Business Wells Fargo Board gets $75M back from executives over sales scandal
 |
In this May 6, 2012, file photo, a Wells Fargo sign is displayed at a branch in New York. Photo Credit: AP |
The problems at
Wells Fargo and its overly aggressive sales culture date back at least
15 years, and management had little interest in dealing with the issue
until it spiraled out of control resulting in millions of accounts being
opened fraudulently, according to an investigation by the company's
board of directors.
The bank's board also clawed back another $75 million in
pay from two former executives, CEO John Stumpf and community bank
executive Carrie Tolstedt, saying both executives dragged their feet for
years regarding problems at the second-largest U.S. bank. Both were
ultimately unwilling to accept criticism that the bank's sales-focused
business model was failing.
Recommended
The 110-page report has been in the works since September,
when Wells acknowledged that its employees opened up to 2 million
checking and credit card accounts without customers' authorization.
Trying to meet unnaturally high sales goals, Wells employees even
created phony email addresses to sign customers up for online banking
services.
"(Wells' management) created pressure on employees to sell
unwanted or unneeded products to customers and, in some cases, to open
unauthorized accounts," the board said in its report.
Many current and former employees have talked of intense
and constant pressure from managers to sell and open accounts, and some
said it pushed them into unethical behavior. The report backs up those
employees' accounts.
"It was common to blame employees who violated Wells
Fargo's rules without analyzing what caused or motivated them to do so
... (or determine) whether there were responsible individuals, who while
they might have no directed the specific misconduct, contributed to the
environment (that caused it)," the board said.
The report also says that problems in the bank's sales
culture date back to at least 2002, far earlier than what the bank had
previously said. And that Stumpf knew about sales problems at a branch
in Colorado since at least that year.
The bank has already paid $185 million in fines to federal
and local authorities and settled a $110 million class-action lawsuit.
The scandal also resulted in the abrupt retirement last October of
longtime CEO John Stumpf, not long after he underwent blistering
questioning from congressional panels. The bank remains under
investigation in several states, as well as by the Securities and
Exchange Commission, for its practices.
The board's report recommended that Stumpf and Tolstedt
have additional compensation clawed back for their negligence and poor
management. Tolstedt will lose $47.3 million in stock options, on top of
$19 million the board had already clawed back. Stumpf will lose an
additional $28 million in compensation, on top of the $41 million the
board already clawed back. Along with the millions clawed back from
other executives earlier this year, the roughly $180 million in
clawbacks are among the largest in U.S. corporate history.
The board found that, when presented with the growing
problems in Wells' community banking division, senior management was
unwilling to hear criticism or consider changes in behavior. The board
particularly faulted Tolstedt, calling her "insular and defensive" and
unable to accept scrutiny from inside or outside her organization.
The board also found that Tolstedt actively worked to
downplay any problems in her division. In a report made in October 2015,
nearly three years after a Los Angeles Times investigation uncovered
the scandal, Tolstedt "minimized and understated problems at the
community bank."
Tolstedt declined to be interviewed for the investigation, the board said, on advice from her lawyers.
Stumpf also received his share of criticism. In its
report, the board found that Stumpf was also unwilling to change Wells'
business model when problems arose.
"His reaction invariably was that a few bad employees were
causing issues ... he was too late and too slow to call for inspection
or critical challenge to (Wells') basic business model," the board said.
Stumpf, however, did not seem to express regret for how he
handled those initial weeks after the bank was fined, including where
he initially levied most of the blame on low-level employees for the
sales practices problems instead of management, said Stuart Baskin,
lawyer with Shearman & Sterling, the firm that the board hired to
investigate the sales scandal
The investigation found that Wells' corporate structure
was also to blame. Under Stumpf, Wells operated in a decentralized
fashion, with executives of each of the businesses running their
divisions almost like separate companies.
While there is nothing wrong with operating a large
company like Wells in a decentralized fashion, the board said, the
structure backfired in this case by allowing Tolstedt and other
executives to hide the problems in their organization from senior
management and the board of directors.
When the scandal broke, Wells said it had fired roughly
5,300 employees as a result of the sales practices, the vast majority of
them rank-and-file employees. But when that figure was announced it was
the first time that the board of directors had heard the sales
practices problems were of such a large size and scope. According to the
report, as recently as May 2015, senior management told the board that
only 230 employees had been fired for sales practices violations.
Wells has instituted several corporate and business
changes since the problems became known nationwide. Wells has changed
its sales practices, and called tens of millions of customers to check
on whether they truly opened the accounts in question.
The company also split the roles of chairman and CEO. Tim
Sloan, Wells' former president and chief operating officer, took over as
CEO. Stephen Sanger, who had been the lead director on Wells' board
since 2012, became the company's independent chairman. Since taking that
position, Sanger has clawed back tens of millions of dollars in stock
awards and compensation due to Stumpf and Tolstedt. In January, the
board took the unusual action of publicly firing four executives whom
the board said had major roles in the bank's sales practices at the
center of the scandal. It also cut bonuses to other major executives,
including Sloan.
However, the board's report concluded that Sloan had little direct involvement in the questionable sales practices.
The report is unlikely to quell the criticism aimed at
Wells Fargo. The bank is still under investigation by Congress, state
and federal authorities. And last week an influential shareholder
advisory firm said investors should vote out nearly the entire board of
directors when the bank holds its annual shareholder meeting later this
month.
Better Markets, a left-leaning group that wants stricter
regulations on banks, called the report "grossly deficient" and said it
was "too little, too late."
Commentaires
Enregistrer un commentaire