, 2021). Moreover, it ensures that organizations comply with regulations such as mandated disclosures.
Sustainability Considerations
The existing corporate governance paradigm requires revision. There is a growing indication that shareholder priority procedures encourage firm boards and managers to embrace the same short-term perspective as financial markets. According to Johnston and Johnston (2020), a legislative law is needed to analyze, detect, and report ESG concerns to address these limitations. Equally, to resist the demands placed on directors by the capital sector to maximize shareholder profit, strengthen director responsibility, and guarantee a proper evaluation of the long-term sustainability concerns of the corporation (Johnston and Johnston, 2020). Accordingly, it is recommended that directors be susceptible to a binding legal responsibility to grow, divulge, and enforce on behalf of the corporation.
Impact on Finances Shareholder Value
The scandal adversely affected the firm in its entirety. According to shareholders, Wells Fargo suffered more than $54 billion in market value during the scandal when the truth was later (Tayan, 2019). The controversies forced Warren Buffett’s Berkshire Hathaway Inc to divest its 10% interest in the bank (Stempel, 2021). The ruling represents a blow to Wells Fargo’s return from disclosures. It established approximately 3.5 million transactions outside consumer authorization and billed considerable money from customers for vehicle coverage they did not require (Stempel, 2021). Wells Fargo issued more than $5 billion in penalties, and the Fed’s $1.95 trillion asset ceiling inhibits the bank’s development (Stempel, 2021). As a result, the financial controversy derailed the organization’s reputation (Prentice, 2020). Sloan resigned suddenly as chief executive, and the firm rescinded compensation for him a year later.
Ethical Concerns
The Wells Fargo scandal’s most visible ethical problem was the loss or abuse of consumers’ trust, which led to the loss of integrity among Wells Fargo workers. The loss of innocence in exchange for a personal benefit impacts the company. Wells Fargo’s image and morale are diminished due to erroneous decision-making concerns picked and pursued by workers rather than customers (Cavico and Mujtaba, 2017). Compared with other organizations such as Walmart, ethical consideration is a key aspect of their business strategy. At Walmart, it is crucial to grasp how to act ethically in a corporate setting to enhance sustainable management. There are several methods Walmart ensure they are ethical, such as being honest with other workers and the general public, not accepting theft, refusing to engage in dubious accounting
Corporate Citizenship
Corporate citizenship is the collection of actions or obligations a corporation takes to assist them in making a constructive contribution to society. Long before it debuted on the stock market, Wells Fargo was already well-known for its great sense of corporate social responsibility and its dedication to the general welfare of the communities it served (Ferrel et al., 2020). The company reached some corporate citizenship milestones up to the year 2016 when it was involved in several controversies that affected the company’s obligation as a corporate citizen (Ferrel et al., 2020). One example of how the firm ignored its ethical codes and mistreated its customers was when the administration fabricated receipts using their personal information. In this way, consumers lost their purchasing interest in Wells Fargo due to a lack of ethical standards. Customers stopped purchasing from the companies since they were deemed immoral. Further, this could subject the organization to future bankruptcy and hence its closure. This is as opposed to when they have better ethical practices than those Starbucks—for instance, achieving 99 percent ethically-sourced coffee, which in turn steers the firm to its objectives.
Leadership
Notably, leadership ideals have significantly evolved since the sixth century. A strong leader may be identified when seen, however, identifying what attributes and actions a good leader possess can be challenging. A leader may be deemed a leader due to a formal connection, such as management status inside an agency. Leadership ideals have evolved since the sixth century (Mowat and McMahon, 2019). Undoubtedly, the tale of King Arthur recognized that it aided in conveying the premise that people who led were born and not produced (Dugan, 2017). Early views of monarchy contained that the king was a heavenly decision and was beholden to no worldly norms. The authority to reign was drawn directly from the will of God (Dugan, 2017). Moreover, philosophers such as Plato affected how leaders were characterized in their training and common ideology of what it required to be a leader.
Owing to them, the leader as hero notion has been a precise explanation for years. The Great Man method was quite prevalent in the 19th century; few individuals of the lesser class had the chance to lead, which led to the perception that these leadership traits were something one was born with. Up to the 1940s, most leadership research relied on the character qualities of people that made them leaders.
