Warren Buffett Explains Why He Sold Wells Fargo Stock

Warren Buffett Explains Why He Sold Wells Fargo Stock

Warren Buffett goes into the problems at Wells Fargo and where fraud comes from. He will allow for a company to make mistakes when setting up and system to incentivize their employee's. Sometimes mistakes happen. Wells Fargo was incentivizing its sales teams to sign up customer's for as many services as possible. It was a metric they tracked closely and rewarded it.

Now, IF the incentive system is setup incorrectly that is ok, as long as when management or the CEO finds out about it, it gets fixed. Warren Buffett maintains a hotline that anyone can call into for people report issues about the companies he is invested in. Most of the reports are innocuous. Ultimately someone called in and reported that Wells Fargo was signing clients up for services that were totally counter to the clients best interest.

Charlie Munger weighs in saying that an ounce of prevention is worth more then a pound of cure. A culture of compliance and trust MUST be established, so that when mistakes are made, they do not get compounded by not fixing the problem the right way the first time.