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Comment by tswartz | Hacker News Reader

I appreciate that Warren didn't let Stumpf talk his way out of taking any responsibility for the actions of his employees and made a clear argument as to why he should be held accountable. Unfortunately, it seems the primary reason he resigned was because the public outrage was loud enough. It seems that until CEOs are personally held accountable via fines or prison (as Warren suggests) we won't see a very big change in their actions. He benefited personally from the policy he implemented, but ignored the negative consequences. The bank is fined, but he is not and keeps his bonuses.

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Bullshit he resinged!

at 63, he's the oldest ceo of all the top 5 banks. Stumpf did't resign, he retired!

haha, fair point. He is probably going to go into consulting and make some extra money for those green fees.

Resinged is a nice way to put it. Once before the senate, then again before the house.

Sorry and not to be the grammar police but it's resigned...

Re-read the comment. The commenter knows that. He or she purposely reinterpreted the misspelling as a different word, "re-singed" as in "singed again".

(Also, the original mistake was not a grammatical error, but rather a spelling one. If you're going to be pedantic at least get it right.)

He still serves on the board of the Financial Services Roundtable. If he were younger, he'd likely take a break for a few years while doing some silent investing. After everything had blown over, it's not unlikely that he would be welcomed back into the fold.

He resigned, and in his successor is from the same senior leadership team in charge during the behaviour that has gotten Wells Fargo into trouble.

Carrie Tolstedt is also retiring at the end of the year with $125M.

Oh man, she must be so bummed about that. The struggle is real.

Personal accountability for CEOs is a good step. However, I think the most needed step is that it becomes unprofitable for the owners.

Anyone who has worked in a company of any size knows it'd be down near impossible to know the inner working at all levels of the organization. So, yes, the guy is accountable and needs to lose his job. But the idea that he should go to prison for something like this is ludicrous.

Prison may be a bit harsh.

And in a vacuum, you're right. It would be somewhat unfair to drop the hammer, out of nowhere, on some unsuspecting CEO who just did "business as usual".

But that's no excuse; it just means we need to create a culture where this kind of thing becomes increasingly unacceptable, so that in the future executives will know what's expecting of them, and what the consequences can be.

The "unintended" consequences of unrealistic goal-setting should be patently obvious to anyone who's made it that far in business, and if it isn't, we should make it clear that it's something these people need to start thinking about.

In the case of Wells Fargo, this went on for a LONG time, was well-known, frequently reported on, and had a number of whistleblowers.

The CEO can't know what every last person in the organization is doing, but they should be incented to make it their business to a culture in place that doesn't permit this, nor the blacklisting of whistleblowers.

> The CEO can't know what every last person in the organization is doing, but they should be incented to make it their business to a culture in place that doesn't permit this

Where I'm from, there's a group af crimes such that if an employee at a company does them, the CEO will absolutely go to jail, even if they knew about it or not. For example, if your company produces toxic sludge as a byproduct, and someone at the company dumps it in nature instead of properly taking care of it, it's jailtime.

Unsurprisingly, compliance with some environmental protection laws are A+ at all companies. Personal liability works fantastically as a motivator for companies.

Personal liability may also be good limiter for size of companies. If something is unmanageable, it should be split up.

That's super interesting to hear. Can you provide any links to good articles on the topic? This type is reform is something that I think would improve the banking system.

In theory, this keeps CEOs from pleading ignorance as an excuse.

I thought they only have to demonstrate that they took reasonable measures (training, checks and balances, culture, etc.) to prevent an employee from doing something like that. Being a CEO without that protection would be scary.

> For example, if your company produces toxic sludge as a byproduct, and someone at the company dumps it in nature instead of properly taking care of it, it's jailtime.

That's a kind of criminal collective responsibility, which I find repugnant whether it's a mother in Palestine being held criminally responsible for her son suicide bomber, or it's a CEO being held criminally responsible for the wrongdoings of some low-level employee that they did not direct and were even unaware of.

Personal liability is arguably OK here, but criminal liability like you describe ("goes to jail") is most certainly not, and I'm surprised that there are so-called enlightened legal jurisdictions that do this.

