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Wells Fargo Needs to Make a Clean Break With the Past Wells Fargo Needs to Make a Clean Break With the Past
(1 day later)
Even after two big shuffles at the top, Wells Fargo is still working from the same playbook. And for the bank’s stockholders, that could mean more frustration lies ahead.Even after two big shuffles at the top, Wells Fargo is still working from the same playbook. And for the bank’s stockholders, that could mean more frustration lies ahead.
John Stumpf abruptly exited late Wednesday from his chief executive and chairman posts at the bank, taking responsibility for the bank’s phony accounts disaster. But the elevation of Timothy J. Sloan, the Wells Fargo president and former chief operating officer, to succeed Mr. Stumpf, and the simultaneous appointment of an independent board chairman seem like incremental moves from a bank that really needs a do-over to repair the damage.John Stumpf abruptly exited late Wednesday from his chief executive and chairman posts at the bank, taking responsibility for the bank’s phony accounts disaster. But the elevation of Timothy J. Sloan, the Wells Fargo president and former chief operating officer, to succeed Mr. Stumpf, and the simultaneous appointment of an independent board chairman seem like incremental moves from a bank that really needs a do-over to repair the damage.
Is Mr. Sloan, an almost 30-year veteran of Wells Fargo and a seasoned insider, the best executive to lead the bank out of crisis? Some of the experts I talked to don’t think so.Is Mr. Sloan, an almost 30-year veteran of Wells Fargo and a seasoned insider, the best executive to lead the bank out of crisis? Some of the experts I talked to don’t think so.
Sarah Bloom Raskin, deputy secretary of the United States Treasury and a former member of the Federal Reserve Board of Governors, said that Wells Fargo needed to shift from a reactive crisis-management stance to proactive risk management. And this may require more significant change than the company is offering.Sarah Bloom Raskin, deputy secretary of the United States Treasury and a former member of the Federal Reserve Board of Governors, said that Wells Fargo needed to shift from a reactive crisis-management stance to proactive risk management. And this may require more significant change than the company is offering.
“The whole country is watching to see if this bank is seizing the opportunity to make a clean break from doing business in a way that strains its reputation with its customers to one that enhances it,” Ms. Raskin said. “This is an opportunity to bring in a new perspective at the top.”“The whole country is watching to see if this bank is seizing the opportunity to make a clean break from doing business in a way that strains its reputation with its customers to one that enhances it,” Ms. Raskin said. “This is an opportunity to bring in a new perspective at the top.”
Mr. Sloan may indeed be a great manager. But one of the big questions looming over him is whether his long tenure at Wells Fargo is an asset or a liability.Mr. Sloan may indeed be a great manager. But one of the big questions looming over him is whether his long tenure at Wells Fargo is an asset or a liability.
Richard Bove, a veteran bank analyst at Rafferty Capital Markets, said Wells Fargo needed an overhaul that went far beyond the scandal itself. Yes, repairing the culture that allowed the fraudulent practices to occur is a crucial task for Mr. Sloan, but that alone will not get the bank back on track.Richard Bove, a veteran bank analyst at Rafferty Capital Markets, said Wells Fargo needed an overhaul that went far beyond the scandal itself. Yes, repairing the culture that allowed the fraudulent practices to occur is a crucial task for Mr. Sloan, but that alone will not get the bank back on track.
In recent years, Wells Fargo’s competitors, Mr. Bove said, have vastly improved their operations by exiting significant businesses and selling off assets. Citigroup has gotten out of 30 businesses and sold off a large number of assets, he said. Bank of America and JPMorgan Chase have also downsized.In recent years, Wells Fargo’s competitors, Mr. Bove said, have vastly improved their operations by exiting significant businesses and selling off assets. Citigroup has gotten out of 30 businesses and sold off a large number of assets, he said. Bank of America and JPMorgan Chase have also downsized.
