John Stumpf, chief executive officer of Wells Fargo & Co., swears in to a House Financial Services Committee hearing in Washington, D.C., U.S., on Thursday, Sept. 29, 2016. Stumpf, fighting to keep his job amid a national political furor, will forgo more than $41 million of stock and salary as the banks board investigates how employees opened legions of bogus accounts for customers. (Photo by Andrew Harrer/Bloomberg)

It’s long been common to hear about private companies that are accused of wrongdoing by officials and paying fine to settle a lawsuit — but aren’t required to admit any guilt, even when it is painfully obvious they are. In this post, educator Larry Cuban explains why “[i]mmunity from accountability is currently widespread in the private sector, but not in the public sector.” Cuban was a high school social studies teacher for 14 years, a district superintendent (seven years in Arlington, VA), and is professor emeritus of education at Stanford University, where he has taught for more than two decades. He is the author of numerous books, including “Inside the Black Box of Classroom Practice: Change without Reform in American Education.” This appeared on his blog in two parts (here and here) and he gave me permission to publish.

By Larry Cuban

Wells Fargo, a bank that made more than $80 billion in revenue  and has a market value of $277 billion, was fined $185 million by federal regulators for creating 1.5 million fake credit card accounts. In the plea bargain that regulators made with bank officials, Wells Fargo admitted no responsibility for the financial misconduct. The company had fired more than 5,000 of its lowest-paid employees, but neither the senior vice president for community banking — where the fraud occurred — nor the CEO have lost their positions.

CEO John Stumpf, who was named in 2013 as Morningstar’s CEO of the Year and earns about $20 million a year, did face U.S. Senate Banking Committee questions about the phony accounts last week. In testimony, he said, “I take full responsibility for all of the unethical practices in our retail banking business.” But Sen. Elizabeth Warren (D-MA), a member of the Banking Committee, said what the bank did was a “scam” and that Stumpf “should resign” and “be criminally investigated.”

Looking back at the fallout from the Great Recession of 2008 in lost billions of investors’ dollars, millions of home foreclosures, and crushed hopes of a generation of hard-working American retirees — apart from one senior trader at Credit Suisse who was convicted and served 30 months — not one single CEO of an investment house, bank or insurance company hip-deep in deceiving and defrauding Americans was indicted or served a day in jail.

Yes, federal regulators fined other banks like JPMorgan Chase and Bank of America billions of dollars but they, like Wells Fargo, admitted no unlawful conduct and took no responsibility for their actions (see here, here, here, and here).

Contrast that with the savings-and-loan bank failure in the 1980s when over 1,000 bankers  went to jail for fraud and similar charges. That was then, this is now.

Immunity from accountability is currently widespread in the private sector, but not in the public sector.

Take the case of the Atlanta Public Schools and the cheating scandal between 2009-2015. Then district superintendent Beverly Hall led the district between 1999 and 2010. In 2009, she was named Superintendent of the Year by the American Association of School Administrators.

But in 2011, states officials investigated after  the Atlanta Journal-Constitution published revelations that nearly 180 teachers and officials in 44 schools raised students’ test scores, and Hall  and 31 teachers and administrators were indicted and stood trial.  Most of these educators took plea deals; Hall died of breast cancer during the trial. Eleven educators accused of tampering with students’ test scores were convicted in 2015 and are now serving from one to seven years in Georgia prisons.

No immunity from accountability here.

Lawyers and historians say often that before rushing to judgment, one must become familiar with the circumstances, the organizational setting and the mind-set of those who committed the crimes. So what were the contexts for Wells Fargo’s fraud and Atlanta’s cheating scandals?

Wells Fargo

Beginning as early as 2009, individual employees, many of whom earned less than $15 an hour, were expected to sell Wells Fargo products (e.g., credit cards, over-draft protection, checking and  savings accounts) to existing customers in order to meet their monthly goals. If they  fell short, sales representatives were written up, reprimanded or let go. Managers put intense pressure on their employees to meet these targets. Rita Murillo, a bank manager who left the company said: “We were constantly told we would end up working for McDonald’s. If we did not make the sales quotas … we had to stay for what felt like after-school detention, or report to a call session on Saturdays.”