Strict liability is an old concept in law. I am not buying these claims of innocence involving a low level employee whose activities were not directed by the CEO; this fraud involved thousands of employees responding directly to a clear economic incentive that came down from the executive suite. You don't get to bring about that sort of situation and then disavow any knowledge of it. That's just an invitation to malfeasance. Look up the legal concept of Scienter - someone who knows or who should have known that fraud was taking place shares in the liability. I'm pretty sure the CEO of of a massive bank like Wells Fargo understands that sufficiently tempting/frightening economic incentives are going to drive employee behavior, just as they do consumer behavior.

I'm actually inclined to agree with you re: Wells Fargo. But in general, I think the bar should be very high. If a single employee dumps toxic waste despite clear regulations otherwise, and a history of company enforcement, then I would very much oppose any type of criminal penalty against the CEO.

And just because something is an old concept in law doesn't mean it's right or moral.

I'm honestly morally conflicted here. I reflexively agree with you. However, true justice doesn't exist. Our legal system exists for social and economic stability, not for seeking justice.

(Semi-rantThe American justice system has Libra wearing a blindfold. The blindfold represents objectivity, in that justice is or should be meted out objectively, without fear or favour, regardless of money, wealth, fame, power, or identity. At its core, it's unjust. I've personally experienced it. As an engineer, I have a decent amount of wealth. Because of that, (and after doing lots of research), I was able to hire a well-renowned attorney who had my case dismissed. It wasn't necessarily the barrister's legal ability, it was his personal relationships with the court and specifically the DA.

There were a number of cases before mine. Many either had the defendant representing themselves or represented by a public defender. A number of them received harsh sentences for allegations that weren't as serious as I faced. All of them took the plea deal(which is itself unjust. It effectively punishes you for seeking a trial by jury) because they simply could not afford decent legal representation. The public defender had a stack of manila folders up to his eyeballs. It was obvious he didn't have the resources to mount an effective defense.

I guess it makes sense in a capitalist country that you get the justice you pay for. But I came to accept that it's not about justice. The only reason Madoff had the book thrown at him is because he ripped off a lot of rich and powerful people. Maybe if Stumpf were railroaded into a max federal prison, it would serve as an effective deterrence...unjust for him, but for the greater good of society.

> Our legal system exists for social and economic stability

> [your description of a horribly unjust legal system as you experienced it]

You really think the system you described is good for social stability? People aren't stupid, the ones who got the raw end of the deal noticed the same injustice you did.

After the S&L crisis in the '80s, quite a few execs went to prison. The same should have happened after the latest crisis, but W's DOJ had reassigned all the fraud investigators in the FBI to anti-terrorism, and neither they nor Obama's assigned very many back. (As well as just not being willing to try to prosecute white-collar crime very hard – much rather get big headlines for big "settlements").

It would be somewhat unfair to drop the hammer, out of nowhere, on some unsuspecting CEO who just did "business as usual".

I remember learning pretty early on that life is not fair, and later on that the justice system is not fair. But dropping the hammer is the only way that the business as usual stops being usual.

Given the enormous scale of the fraud, someone should definitely be going to prison. "But my criminal organization is very large and not everything we did was illegal" is not an excuse.

Enormous scale? The total fees from this fraud were $2.4 million.

https://www.bloomberg.com/view/articles/2016-09-09/wells-far...

The "excuse" is that a bunch of employees did it against management's express instructions, and that management actually took action (albeit stupid ineffective action) to prevent it back in 2014.

https://www.bloomberg.com/view/articles/2016-09-19/tough-tar...

This is not something that was remotely profitable for WF, this was employees lying to WF to hide the fact that they didn't meet their goals.

I should have known you'd show up with some bullshit misdirection.

The scale of the fraud is enormous because it involved millions of accounts. That means millions of individual decisions to misuse customers' accounts for personal profit. The fact that it generated very little income for WF just means that it wasn't a very successful fraud. You don't get to evade criminal liability by saying that your criminal enterprise worked poorly and failed to run an impressive profit.

management actually took action (albeit stupid ineffective action)

Having instituted the policy to begin with, and with the knowledge of how such policies incentivize people, the management bears responsibility for not only the original problem but the ineffectiveness of the subsequent response. The CEO and his peers aren't some clueless kids that got into the C-suite and pushed random buttons on some big control panel, they're experienced managers with a deep knowledge of economics and institutional dynamics...in fact I'm probably selling them short, I'm sure their resumes tell a much more impressive story about their capabilities. So since they were good enough to hire into senior positions, they are surely good enough to take on the responsibility for the highly predictable outcome of their decisions.

