Wells Fargo Board faults aggressive culture in sales scandal

Monday's news about Wells Fargo (WFC) is certainly damning: the bank announced that it is "clawing back" another $75 million from two top executives, former CEO John Stumpf and community bank executive Carrie Tolstedt, excoriating them for playing key roles in the scandal whereby the bank set up unauthorized accounts for customers.

The fake-accounts scandal broke a year ago when it was discovered that Wells Fargo employees, under constant pressure to increase sales numbers, had opened 2 million unauthorized accounts. Employees also created fake email addresses for customers to sign them up for online banking, even if they did not want nor need it.

Wells Fargo has been castigated by politicians and analysts since news of the scandal broke in September 2016 when the bank reached a settlement with regulators to pay $185 million.

That outcome seems to have disproportionately fallen on women as a result of Wells Fargo's fake account scandal: Besides Tolstedt, Wells Fargo also terminated four other executives for cause in February, three of whom were women, the board said in its report.

On the advice of her lawyers, Tolstedt declined to be interviewed for the investigation. This isn't unique to Wells Fargo; nearly any corporate scandal can be traced to some degree to a board unwilling or unable to perform its function of riding herd on management.

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But executives treated these staffers as rogues, blamed them and treated the problem as not being systemic throughout the bank. Wells Fargo said its internal investigation goes back to 2009. The $28 million the board is retracting from Stumpf - the proceeds of a 2013 equity grant - will be deducted from his retirement plan payouts, Sanger said.

The tale of Wells Fargo failing to heed the 2004 warning also shows a critical flaw in the type of "decentralized structure" that the bank believed in.

The bank's board called that recommendation "extreme and unprecedented".

The report said Shearman & Sterling is completing reviews of nine employees who reported being fired after calling Wells Fargo's ethics line phone number to submit tips about unethical sales practices.

Wells Fargo & Company is a bank holding company. The board found a branch in Colorado was issuing debit cards to customers without their consent, and branch management encouraged the behavior.

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Altogether, Stumpf lost $69 million in compensation and Tolstedt $67 million, which includes $41 million from Stumpf and $19 million from Tolstedt in forfeited unvested equity awards. In 2007, William McGuire of UnitedHealthGroup was forced to give back $US618 million over backdating options. The Wells Fargo task force even cautioned that the bank faced "reputational risks" with customers and recommended management consider eliminating the sales goals. Better Markets, a nonprofit that lobbies for stricter regulation of Wall Street, called the report a compendium of "too-little, too-late cosmetic actions" and urged shareholders to oust all of Wells Fargo's board members at the company's annual meeting this month.

About 5,300 employees were fired during the same time period for sales practices violations, the bank has said.

Investigators found no evidence of retaliation in the cases of 11 ex-employees who were publicly identified as whistleblowers in media reports, according to the report.

The ISS move "fails 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", Wells said in a statement.

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