Its reputation battered, Wells Fargo’s board needs to move quickly to turn a bad situation around, a consortium of pension funds told the bank in a letter on Friday.
Under fire since earlier this month when U.S. regulators announced a $185 million settlement with Wells Fargo over its employees opening up to 2 million unrequested or phony customer accounts. The bank has blamed the unethical conduct on 5,300 workers that it fired during a five-year period.
The bank’s trouble intensified this week, when CEO John Stumpf testified at a Senate Banking Committee hearing, where he was accused of “gutless leadership” by Massachusetts Democrat Elizabeth Warren, who called on him to return millions in earnings and step down.
Even if Stumpf, 63, were fired with cause, he would likely have to relinquish only a small portion of the $200 million in cash, stock and options that he’s entitled to, according to an analysis by CNNMoney.
The San Francisco-based bank’s board should appoint new board members and move to recoup executive bonuses, said CtW Investment Group. It’s tied to the union federation Change to Win, whose affiliates manage more than $200 billion in assets. If the board doesn’t act quickly, the group would oppose the reelection of directors at the bank’s next annual meeting, expected to take place in late April 2017.
CtW Investment holds about 12 million shares, or a 0.25 percent stake, in Wells Fargo, according to the consortium’s research director, Rich Clayton.
“We know they acknowledged receiving letter, and they are going to be circulating it to the board. But that’s all we’ve heard so far,” said Clayton. A spokesperson for Wells Fargo declined comment.
Addressed to Stephen Sanger, the board’s leader director, the CtW Investment missive said recent regulatory action against Wells Fargo for creating millions of bogus accounts displayed the board’s troubling lack of attention to the bank’s management of human capital.
“We are particularly concerned that the widespread creation of false accounts arose in response to sales and cross-selling goals set by the company’s employment policies and that the board failed to adequately address the effects of those polices when they were reported in the Los Angeles Times over three years ago,” wrote Dieter Waizenegger, CtW Investment’s executive director.
The board should use its executive clawback policy to recover at least some of the pay given former retail-banking head Carrie Tolstedt from 2011 to 2016, add two new directors with a background in effective human capital management and commission an external review to recommend immediate changes in Wells Fargo’s policies and practices.
Friday’s move is not the first time CtW has targeted banks. It took part in an effort that led to the removal of Kenneth Lewis as head of Bank of America (BAC) in 2009 during the financial crisis.
One corporate governance expert concurred with CtW Investment’s appeal to the Wells board, saying it’s duty-bound to figure out what top Wells Fargo executives knew and when.
“The regulators have done their job. Really, it is up to the board to do its job,” said Charles Elson, a University of Delaware legal studies professor and director of the John L. Weinberg Center for Corporate Governance.
That said, recovering millions from Tolstedt and other executives could be an uphill battle.
“Clawbacks are easier said than done. The money is gone, and there are a lot of legal barriers.” As a Wells Fargo shareholder, said Elson, “I am disappointed.”