...wasn't a very successful fraud.

The fraud was successful; it caused WF to continue paying underperforming salespeople. The fraud didn't make money for WF because WF was one of the victims - in fact, as far as money lost goes, probably the primary victim.

But the thing is, there is no evidence of any criminal organization or conspiracy. The criminals in this case - the 5,300 sales people - don't appear to have coordinated at all.

Are you sure we are commenting on the same story?

The employees' goal posts got moved repeatedly, to the point where employees started cheating out of desperation.

The CEO is culpable because of his "eight is great" mantra. The average citizen does not need multiple checking accounts and multiple credit cards. The entirely goal of the "eight is great" program was to use high pressure sale tactics to push services onto customers that they didn't need.

> At the end of last year, the average Wells Fargo retail customer had 6.3 products, according to the company. [1]

For retail customers this number is absurd. The CEO was fully aware of this. There were whistle-blowers, of course. They got fired.

This was a failure of corporate governance, a failure of internal checks and balances, and a complete moral failure of the chief executive.

So yes the CEO should be held accountable, and that should include jail time.

[1] http://www.wsj.com/articles/how-wells-fargos-high-pressure-s...

From your own article: 5,300 employees were apparently engaged in fraudulent activities under his watch.

Profitable or not, I stand by my statement.

To me the line of argument that this was employee fraud, with an unaware management doesn't fly.

All banks have large internal audit departments precisely for the purpose of catching internal fraud. This is a long standing thing in banking and well established.

The idea that Wells Fargo's internal audit department missed several thousand employees carrying out the same kind of fraud over a period of years is entirely unbelievable.

So either the Internal audit team were in on it (extremely unlikely), internal audit were directed by management not to investigate this, or management ignored the reports for internal audit.

To me, its extremely likely that the later options there are more likely to be what happened.

The fact that it was discovered by an external source, not an internal audit, says it all. How can an external auditor have more information than management? Inconceivable.

And the internal audits of the other major banks have yet to uncover wrongdoing. And yet, up to a year ago I couldn't walk into any bank without getting the desperate, hard sell for services. Where's the BofA and Chase inquiries?

I do miss the pretty lady tellers asking if there was anything else they could do to satisfy me. Not so much the guys.

> But the idea that he should go to prison for something like this is ludicrous.

Fine. Then the company should get the "death penalty" and be liquidated.

Especially for something like the banking sector where the federal government could replace a bank almost instantaneously, the "death penalty" should get dropped on companies that engage in malfeasance.

>>Fine. Then the company should get the "death penalty" and be liquidated.

Exactly. After all, corporations are people right? So let's actually treat them like we treat people.

You kill people that rob other people? Where are you from?

Perhaps we should just ban Wells Fargo from business for a couple of years then, equivalent to a prison sentence.

So you would fire 260k+ people from one day to another? Thats pretty cold.

* Perhaps we should just ban Wells Fargo from business for a couple of years then, equivalent to a prison sentence.*

The state of California did something like this, suspending Wells Fargo from bond-investment work, at the end of September:

https://www.bloomberg.com/news/articles/2016-09-28/californi...

In theory, we would put the company in jail. However, this isn't possible.

The fiduciary value of a human life is about one million dollars. Robbing customers or society collectively of, say, 500 million dollars is thus equivalent to massacring 500 people. Yes, business corporations which commit that level of crime should be dissolved.

>After all, corporations are people right

Except they're not, and no one says they are.

All the court said was that groups of people don't lose rights they have as individuals.

So if A has right X B has right X C has right X

then A+B+C have right X

> Especially for something like the banking sector where the federal government could replace a bank almost instantaneously...

Say what? It takes months to years for the FDIC to wind up a small bank. What is your basis for saying that the government can replace a huge bank almost instantly?

