Wells Fargo: Fall from Great to Miserable: A Case Study on Corporate Governance Failures

This case study examines corporate governance issues at Wells Fargo and Company. The bank was embroiled in controversies due to its cross-selling tactics and the enormous pressure the management exerted on the employees to ensure its success. Investigations by media, followed by statutory agencies, revealed the creation of fake accounts without the knowledge of the customers, sometimes forging their signatures. The CEO of the bank had to resign after facing a hostile US Senate Banking Committee hearing. Wells Fargo had to pay a fine of USD185 million to various statutory agencies. The board used clawback provisions on the CEO and the head of Community Bank. The latter was held responsible for the audacious sales culture which resulted in sales integrity issues. Wells Fargo seemed to have a perfect board, a lead director and a much acclaimed CEO, apart from seven board committees. External auditors were one of the ‘big fours’. This case is intended to stimulate discussion in the class on why corporate governance practices fail, despite a seemingly healthy governing structure.

Testimony before the U.S. Senate Banking Committee: ‘Fostering Economic Growth: Midsized, Regional and Large Institution Perspective’

This written statement accompanied Professor Omarova’s oral testimony given on June 15, 2017, in a hearing held by the U.S. Senate Banking Committee on the necessity of relaxing certain aspects of post-crisis financial regulation applicable to midsized, regional and large banks, as a means of fostering America’s economic growth. In her written statement, Professor Omarova systematically lays out the reasons why massive deregulation urged by the banking industry will hinder, rather than foster, sustainable long-term growth in the real (i.e., non-financial) sector of the American economy.

Prospects for the US economy in 2018

Subject Prospects for the US economy in 2018. Significance In 2018, US GDP should continue growing at the 2017 pace of 2.0-2.5%, and 0.2-0.3% higher if Congress can pass a tax cut. Incoming Federal Reserve (Fed) Chair Jerome Powell yesterday gave his first testimony to the Senate Banking Committee, vowing continuity and stability in monetary policy. US economic activity has been expanding for 100 months, the third-longest expansion since 1854 and almost twice the post-Second World War average of 58 months.

Congressional Committees as Reputation-building Mechanisms

Interest groups cannot enforce contracts with legislators to work in their favor since fee-for-service agreements would be considered bribery. When such contracts are not available, a system of specialized, standing committees can provide a second-best way to maximize contributions, since such a system facilitates repeated interactions and reputational development between PACs and members of the relevant committees. Using data on PAC contributions by competing financial services interests to members of the House Banking Committee, we find evidence consistent with key implications of our model of committees as reputational-development devises. We then interpret important episodes in the evolution and development of the committee system during the twentieth century from the perspective of our theory. We focus on the revolt against House Speaker Cannon, which resulted in the birth of the modern committee system, and the post-Watergate reforms. We also consider broader implications of this approach for analyzing term limits, corruption, and party strength. JEL classifications: D72, D78, G28.

Woodrow Wilson and Business-Government Relations During World War I

By the spring of 1914 Woodrow Wilson was clearly doing everything in his power to ingratiate the new Democratic Administration with the nation's business groups. He abandoned the Brandeisian spirit of trust-busting as part of his program for corporation control in favor of regulation by commission, a policy more in line with the sentiment among leading businessmen. (Indeed, the Federal Trade Commission established in 1915 soon showed that it would serve as the friend and not the enemy of business.) He directed personal appeals to businessmen both by letter and by informal conversations at the White House, and he made nominations to regulatory agencies like the Federal Trade Commission and Federal Reserve Board that left no doubt as to his sincerity in attracting business support. One of his choices for the Reserve Board, Thomas D. Jones, was at once a personal friend and a former trustee of Princeton University. But Jones was also a well-known member of the “Zinc Trust” and a director of the International Harvester Company then under indictment as a conspiracy in restraint of trade. Wilson campaigned hard for this appointment against strong Senatorial opposition even within his own party. At the same time, he declared publicly: “It would be particularly unfair to the Democratic Party and the Senate itself to regard it as the enemy of business, big or little.” Wilson was outraged when the Senate Banking Committee rejected his friend. “I believe the judgment and desire of the whole country cry out for a new temper in affairs,” he wrote rather despairingly to Jones. “We have breathed already too long the air of suspicion and distrust.”