Daily Times

‘To meet quotas, employees have opened unneeded accounts for customers, ordered credit cards without customers’ permission and forged client signatures on paperwork. Some employees begged family members to open ghost accounts.”

So reported the Los Angeles Times three years ago, opening a window on a snafu at Wells Fargo that, by now, has led to the dismissal of over 5,000 employees, $185 million in fines and Tuesday’s abject appearance of CEO John Stumpf before the Senate Banking Committee.

You get what you pay for. In the language of incentives Wells Fargo certainly did. It rewarded employees for signing customers to new accounts, so some employees-in pursuit of bonuses or job security-created fake accounts or signed up customers for credit cards they didn’t authorize.

The funny thing is, Wells Fargo itself gained nothing from this. In most cases, when a fee appeared on their statement for a service they never authorized, customers rejected it. Wells Fargo bore the personnel and paperwork cost of opening the account and then the personnel and paperwork cost of closing it. The employee got a paycheck, possibly a bonus. Wells Fargo got nothing but additional costs.

How different from the strategies of misdirection and exploitation of our cognitive biases that we normally see companies using to maximizerevenue from customers. By making it easy to sign up and hard to cancel, cable operators generate monthly payments from customers who would otherwise cancel. Supermarkets arrange their layouts to maximize our propensity to buy and manipulate our perceptions of value. Or take the typical corporate phone tree: Is it not an instrument devilishly designed to facilitate transactions that yield revenue (i.e., sales) while frustrating those that produce costs (complaints, returns, warranty claims)?

All these things pay off or companies wouldn’t do them. Yet Wells Fargo, with its clumsily designed system for rewarding cross-selling, essentially afflicted itself with its own internal cognitive bias that employees could exploit to get paid for creating fake accounts that generated little or no revenue or profit for Wells Fargo. As the Washington Post last week explained, “In some cases, the employee would create a phony email address-noname@wellsfargo.com was often used, according to regulators-in order to get credit for setting up an online account the customer didn’t request.”

Does this depress you? Perhaps it shouldn’t.

Even as big data gives companies more power, in the least attractive instances, to exploit their customers, learning and technology also operate on the other side. Whole businesses, with names like BillFixers and BillCutterz, now exist to help customers knock down their TV or phone bills. Videos on YouTube walk you through how to cancel a service. The web is full of advice on how to manipulate the customer service reps who are trying to manipulate you. One example: If the first rep isn’t proving tractable enough, hang up and dial again and try your luck with another.

The big difference here is that Wells Fargo was defrauding itself-via incentives it gave its own employees to treat Wells Fargo the way many companies treat their customers.

No, a solution to this latest banking scandal is not more regulation-as if making what’s already illegal more illegal will stop it from happening. (Notice, it doesn’t work with murder.) As numerous media reports make clear, the bank’s sales force consisted of workers making less than $12 an hour. Many were obviously there for a paycheck and benefits, not a career, which perhaps made cheating to meet a sales quota seem a reasonable trade-off.

All companies operate on incentives and systems that are not perfect. Comcast means for its “retention specialists” to win back irate customers, not bully them in ways that end up on YouTube. Yet it happens.

The media and politicians also operate on systems of incentives: See the pundits who, confronted with the Wells Fargo snafu and the need to fill space or airtime, run out formulaic demands for resignations and regulation that they run out with every corporate scandal. See Sen. Elizabeth Warren, in Tuesday’s hearing, in Trump-like fashion distorting the nature of the Wells Fargo scandal as if truth and logic don’t matter.

Mr. Stumpf, in his mea culpa on Capitol Hill, correctly apologized for not moving more quickly but also correctly insisted there was “no orchestrated effort or scheme” to encourage sales practices that only hurt the bank. Though two million possibly unauthorized accounts over five years sounds like a lot, remember, this is a company with 8,000-plus branches and 268,000 employees, whose customers hold hundreds of millions of accounts of various kinds.

Unfortunately the problem with any incentive system is that it can be gamed-people cheat. Wells Fargo is not the first and won’t be the last organization to struggle to patch the in-built cognitive biases in its systems that invite employees to act in ways that serve their interests but not Wells Fargo’s.