(Or perhaps the correct question is: What is your definition of "replace"?)

Fire the board and all the senior executives, announce a one-month grace period during which no new internal policies will be promulgated, seek a temporary continuance in any ongoing legal cases, and require the firm to undergo a total audit by a new external auditor. Set up a new firm, raise money through an IPO, do a mandatory buyback of all outstanding shares in the original company, and shut it down.

Since the bank isn't actually insolvent, this is much less drastic than winding it up. Of course it's far more complex than I'm outlining here and might take 6 months or a year. But if corporations can always rely on 'too big to fail' then what good is enforcement? A corporate charter that can't ever be withdrawn is basically a license to commit crime in perpetuity by shuffling the personnel.

If we're giving out personal rights without any of the accompanying responsibilities then how do you expect people to maintain any respect for the legal system? It's rather obviously in decline, not least through episodes such as this.

It takes months to years for the FDIC to wind up a small bank.

I'm sure it's something that could be streamlined with enough practice.

Prison. RICO act for running a large criminal enterprise that defrauded millions. Any other industry fraud at this scale would see the dismantling of the enterprise!

If the maximum penalty is losing one's job, the incentives are aligned towards maximum risk as losses are capped at zero. If prison is off the table, the fines need to be large enough so that the perpetrator loses all of his assets, savings, houses, cars, etc. and has to start again with a used Corolla and a studio apartment, since his Rolodex alone is worth millions.

The theory that someone is valuable enough to be worth the compensation packages given to leaders of this type of company, but not effective enough to prevent this sort of thing if they give it an honest effort, strains credibility.

The theory that the incentive structure discourages that sort of honest effort is much more plausible. The correct response, if that's what's going on, is to change the incentive structure. Prison being what it is, I'd far prefer a way to do that without sending anyone there, but there does need to be some kind of consequence.

Considering that he makes a lot of money when things go right he should at least pay a lot of money when things go wrong.

The reward structure is a little one-sided:

* Things go well, CEO makes a lot of money and stays.

* Things don't go well, CEO makes a lot of money and leaves.

Why not? The outcome was entirely predictable, and there is no way that a CEO of one of the country's largest banks doesn't understand the basic concept of economic incentives shaping people's behavior.

Nothing personal because I'm sure you didn't intend to make things worse for everyone, but your attitude is exactly what's wrong with the US and with capitalism in general - the notion that once an organization is sufficiently large that it becomes hard to trace a chain of liability, then the liability must somehow evaporate and can't be assigned to any individual parties, but must be severally absorbed by the shareholders. Oh, but the shareholders think they don't bear any moral responsibility because it's an agency problem, they only vote on the candidates that the Board of Directors offer them for senior offices. Oh, but the board of directors can't be responsible because they're not involved in the day-to-day running of the bank...and so on.

If corporate status is no more than a means by which to redistribute legal liability so thinly that none of it can accrue to any one individual, then the notion of corporate personhood is broken. I would remind you that the whole reason personhood exists in the first place is to make some sort of accountability possible, otherwise it would be virtually impossible to sue any officers of a company for lack of knowing who engineered a given policy that might form the basis of a legal complaint.

>Why not?

Because prison is barbaric, and expensive and should be saved for hardened criminals. Nothing personal, but it's people like you who think throwing people in prison some kind of societal solution that we have overflowing prisons of petty criminals.

Except that's not how prison exists today. You steal a TV you go to prison. You steal a car you go to prison. You defraud society to the tune of 500 million you pay a fine and you keep your life of luxury? The double standard is unjustifiable.

Not familiar with "two wrongs don't make a right"?

I think you're implying that those punishments are wrong. What would be justice in your eyes for the three crimes described? To mine, the proportionality seems more than a little out of whack.

- Stolen TV (let's say $1000 burglary)

- Stolen car (let's say $15,000)

- $500MM fraud

Mostly I'm implying that your argument doesn't hold weight. You don't throw someone in prison because if you don't there's a double standard with some other offence. You throw them in there because the crime they committed warranted it.

I'll play anyway for funzies though. First offence?