But Wells Fargo has added lines of business during the period, Mr. Bove said, resulting in a bloated bank.But Wells Fargo has added lines of business during the period, Mr. Bove said, resulting in a bloated bank.
“This is a company that must make massive revisions to its business model,” Mr. Bove said. “Someone has to get in there and rip the company apart. Sloan is not the guy to do that.”“This is a company that must make massive revisions to its business model,” Mr. Bove said. “Someone has to get in there and rip the company apart. Sloan is not the guy to do that.”
There is also a question about Mr. Sloan’s previous position as the bank’s chief financial officer from February 2011 to May 2014.There is also a question about Mr. Sloan’s previous position as the bank’s chief financial officer from February 2011 to May 2014.
In that post, Mr. Sloan was required to sign periodic certifications that he had disclosed to the company’s auditors and the audit committee of the board any fraud involving management or other employees that had a significant role in the company’s internal controls.In that post, Mr. Sloan was required to sign periodic certifications that he had disclosed to the company’s auditors and the audit committee of the board any fraud involving management or other employees that had a significant role in the company’s internal controls.
The pervasive opening of sham accounts, a practice in a division overseen by Carrie Tolstedt, also a top Wells Fargo executive, would certainly seem to qualify as fraud relating to the bank’s internal controls. Did Mr. Sloan make disclosures about these practices to the board during his stint as chief financial officer? If not, why not? And if he did, why were the disclosures not acted on years ago?The pervasive opening of sham accounts, a practice in a division overseen by Carrie Tolstedt, also a top Wells Fargo executive, would certainly seem to qualify as fraud relating to the bank’s internal controls. Did Mr. Sloan make disclosures about these practices to the board during his stint as chief financial officer? If not, why not? And if he did, why were the disclosures not acted on years ago?
I asked these questions of Wells Fargo. A spokeswoman, Arati Randolph, emphasized that the bank’s auditor had determined that the financial impact of the problematic practices was not meaningful. “The vast majority of the accounts reviewed did not generate fees or result in net income for the company,” Ms. Randolph said in a statement. “In fact, it cost Wells Fargo more than $10 million to open and service those accounts, which generated the $2.6 million in fees that was returned to customers.” I asked these questions of Wells Fargo. A spokeswoman, Arati Randolph, emphasized that the bank had determined that the financial impact of the problematic practices was not meaningful. “The vast majority of the accounts reviewed did not generate fees or result in net income for the company,” Ms. Randolph said in a statement. “In fact, it cost Wells Fargo more than $10 million to open and service those accounts, which generated the $2.6 million in fees that was returned to customers.”
Certainly, the bank’s shareholders are hoping that Mr. Sloan’s rise will stop the fall in the company’s share price. Wells Fargo’s stock has lost almost $28 billion in market value since early September, when the bank announced its settlement with regulators over the dubious practices. On Friday, after Mr. Sloan held a conference call with analysts, the stock fell 0.6 percent from the previous day’s close.Certainly, the bank’s shareholders are hoping that Mr. Sloan’s rise will stop the fall in the company’s share price. Wells Fargo’s stock has lost almost $28 billion in market value since early September, when the bank announced its settlement with regulators over the dubious practices. On Friday, after Mr. Sloan held a conference call with analysts, the stock fell 0.6 percent from the previous day’s close.
Annalisa Barrett, a clinical professor of finance at the University of San Diego school of business, thinks the bank may be making the best of a bad situation. She argued that the investor reaction could have been worse had the board announced it was looking for an outsider to replace Mr. Stumpf.Annalisa Barrett, a clinical professor of finance at the University of San Diego school of business, thinks the bank may be making the best of a bad situation. She argued that the investor reaction could have been worse had the board announced it was looking for an outsider to replace Mr. Stumpf.
“They likely would have named an interim C.E.O. while they conducted their search,” she said. “In my opinion, that would have been very disruptive and led to more uncertainty in the market and concern among employees and customers.”“They likely would have named an interim C.E.O. while they conducted their search,” she said. “In my opinion, that would have been very disruptive and led to more uncertainty in the market and concern among employees and customers.”