Wells Fargo quarterly profits continued to climb in the years following the Great Recession. Investors were pleased.

As the years passed, word of bogus credit cards, checking and savings accounts and angry customers leaked out. The Los Angeles Times published an expose of the practices in 2013. The intense race to meet monthly goals created a culture where sales staff were pushed again and again to meet their targets or else. Phone calls from bosses were dreaded. After newspaper articles appeared, managers fired employees. Even after the Times‘ revealing of these practices and the dog-eat-dog ethos at Wells Fargo, bogus credit cards and new accounts continued.  Then state and federal regulators entered the picture. Fines were levied against Wells Fargo but not one senior executive was either admonished or forced to resign.

This is the context for Wells Fargo (see here, here, and here).

The Atlanta Public Schools

The high-poverty, mostly black district had struggled for decades with low graduation and high dropout rates and state test scores near the bottom of Georgia’s public school systems. Within the segregated district — there are a few largely white schools and the rest are largely black — academic gaps between white and black have been large and persistent (e.g., majority white Grady High School graduates 82 percent of its students while majority black Douglass High School is 42 percent).

Pressure to raise state test scores and graduation rates rose and fell as superintendents came and went in the 1990s. With the appointment of Beverly Hall in 1999 and the signing of the federal No Child Left Behind law in 2002, that pressure increased considerably. Rewards and sanctions accompanied goals of raising test scores across the district. All teachers in schools meeting 70 percent of their goal, for example, would receive bonus payments. The superintendent’s contract had a similar provision for increases to her salary. Sanctions for low test performance under NCLB led to closed schools, firing principals and reprimands for district office administrators not meeting state and federal goals under Adequate Yearly Performance.

Hall was determined to improve Atlanta’s student performance, and the numbers rose over the years. Bonuses went to many schools and the superintendent. Rumors of tampering with test scores circulated and were dismissed. A number of teachers reported principals fiddling with test score results. Nothing happened except strong district office messages to be quiet or leave. A culture of fear blanketed schools. Then the Atlanta Journal Constitution investigated the rumors and published their startling report in 2009 on how much adult cheating occurred on district tests. State officials then completed their investigation in 2011 (see here).

The results of that investigation led to charging the superintendent, principals and teachers in over three dozen schools with changing student test scores. The report pointed to the high-stress placed on raising test scores and the pervasive fear among school employees of retaliation if anyone reported abuses. Some quotes from the state inquiry:

*“Throughout this investigation numerous teachers told us they raised concerns about cheating and other misconduct to their principal or SRT [School Reform Team] … only to end up disciplined or terminated.”

*“[T] message was: ‘Get the scores up by any means necessary;’ in Dr. Hall’s words, ‘No exceptions and no excuses.’”

*“In sum, a culture of fear, intimidation and retaliation permeated the APS system from the highest ranks down.”

At both Wells Fargo and in the Atlanta public schools hard-driving managerial pressures created fear-strewn workplaces where success-filled data became the goal. Similar contexts in a public and private institution turned up.

Yet accountability for fraud in these two institutions differed greatly. How come?

Part 2:

Wells Fargo bank and the Atlanta public schools defrauded large numbers of customers and students. At the bank, over 5,000 employees were fired. The bank’s CEO admitted responsibility for the fraud before a U.S. Senate Banking Committee yet the fine levied by federal regulators ($185 million) wasn’t even a slap on the wrist, given the $80 plus billion in revenues that the bank took in last year. Nor did the bank admit in that agreement to pay the fine any responsibility for for their actions. The CEO is still CEO.

The Atlanta public schools cheating scandal found evidence of 178 principals and teachers in over 40 schools tampering with student scores on state tests. Eleven teachers were indicted, tried, and convicted (over 20 other educators took plea deals).  Those 11 are in prison.

Two questions occurred to me as I read and pondered these instances of corruption Wells Fargo and the Atlanta public schools.

First, why did employees scam customers with bogus bank accounts and educators tamper with test scores?

