The shareholder vote against Wells Fargo directors on Tuesday was larger than anything seen at a big US bank during the financial crisis — but without Warren Buffett’s help the rebellion would have been even bigger.
For four board members, only the support of the billionaire investor’s Berkshire Hathaway prevented them from being removed from office in the wake of the bank’s bogus accounts debacle.
Chairman Stephen Sanger, who received backing from only 56 per cent of total votes cast at the bank’s fiery annual meeting, was among those saved by Berkshire.
Wells’s biggest shareholder used its 10 per cent stake to vote in favour of all 15 directors, even though the share price drop that followed the revelations about its sales practices cost the bank its status as the world’s most valuable.
Mr Buffett has said Wells was “a great bank that made a terrible mistake” when staff opened hundreds of thousands of fee-generating accounts for customers without their permission, but the annual meeting showed other shareholders are less forgiving.
“Investors have lost faith in Wells Fargo’s board,” said Scott Stringer, the New York City comptroller. “This vote demonstrates that these directors no longer have a mandate. Investors want change.”
Several individual shareholders on Tuesday vented their anger at directors — most of whom were sitting on the board while the illegal sales practices were going on — for failing to spot and prevent misconduct on such a scale, which went as far back as 2002.
One activist, Bruce Marks, was hauled out by security after he insisted directors explain what they knew and when.
Other than the chairman and chief executive, none of the directors spoke at the meeting on the Florida coast. To the chagrin of critics, the other board members did not even face the audience.
Yet board members’ report into the crisis, published this month, made clear they think the blame lies elsewhere: executives who have now left Wells, the report said, had misled directors.
Speaking after the vote on Tuesday, Mr Sanger said the board had no immediate plans to replace directors but pledged a longer-term “refresh”. Over the next four years, six directors are in any case due to leave as they reach retirement age. That is far too slow for some.
“There is a serious question as to whether any of the directors who received less than 60 per cent of the vote can stay on,” said Howell Jackson, a professor at Harvard Law School.
He described the directors’ 110-page exposition of what went wrong as “simultaneously self-serving and silly”. In a review of the report, he concluded that it “makes many excuses for the board not having done its job. But read with care, the report can and should be understood as a devastating critique of the board’s work.”
None of the board’s long-serving board members received more than 80 per cent of the vote. Such votes are usually a formality at US-listed companies and directors typically get support in the high 90s.
The rebellion at Wells was the biggest at a big US bank since at least 2007, according to ISS Analytics, even though the accounts debacle has cost the bank less — in monetary terms at least — than several other post-crisis scandals that have engulfed rivals.
It was bigger than the backlash against JPMorgan Chase in 2013, when three directors failed to gain more than 60 per cent support amid investor anger at the $6bn “London whale” trading fiasco.
“It’s a stunningly low vote [at Wells] and there’s no way to avoid the conclusion that shareholders want the board to be seriously shaken up,” said Dennis Kelleher of the advocacy group Better Markets.
“This board should be embarrassed that their defence to 15 years of criminal conduct [among employees] is, ‘We had no idea’,” he said. “If they continue on the board it would be confirmation of how incredibly deficient they are.”
Mr Sanger argued that shareholders had not singled out particular directors for removal. Instead, he said, investors wanted to signal displeasure to the board by targeting the heads of its various committees.
The biggest vote was cast against the McDonald’s chairman Enrique Hernandez, a Wells director since 2003. He chairs both the finance and risk committees and received only 53 per cent approval.
Federico Peña, Bill Clinton’s former transport secretary who chairs the corporate responsibility committee, and Cynthia Milligan, a Wells director since 1992 who heads the credit committee, also fought off big votes against them.
The results of the meeting were not all so bad. Tim Sloan, the recently appointed chief executive, received 99 per cent backing and executive pay was endorsed by a similarly high margin. Various shareholder motions got relatively limited traction.
Yet the latest developments show the sham account scandal, which erupted in October and cost former chief executive John Stumpf his job, is still weighing heavily on the bank.
More disturbing details emerged at the three-hour shareholder meeting of the pressure on staff that tempted so many to resort to fraud. “The stress from the work environment made me sick,” said Ruth Landaverde, who worked at Wells for more than a year. “I had constant headaches and even developed an eye tic.”
New customer account openings are still down heavily, partly because of the reputational fallout, while executives still face questions about how the bank can replace its “cross-selling” model that appeared for so long — from the outside at least — to have been a success.
Political critics are also staying on the bank’s case. Senator Elizabeth Warren this week wrote to standard setters at the Public Company Accounting Oversight Board (PCAOB) to raise concerns about KPMG’s role as the bank’s auditor. KPMG’s reappointment was ratified with 97 per cent shareholder support.
Her colleague senator Sherrod Brown, ranking member of the senate banking committee, said board members “need to bear responsibility — even if shareholders spared them the same measure of accountability as the senior managers and 5,300 front-line employees who lost their jobs”.
Wells Fargo’s failings meanwhile also hang over Mr Buffett.
He told the Financial Times he plans to address it at Berkshire’s own annual shareholder meeting next week, when he fields questions from an audience of some 30,000 investors.
“I expect the question will come up at the meeting,” he said, declining to elaborate on his reasons for backing the board until then. “I don’t want to step on my own lines.”
Letter in response to this article:
Get alerts on Wells Fargo when a new story is published