Leadership Theories
Trait Theory
The trait leadership hypothesis posits that individuals are either born with or develop particular abilities that enable them to flourish in leadership situations. Thus, anybody with attributes such as intellect, a sense of duty, inventiveness, and other virtues may assume the role of an effective leader. The trait theory of leadership focuses on evaluating cognitive, bodily, and social qualities to acquire a clear grasp of the feature or mixture of traits shared by leaders.
Theories of Transformational Leadership
According to the Transformational Leadership theory, this is the method by which a person engages with individuals and is capable of creating a solid connection that leads to a high level of trust, which then leads to a rise in both extrinsic and intrinsic motivation in both followers and leaders. The cornerstone of transformational theories is that inspiring leaders with captivating personas change their followers. The rules and guidelines are adaptable and based on social conventions. These characteristics give followers a feeling of belonging since they can readily connect with the leader and their mission.
At the heart of leadership, issues circumvented the organizations’ operations. Wells Fargo’s firm value-based leadership model seems to have been absent. In this regard, leaders should stress not just achieving objectives but how those goals are performed; for a value-based leader, a target is only meaningful to the degree that the company’s principles are honored in the process (Snyder et al., 2018). Defining objectives is crucial for maintaining employee motivation. The leadership approach necessitates transforming principles into practices, such as how goals are defined and maintained, a notion that Wells Fargo failed to adopt.
Conclusions
Therefore, it can be deduced that leadership is not practical minus principles. Furthermore, administration without morals has implications, not just for an executive but as well as for the entire organization. In this way, governance is essential for both companies and society. According to Farnham (2022), effective corporate governance, for instance, increases the public’s trust and belief in company executives. Nonetheless, recent corporate controversies, such as Wells Fargo’s, illuminate the relationship between companies and social responsibility. Consequently, the increasing emphasis on ESG concerns and CSR enhances the obligation and transparency of firms to their stakeholders. Thus, firms are under growing pressure to develop the best corporate governance practices to strengthen their connections with stakeholders (Farnham, 2022). The most compelling reason firms focus more on sustainability is that it ultimately enhances their potential to flourish and succeed.
According to the triple bottom line, businesses should prioritize social problems in addition to profitability. For instance, companies must be proactive on ESG in light of shareholder activism, a trend toward real oversight on all aspects of sustainability. At the same time, the Doughnut model consists of overlapping circles that entail a social core to guarantee that no one is deprived of essential goods and services and to prevent humankind from exceeding the planetary bounds that maintain organizations (Doughnuteconomics.org, 2021). If Wells Fargo had employed this theory, the predicaments would not have occurred.
Recommendations
Good corporate governance has numerous advantages for the general public (people). Specifically, it enhances the organizational work environment and increased openness. There are rising restrictions for lenders to report ESG metrics; therefore, issuers should prepare for forthcoming ESG conformance provisions. Identifying hazards and adopting a proactive strategy to mitigate them before encountering them is a significant threat management achievement (perfomance). When investing in a corporation, shareholders should be aware of their rights and verify that the privileges offered are supported by legislation
Building an environment that fosters long-term honesty also requires trust, which is one of the goals of good corporate governance. According to the OECD, decision-makers should be aided in assessing and enhancing the administrative and legislative framework for corporate governance following the international norm for corporate governance (Oecd.org, 2022). Further, other international bodies, such United Nations, have emphasized the notion of corporate responsibility. Therefore, businesses may strengthen good governance by incorporating corporate sustainability concepts into their processes and interactions, fostering more transparency, integrity, and inclusivity (Unglobalcompact.org, 2022). Companies may cooperate with the United Nations Global Compact on governance issues.
In regard to governance codes, the Company Law establishes the functions of the Board of Directors in ensuring corporate governance. These include creating strategy, choosing, and dismissing the chief executive officer, overseeing management, and designating and dismissing external auditors (Oecd.org, 2022). At the same time, organizations should implement a regenerative leadership approach to counter firm governance issues. The term regenerative leadership is widely used to represent the incorporation of biological systems thinking and manifested in leadership in all its manifestations (Long, 2022). As for this, it ensured leaders dealt with the issue proactively. For example, Long (2022) asserts that Buurtzorgs medical entity inculcated the practice into its framework when they were required to balance the demands of people and groups at diverse developmental stages. This differs from the Wells Fargo case, where the administration could not mitigate fraud risks.
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