The familiar answer: some bad apples caused the problem — which is basically saying it was individuals acting badly not an organizational problem. Over 5,000 fired at Wells Fargo is a lot of “bad apples, however.” Over 40 schools and 178 educators is also a lot of “bad apples.” The “bad apples” answer side-steps the pervasive culture in Wells Fargo and Atlanta public schools that top leaders shaped and drove unrelentingly.

Top officials created an organizational culture of producing results at any cost.

Ample evidence exists of top managers  setting very high performance goals that were difficult to meet; the company and district created fear among employees who didn’t meet those goals. Penalties for low performance and retaliation for those who complained fostered a culture of fear. Compliance to do what expected even if it disadvantaged customers was a powerful reason to keep a job. In short, the culture caused employees to peddle bogus accounts and fix test scores.

But — you knew a “but” was coming —  not all of the lowest-paid employees engaged in the fraud. While cultural pressures can be strong and influential, they do not always determine individual action.  Sure, 5,300 Wells Fargo employees were fired but many more retained their jobs by figuring out ways to perform and not defraud customers.

Similarly, all Atlanta  educators experienced the same intense pressure to raise students’ test scores but many principals and teachers followed the rules and did what they were supposed to do in administering and scoring tests. Yes, organizational culture surely shapes behavior but it does not determine how every individual acts.

Top officials were greedy; they thought they could get away with the fraud and cheating and boost the reputation of their organizations. 

Over the years, bipartisan policies deregulated industries (e.g., financial companies, airlines) creating a climate where profit seeking is highly prized. Billionaires become American heroes dispensing donations, advice, and encouragement to aspiring millionaires. The  language describing unvarnished greed has softened, euphemisms abound describing the unceasing chase for more and more money (e.g., “being entrepreneurial,” “individual enterprise”). Not only in the corporate sector, this profit-seeking culture has now spread across public institutions such as schools, hospitals, and prisons (see here, here, and here).

None of this should surprise any reader since individual profit-seeking is in the DNA of a capitalist democracy. From John Jacob Astor to John D. Rockefeller to Cornelius Vanderbilt, billionaires made their money in trade and real estate, oil, and railroads. They became legends in their own time. They were admired, inspiring their fellow Americans whether they were poor, working class or just got a hand-hold in the middle class to get rich In the U.S., the job of curbing the unrelenting search for profit has been the role of government, as it has in most developed countries. We have lived in a mixed economy where both business and government have interacted constantly checking and balancing one another for nearly two centuries.

When that partnership breaks down or one side becomes too powerful—too much government regulation or too much business influence on governmental policy then shifts in political power  occur to correct that imbalance. Consider the New Deal following the Great Depression  of the 1930s. Or deregulation of industries since the 1980s and reforming the tax code to benefit the wealthy. The U.S. is in such a moment now of inequalities in wealth that call for restraining the richest of the rich from re-shaping government policies to make it easier for them to become even wealthier while leaving middle class families trail far behind in increasing their salaries.

Second, why are there differences in holding public and private employees accountable for their crimes?

Since the late 1970s, the United States is in a moment when business success, corporate entrepreneurs, and keeping government regulation at arm’s length has dominated public policy. “Government is the problem,” as Ronald Reagan put it. Getting rid of government rules and bureaucracy, conservatives argue, will unleash business owners to invest and create more jobs for Americans.

Anti-government rhetoric morphed into state and federal laws — e.g., tax cuts, incentives for investors to locate their monies in off-shore accounts and not pay taxes, low interest rates, fewer IRS audits —  that benefited those who ran companies and had large investment portfolios.

Corporate leaders, backed by large sums of money, hired lobbyists to influence legislators to deregulate airlines, banks, pharmaceuticals, and other industries so that more money would flow to the already rich. To the rich, public institutions were  feeding at the tax-payer trough and were not as efficient and effective as private sector companies. Accountability was needed, business leaders said, to hold public officials in schools, hospitals, and prisons to be responsible for student outcomes, curing illnesses, and punishing criminals.

And that is how I explain why no CEO of a company heavily involved in the chicanery of the Great Recession of 2008 has gotten convicted while some Atlanta school employees went to jail.