Given the sad sequence of events at Wells Fargo, I couldn’t help but wonder: Why does it take a crisis of this magnitude to get a company or its board to act on governance matters that its shareholders have been agitating about?Given the sad sequence of events at Wells Fargo, I couldn’t help but wonder: Why does it take a crisis of this magnitude to get a company or its board to act on governance matters that its shareholders have been agitating about?
One such matter involves who runs the Wells Fargo board. For years, the position of chairman was held by the company’s chief executive, most recently Mr. Stumpf. This meant that the same person presided over the board even as he oversaw the bank’s operations.One such matter involves who runs the Wells Fargo board. For years, the position of chairman was held by the company’s chief executive, most recently Mr. Stumpf. This meant that the same person presided over the board even as he oversaw the bank’s operations.
Recently, companies whose chief executives also lead their boards have come under pressure from investors who think these responsibilities should be divided to ensure an appropriate balance of power. At Wells Fargo’s annual shareholder meeting in April, for example, investors were once again asked to vote on a proposal that would have required an independent chairman to replace Mr. Stumpf in that role.Recently, companies whose chief executives also lead their boards have come under pressure from investors who think these responsibilities should be divided to ensure an appropriate balance of power. At Wells Fargo’s annual shareholder meeting in April, for example, investors were once again asked to vote on a proposal that would have required an independent chairman to replace Mr. Stumpf in that role.
Such a proposal has come up at the bank every year for more than a decade. Each time, Wells Fargo has recommended that shareholders nix it and each time the bank has gotten its way.Such a proposal has come up at the bank every year for more than a decade. Each time, Wells Fargo has recommended that shareholders nix it and each time the bank has gotten its way.
This year was no different. But in arguing against the proposal, Wells Fargo made the following points. Its existing board structure, the company said, “provides effective independent oversight of management and board accountability” and its governance is “working effectively as evidenced by the company’s strong financial performance.”This year was no different. But in arguing against the proposal, Wells Fargo made the following points. Its existing board structure, the company said, “provides effective independent oversight of management and board accountability” and its governance is “working effectively as evidenced by the company’s strong financial performance.”
Well, so much for that. On Wednesday, the company did an about-face, indicating that its governance prowess might not have been as effective as the company had contended. In his new position as C.E.O., Mr. Sloan will not become board chairman. That assignment now goes to Stephen W. Sanger, retired chief executive and chairman of General Mills, who will be assisted by Elizabeth A. Duke, a former Federal Reserve Board governor, as vice chairwoman.Well, so much for that. On Wednesday, the company did an about-face, indicating that its governance prowess might not have been as effective as the company had contended. In his new position as C.E.O., Mr. Sloan will not become board chairman. That assignment now goes to Stephen W. Sanger, retired chief executive and chairman of General Mills, who will be assisted by Elizabeth A. Duke, a former Federal Reserve Board governor, as vice chairwoman.
These two directors have a lot on their plates. They are essentially charged with waking up what has been a somnambulant board.These two directors have a lot on their plates. They are essentially charged with waking up what has been a somnambulant board.
Ms. Duke joined the Wells Fargo board only in early 2015, so she cannot be held responsible for overlooking years of problematic activities.Ms. Duke joined the Wells Fargo board only in early 2015, so she cannot be held responsible for overlooking years of problematic activities.
Mr. Sanger, on the other hand, has been a Wells Fargo director since 2003. And since 2012, he has held the position of lead independent director of the bank’s board. In that job, he was supposed to ensure that Mr. Stumpf was putting his shareholders’ interests first.Mr. Sanger, on the other hand, has been a Wells Fargo director since 2003. And since 2012, he has held the position of lead independent director of the bank’s board. In that job, he was supposed to ensure that Mr. Stumpf was putting his shareholders’ interests first.
That didn’t happen then, but it better happen now.That didn’t happen then, but it better happen now.