Thumbs up: Wells Fargo claws away at problem

Andrew Cummings
April 16, 2017

Yet it took a dozen years - and a national firestorm coupled with Congressional hearings - for Wells Fargo to finally eliminate those now-infamous sales goals, where employees were incentivized to open multiple accounts for each customer.

Los Angeles City Attorney Mike Feuer said Monday the Wells Fargo board's decision to claw back $75 million in compensation from two ex-executives it blames for much of the company's sales scandal is a "positive step", but falls short.

Still, the report itself strikes us as candid but highly critical of WFC's high-pressure culture, its former CEO & the head of community banking (both of whom are no longer with the company and have now had even more compensation clawed back), and the company's management structure.

Wells Fargo's new and highly regarded CEO, Tim Sloan, said in a conference call with reporters it was "frustrating" to hear these charges.

It's another example of how Wells Fargo executives repeatedly proved unable - or unwilling - to take the hard actions required to fix major flaws the bank's cultural and incentive problems that fueled the scandal.

Wells Fargo, Warren Buffett's favourite bank has shown all banks the way to investigate themselves, sort of.

ISS said the board's response to the potential 2.1 million fraudulent customer accounts has been lacking in firm resolution. The board members said they left thinking that between 200 and 300 employees had been fired for sales practice abuses and the problem was largely concentrated in southern California.

"Eventually, the stories will pass and Wells Fargo will emerge with a repaired reputation", Sweeney said.

Wells Fargo CEO John Stumpf testifies on Capitol Hill in Washington, Sept. 29, 2016, before the House Financial Services Committee. The 113-page report, which was compiled by the law firm Shearman & Sterling, included interviews with 100 current and former employees and reviewed 35 million documents. Another senior executive had district managers dress up in themed costumes during periodic reviews, then run a "gauntlet" to a whiteboard where they reported how many sales they had completed. That's in addition to $41 million in stock awards for Stumpf and $19 million for Tolstedt that have been canceled. Wells Fargo has also rehired about 1,000 former employees, many of whom either stepped down or were fired when they struggled to meet the aggressive sales goals set by the bank, since the problem was disclosed last September, Sloan said.

The board responded by calling ISS's voting recommendations "extreme and unprecedented" and "failing to recognize the active engagement of the board and the substantial actions it has already taken to strengthen oversight and increase accountability at all levels of Wells Fargo, including important improvements to corporate governance".

"But the conclusions of the investigation simply do not comport with its empirical findings", Plath said.

The announcement comes in the wake of a scorching internal report that said the creation of the bogus bank accounts occurred despite abundant warnings.

Some 5,300 Wells Fargo employees lost their jobs over the fake-accounts scandal - a number far higher than the bank's board says it was initially led to believe.

Last September, the bank paid $185 million in fines over the scandal.

But the report heaped most blame on senior management, not the fired employees. Stockholder advisory group Institutional Shareholder Services recently recommended that Wells Fargo shareholders vote against re-election for 12 of the company's 15 directors. It found that Stumpf's commitment to the Wells Fargo sales culture and its decentralized structure led him to "minimize problems", despite "growing indications that the situation was worsening". 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 centre of the scandal. According to one director, Stumpf praised Tolstedt as the "best banker in America".

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