DB 1

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Old Dominion University **We aren't endorsed by this school
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BUSN 561
Subject
Management
Date
Nov 5, 2023
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6
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Briefly explain the situation, and the parties involved. As a result of Wells Fargo's misconduct, its shareholders filed a class-action lawsuit against them. Accusing the bank of defrauding them by making false and misleading statements about the progress it was making in addressing its past scandals, including its fraudulent account scandal that came to light in 2016. The lawsuit alleges that Wells Fargo's executive and board members knew about the bank's problems but failed to disclose the full extent of its issues, causing investors to suffer significant losses. Under the proposed settlement, Wells Fargo would be responsible for paying $1 billion to resolve the lawsuit. The settlement is still subject to approval by a federal judge. The bank has been operating under consent orders from financial regulators since 2018. Thus, required it to improve its governance and oversight following a series of scandals related to its treatment of customers. As explained in a recent letter to employees: "Wells Fargo has agreed to pay $1 billion to settle a class-action lawsuit filed by shareholders who accused the bank of defrauding them by making false and misleading statements about its progress in addressing its past scandals" (Reuters, 2023). The bank has been operating under those consent orders since 2018 to improve its governance and insight following a series of scandals related to its treatment of customers. Again, the settlement is still subject to approval by the federal judge. Wells Fargo has continued to deny any wrongdoing but has settled to eliminate the burden and expenses of litigation. The bank has paid or set aside several billion dollars since 2016 to resolve regulatory litigation and probes concerning its business practices. In the March 3, 2023 letter to shareholders, Wells Fargo, former CEO Charlie Scharf acknowledged the bank "did not have the appropriate management oversight, culture, or, process in place to address its weaknesses promptly when he took over in 2019" (Reuters, 2023). He also said that the bank is approaching these issues differently now. CEO Scharf has been working to overhaul the bank's culture and operations since taking the helm, including making changes to the bank's leadership team and implementing a new risk management framework. Wells Fargo has also been improving its relationship with regulators and compensating customers who were harmed by its prior and past practices. Identify your ethical standard and the ethical issue(s) that violates that standard. One commonly used ethical standard is the principle of non-maleficence, "which required that individuals and organizations avoid causing harm or risk of harm to others" (Kirby & Nielsen, 2023). An ethical issue that can violate this standard is when an individual or organization knowingly engages in actions that harm others or fail to take reasonable steps to prevent harm. In the Wells Fargo scandal above, the bank was accused of defrauding shareholders by making false and misleading statements about its progress in addressing its past scandals. Such behavior could have been seen as a violation of the principle of nonmaleficence, as it caused harm to the shareholders who suffered significant losses as a result of the bank's misconduct. Other violations of this ethical standard can include "medical malpractice,
environmental pollution, workplace harassment, and other actions that cause harm or risk of harm to others" (Myer et al., 2022). Explain how you would have prevented this situation and would now respond, including support from a second source. To prevent this situation, if I were Wells Fargo, I could have taken several steps to improve its corporate governance and oversight. I could have included implementing stronger internal controls and risk management procedures, increasing transparency and communication with shareholders, and strengthening the independence and effectiveness of the board of directors. Additionally, if I were Wells Fargo I could have taken more aggressive steps to address the scandals that led to the consent orders and asset cap imposed by regulators. In response to the lawsuit, if I were Wells Fargo, I could have publicly acknowledged the harm being caused to the shareholders and committed to taking concrete steps to improve corporate governance and oversight going forward. This could include increasing transparency, communicating with shareholders, appointing an independent monitor, and implementing stronger internal controls and risk management procedures. Taking steps to address concerns raised by regulators and working to improve the complaint with regulatory requirements is a great thing I could do if I were Wells Fargo. According to a secondary source "the settlement reflects the bank's efforts to move past its recent scandals and improve its relationship with shareholders" (Newman, 2022). As reported by Reuters, the settlement "marks a significant step for the bank in putting the sales practices scandal behind it" (Reuters, 2023). The article notes that the settlement is one of the largest ever paid by a US bank in a shareholder lawsuit and that it follows a series of other settlements and regulatory actions related to the bank's sales practices scandal. When Charlie Scharf took over as CEO, it was clear that the top priority was to rebuild trust with all of the stakeholders. Following the settlement, Scharf said "We have been working hard to do the right thing, but as I have said before, we have more work to do" (Reuters, 2023). This agreement is another step in our journey to make things right with our stakeholders and to build a better, stronger company for the future. In addition to the steps mentioned earlier, such as implementing stronger internal controls and risk management procedures, increasing transparency and communication with shareholders, and strengthening the independence and effectiveness of the board of directors, Wells Fargo could also consider implementing a more robust corporate social responsibility program. This could include initiatives to address issues such as financial inclusion, community development, and environmental sustainability. By taking a more proactive approach to corporate social responsibility, Wells Fargo could help rebuild trust with stakeholders and demonstrate its commitment to being a responsible corporate citizen. According to the second source as well, a strong corporate social responsibility program can help companies build a positive reputation, strengthen relationships with stakeholders, and drive long-term business success. As noted by Forbes "Corporate social responsibility has
become a key differentiator for companies that want to attract and retain customers, talent, and investors in today's socially conscious marketplace" (Newman, 2022). References Kirby, J., & Nielsen, L. W. (2023). An ethics-informed, policy-based approach to the management of challenges posed by living-at-risk, frequent users of emergency departments. Canadian Journal of Bioethics , 6 (1), 44. https://doi.org/10.7202/1098557ar Myer, R., Whisenhunt, J., & James, R. K. (2022). Crisis intervention ethics casebook . American Counseling Association. Newman, D. (2022, October 12). How leading global companies are using sustainability as a market differentiator . Forbes. https://www.forbes.com/sites/danielnewman/2020/07/24/how-leading-global-companies- are-using-sustainability-as-a-market-differentiator/?sh=5d610881ff30 Reuters, A. (2023, May 16). Wells Fargo reaches $1 billion settlement with shareholders over recovery from scandals | CNN business . CNN. https://www.cnn.com/2023/05/16/business/wells-fargo-settlement-shareholders/index.html
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