Wells Fargo Sees Its Reputation Hit a New Low

By Daniel B. Kline Markets Fool.com

Sometimes a company can be part of a major scandal and shake it off without doing major damage to its reputation.

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That happens when consumers largely accept that whatever calamity occurred was not willful wrongdoing by the brand or its leaders. In most cases however, when the people in charge are implicated in whatever problem has occurred -- either because they caused it or did nothing to stop it -- the results can be disastrous.

That's what happened this year with Wells Fargo (NYSE: WFC). The bank fired thousands and paid $185 million in fines after it became public that the company had created over two million fake accounts for its customers earning the bank undeserved fees and padding employee bonuses.

It was a scandal that shook public confidence in the company sending its reputation plunging in the latest Harris Poll of Corporate Reputation among America's 100 most-visible companies. Well Fargo saw its ranking fall by 20.6 points, moving it to 99th out of the 100 companies ranked, the biggest drop in the 18-year history of the poll, surpassing Volkswagen's (NASDAQOTH: VLKAY) drop last year of 20.5 points.

Wells Fargo reputation took a major hit after its fake account scandal. Image source: Getty Images.

Why did Wells Fargo fall so far?

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The Harris Poll Reputation Quotient measures how the general public feels about the 100 most-visible companies in the U.S. The poll "measures companies' reputation strength based on the perceptions of more than 23,000 Americans across six corporate reputation dimensions: Social Responsibility, Emotional Appeal, Products and Services, Vision and Leadership, Financial Performance, and Workplace Environment," according to Harris.

Wells Fargo's dramatic fall came because the company ticked off the three top reasons consumers downgrade a company's reputation. According to Harris 85% of Americans consider intentional wrongdoing or illegal actions by corporate leaders something that hurts their opinion of a company. In addition 83% take issue with a company lying or misinterpreting the facts about a product or service and 82% have a problem with intentional misuse of financial information for financial gain.

"Incidents that introduce reputational risk are not created equal," said Harris Poll Vice President Wendy Salomon. "Some crises that we've seen play out in the past few years cut at the core of what the public sees as most damaging, while other situations aren't such a big deal. Reputation managers often face great internal and external pressures to respond, so the more they can understand the scale of response that makes sense the better."

A comeback won't be easy

More than a year removed from its own scandal Volkswagen remains at number 91 on the 100-company list. In the case of companies doing such public damage to their reputations it simply takes time for consumers to forgive.

It's worth nothing however, that at least in the case of Wells Fargo, while new account openings and even the amount of customers visiting the bank has fallen dramatically, earnings have remained solid. The company reported diluted earnings per share (EPS) of $3.99 for 2016, compared with $4.12 for 2015. In addition full-year income only dropped $1 billion, from $22.9 billion in 2015 to $21.9 billion in 2016.

Consumers are clearly wary of the bank, specifically of opening new accounts there, but their distaste has not resulted in too many people moving their accounts elsewhere. That should ultimately give Wells Fargo an opportunity to rebuild its reputation and slowly win back consumers' trust. That's not an easy road, but time should eventually heal this wound as long as the bank continues to show that its illicit behavior is in the past.

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Daniel Kline has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.