Six Elements of Organizational Structure that Determine Wells Fargo’s Debacle

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Six Elements of Organizational Structure that Determine Wells Fargo’s Debacle

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Table of Contents

  • Wells Fargo Subpoenaed in Sham Account Case
  • Dissecting the Organizational Structure of Wells Fargo
  • The Flaws in Wells Fargo's System
  • The Leadership in Wells Fargo
  • Formalization and Departmentalization as Common Practices
  • Conclusion

Wells Fargo Subpoenaed in Sham Account Case

Organizational structure is important when business is going well, but even more importantly when business isn’t. The strength of a leader lies in how they respond under duress. Wells Fargo is one of the nation’s largest banks and they are under fire for issuing more than one million sham accounts without the consent of their customers. How did this happen? By analyzing the organizational structure and six elements of structure, we can start to glean on how such a debacle may have developed at Wells Fargo.

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Dissecting the Organizational Structure of Wells Fargo

The organizational structure of Wells Fargo seems to be a multidivisional structure as most large banks are. There is a board of directors, C-suite, corporate headquarters in San Francisco, and then many divisions underneath, with branches all over the nation. This type of organizational structure is easy to mismanage, as there are so many moving parts. Wells Fargo has fired 5,300 employees so far, including bank managers and some of their direct supervisors. Regulators have asserted that the bank’s internal culture and incentive system encouraged the 1.5 million unauthorized accounts that were opened and 565,000 credit cards that were signed up for. However the banks’ executives do not think that the culture of the company has anything to do with this case and the bank has not let any executives go, with the exception of a well-timed retirement of the head of community banking two months ago. The analysis of Wells Fargo’s organization with respect to the six elements of structure could be integral in getting to the root of this problem and preventing it from happening again.

The Flaws in Wells Fargo's System

First of all, the division of labor is a good area to start. This is the assignment of different parts of a task to different people in order to improve efficiency. If tasks are assigned to those unequipped to finish what is asked of them, things can get out of hand quickly. A common trend in organizations and in life generally is that when somebody receives an order to accomplish a project that they don’t want to do and they have the capability to pass it down to somebody who doesn’t have a choice in the matter, it will be passed down. A potential problem Wells Fargo may have been having is that there was a mismanagement of roles and if bank managers weren’t fulfilling all of their tasks and meeting their quotas, there will be more pressure to those under them. This creates a very stressful environment and the desperation to reach those goals will drive individuals to do so through any means possible, - even if it means doing something illegal.

Second of all, coordination and the lack thereof could have been a misstep in Wells Fargo’s path to destruction. Coordination is the synchronization and integration of activities, responsibilities, and command and control structures to ensure that the resources of an organization are used more efficiently to pursue specified objectives. If an organization has no coordination, things quickly become a free-for-all and there is no rule or structure to the way that tasks are completed. In Wells Fargo’s case, there seems to be nothing in place to ensure that resources are used most efficiently. Unless the most efficient way taught was to set up unauthorized accounts and apply for credit cards for non-consenting customers.

This brings me to my next point of communication. There was clearly a break down in communication and there was no mutual understanding reached between executives and supervisors and managers especially according to the CEO, John Stumpf. Stumpf strongly believes that the company’s culture does not support things of this nature and that the best thing that he can do at the time is lead the company and lead the company forward. However, under his direction, there was such a breakdown in communication, - of what the basic expectations of employees are and proper ways of conduct and the Wells culture, - that 5,300 employees have been fired.

The Leadership in Wells Fargo

Speaking of John Stumpf, centralization is the concentration of management and decision making power at the top of the hierarchy. This means that John Stumpf, according to his allegations, clearly does not have the power to make decisions for his whole company. Because so many individuals violated such a basic rule of banking, it is evident that the top of the organizational structure hierarchy is not responsible for decision making if what Stumpf says is true. Or Stumpf could very well be lying and there could be a corporate culture obsessed with money and greed and the bonuses employees and managers got for cross selling products outweighed the cost of illegal action. The decisions could be coming from the top and the decisions are to do whatever you can to cross sell as many products as possible however you can.

Formalization and Departmentalization as Common Practices

Formalization is the extent to which work roles are structured and activities are governed by rules and procedures. If Wells Fargo had more of a formalization process for cross selling or doing anything in the organization, there would probably be less of a chance that a large-scale fraudulent act like this one could occur. For example, if there was another step in which employees have to go through compliance in order to verify real sales or have more paperwork to ensure that actual customers bought what they said they would buy and only that, then this could be prevented in the future. There are obviously many downsides to this suggestion as it adds to procedure and effort to an already complicated process, however it will probably be implemented after this incident to all other banks as preventative efforts so the same thing doesn’t happen in the future.

Lastly, departmentalization is a practice in which related individual tasks and their allocation to work groups is combined to form a specialized functional area. A lack of departmentalization can lead to unstructured job roles and loose descriptions of what tasks are supposed to be completed and for what purpose. I think that at Wells Fargo, there is good departmentalization because just generally for large banks, most people that are there have a purpose. However if a whole specialized functional area (employees and managers in charge of cross selling) is getting into trouble for something illegal, unethical and unacceptable, then maybe the problem is not departmentalization, but the reasoning behind why this functional area was created.


Ultimately, I think that there is a really big problem with the culture at Wells Fargo. In an attempt to salvage the company reputation, I would suggest that the CEO John Stumpf and the rest of the executives and much of the upper management and supervisors be fired. There needs to be an entire cultural shift and restoration of the company’s original values. I think that it would be beneficial to have the entire incentive system of cross selling taken out or at least become less of a focal point. For a national bank with millions of customers that may feel negatively towards the company after this stint, a new focus on customer service would serve Wells Fargo well.

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