Anita Roddick, the British founder of The Body Shop, once said, "Being good is good business."

Did you see last Friday's (September 9, 2016) Wall Street Journal? Well, it grabbed my attention. The page one, above-the-fold headline seemed simple enough. It read "Wells Fargo Fined For Sales Scam." But what the article recounted was a cautionary tale about corporate culture, ethics, and business profitability.

Wells Fargo Bank was fined $185 million by the U.S. Consumer Financial Protection Bureau for "widespread illegal sales." It opened no less than two million deposit and credit card accounts without customers' knowledge, resulting in all kinds of extra fees for Wells's customers and huge profits for the bank.

This is by far the largest fine in the CFBP's five year history. In addition to the fine, Wells Fargo terminated roughly 5,300 employees for engaging in improper sales practices. The WSJ quotes CFPB Director Richard Cordray as saying, "Wells Fargo built an incentive compensation program that made it possible for its employees to pursue underhanded sales practices." These unsavory, profit enhancing internal sales practices were nicknamed "sandbagging" and "bundling" by Wells employees.

How did this happen? Wells Fargo was the envy of the U.S. banking world. It consistently reported the highest profitability of all the major U.S. banks for a number of years.

The story is pretty clear. Wells Fargo had a long-term reputation for being a dependable, down-home, Main Street large bank. But executives and managers instituted a series of stretch goals and sales quotas after 2008 that were virtually impossible to reach. Wells didn't seem to really care how their employees reached these goals, despite internal complaints.

It seemed to work for Wells. The bank bragged to the investor community of its unique ability to cross-sell products, claiming an average of six products per household through its "bundling" sales process. But, alas, its success was chimerical, based on a system that left its salespeople in the untenable position of only being able to meet their sales quotas through unethical, unfair, illegal, and fraudulent means. For the long-term this was very bad business.

The Los Angeles Times reports Wells employees frequently misused customers' confidential information to open unauthorized accounts for customers, sticking them with bogus fees and unneeded services. Fearing retribution from managers, employees opened ghost accounts, forged customer signatures, and falsified phone numbers of angry customers so they couldn't be reached for customer satisfaction surveys. Over 20 different services frequently were bundled illegally into new accounts or added to old ones---things like overdraft insurance or travel insurance.

All this has reaped a huge price in ongoing customer lawsuits and loss of reputation and good will for Wells Fargo.

This put me in mind of a prescient Harvard Business Review article from 2009 authored by Dr. Lisa Ordonez, Vice-Dean of the Eller School of Management at the University of Arizona (with colleagues Maurice Schweitzer, Adam Galinsky, and Max Bozeman) titled "Goals Gone Wild." The two basic conclusions of her research were:

  1. Goals cannot create self-sustaining motivation.
  2. Goals cannot be the entire focus of management.

Unattached to an ethical corporate culture, systemic problems will predictably ensue. Problems like risk-taking, unethical behavior, decreased cooperation, and decreased intrinsic motivation. Daniel Pink"s recent book To Sell Is Human reached a similar conclusion.

Or note the recent compliance calamity at Volkswagen. Volkswagen set two demanding goals for its managers: to comply with mandated environmental standards and to become the largest car company in the world. This proved impossible. But rather than admit that, they decide to cheat massively and systemically by engineering their cars to fool the testers. (For more on this check out my Inc. column of June 13, 2016, "The Slippery Slope of Goals and Incentives.")

In both the cases of Wells Fargo and and Volkswagen, the price for placing stretch goals and sales quotas above ethics and the law has been colossal. Ethics is surely not an optional "nice thing." It is a crucial business tool for practical, long-term profitability.

We all know the famous phrase "Greed is good," voiced by Michael Douglas in the movie Wall Street. Ayn Rand aside, just the opposite is actually true for long-term profitability: Good is greed.

Professor Marc Hodak of NYU puts it this way: "Incentive to perform is frequently indistinguishable from incentive to cheat." Thank you, Marc Kodak.