All 3 should be a non-bankruptable fine with a floor that also scales with historical earnings and wealth. I can't give specific numbers because I think it should be set at figures large enough to act as a suitable deterrent which I don't know and would need to research. Since in a scenario where I'm magically put in charge of the legal system I would have the means and incentive to do that research, I think that's fair on my part. Potentially some public shaming involving stocks and vegetable throwing depending on its cost effectiveness as a deterrent as well.

I imagine the fine amount would be far greater for the fraud though, which would help with the lack of proportionality.

Thank you for a much more thoughtful comment. I think you make a lot of good points. Do you think that the fines should be proportionate with respect to the status of the person convicted?

I think one issue is the perception that some very rich people can afford to pay those large fines, which acts as less of a deterrent.

Absolutely, that's what I meant by "scales with historical earnings and wealth."

So you did. Sorry I missed that. Cheers!

I'm curious, so what do you do if the fine is never paid?

ETA: IS a non-bankruptable fne proportional if the fraud actually bankrupted many others? What if the consequence of the fraud on said victims then led them to further crimes which led them to a ruined life of pverty and squalor? Is a non-bankruptable fine still proportionate? What if it led to suicide, or armed robbery, or even murder...

I'm not a fan of barbarism or prison in general, but actually I think that using your position at the apex of one of the world's leading banks to squeeze money out of people at the bottom of the pyramid* qualifies as criminality.

* Whether you consider the consumers or the low-level tellers who set up millions of shadow accounts to meet otherwise impossible performance goals to be the bottom layer, I think the point stands either way.

I'm perplexed by your use of the word 'hardened.' Perhaps you meant 'violent' but there are plenty of people in prison who had a clean record until they committed a violent crime of passion or suchlike, and likewise there are plenty of criminals whose criminality is unquestioned but who never engaged in any violent activity. Again you probably didn't intend this, but I can't help feeling that you're unconsciously making a class distinction between stereotypical blue collar heavies who help themselves or carry out break-ins, vs the sort of nice socially acceptable behavior of sitting at a desk signing corporate documents which will affect thousands or millions of people that the executive has never met and knows nothing about.

Look, I'm sure you just had some generic 'tough guy' in mind, but it's not like I'm demanding the guy get thrown into some hellhole and raped int he shower every day. I'd like if we could have humane prisons like some countries, far fewer people in them, and that they should form a representative cross-section of society.

Really, if you don't have some sort of institutional accountability then it just increases the incentives to do this sort of thing precisely because the upside benefits are so much larger than the downside risks. OK, Stumpf's professional reputation is in tatters and it's probably had a negative impact on his social life...but he can basically afford to spend the rest of his life on a yacht. People suffer worse consequences from divorce.

The systemic damages done by someone at that level outweighs anything a hardened criminal done. Yes, $500MM in fraud caused magnitudes more misery and suffering to society, as a whole, than one murder. That kind of widespread damage has an untold number of ripple effects, pushing some people at the margins over the edge, breaking up marriages, causing people to drink and/or take narcotics, etc. It's hard to see, but it's like an armed robbery multiplied by 50 million.

In this instance, prison would actually serve as a deterrence.

Perhaps throwing criminal CEOs in prison will speed up the reform our system needs so badly.

If you can show knowledge of the illegal activity then why should prison be off the table?

I suppose just making the fines high enough to actually punish the company should be enough.

What about a massive fine? Enough to recover all of his bonuses and a good chunk of his salary during his time as CEO?

I believe a variation of that argument was used at Nuremberg.

Godwin!

Does calling "Godwin" mean we can't take any lessons from WWII or the Nazi era and apply them anywhere else at all?

The poster I was responding to was effectively making the argument that superiors responsibility for the actions of their subordinates varies inversely as a function of organisation size. Clearly that's ludicrous. The executive are responsible for control structure, management methods, reporting lines, KPI setting, and verification processes to ensure that the above are working properly. Further, and more importantly they set the tone for the ethics of the organisation both by what they focus on and by what they ignore.

It's not ludicrous, and stating it without justification doesn't make it so. Prison is a penalty built into the law, the Sarbanes-Oxley Act. It's not just a bunch of jealous rabble clamoring for it.

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