Wells Fargo Board Shakeup Includes New Chairwoman
An expected major board shakeup at Wells Fargo & Co. was announced Tuesday, with Chairman Stephen Sanger and two other members retiring on Dec. 31.
The transition of Vice Chairwoman Betty Duke to chairwoman Jan. 1 represents the bank's latest attempt at recovering from multiple customer-account scandals.
The bank said Duke was a unanimous choice to take over as chair. She served a stint on the Federal Reserve board of governors from August 2008 to August 2013.
The beleaguered bank called the changes "refreshment actions," which also included electing Juan Pujadas, a retired principal of Pricewaterhouse-Coopers, as an independent director and altering the composition of committees. Those moves are effective Sept. 1.
Sanger said the changes "reflect a thoughtful and deliberate process by the board" that was "informed by the company's engagement with shareholders and other stakeholders." He said the changes were influenced by the board's annual self-evaluation following its 2017 annual meeting.
Analysts, investors and key congressional leaders, in particular U.S. Sen. Elizabeth Warren, D-Mass., have been calling for significant changes to the Wells Fargo board since the scandal involving at least 2.1 million checking and credit card accounts erupted nearly a year ago.
The Securities and Exchange Commission, the U.S. Justice Department, state attorneys general offices and at least two congressional committees are conducting inquiries into the bank.
Wells Fargo confirmed Aug. 4 it could experience overall losses reaching $3.3 billion in its attempt to resolve its customer-account scandals. The estimated loss has more than tripled since October 2016.
Already, John Stumpf was allowed by the board to retire as chairman and chief executive on Oct. 12, while community bank head Carrie Tolstedt resigned and was retroactively fired with cause. Stumpf lost $69 million in compensation as one ripple effect of the scandal.
Sanger transitioned from lead independent director to non-executive chairman after Stumpf's retirement.
Another ripple effect was the board's decision Dec. 1 to split permanently its chairman and chief executive jobs by incorporating the requirement into its bylaws. The chairman and vice chairman are required to be independent directors.
Analysts said the board changes, particularly naming Duke as chairwoman, could help rebuild investor and customer trust in the bank.
Nancy Bush, an analyst with NAB Research, called Duke's appointment "a very good move. She is an experienced banker and regulator, and well-respected by everybody."
"I just hope she is hands-on, a la the chairman at Citigroup."
Chris Marinac, managing principal of financial services firm FIG Partners of Atlanta, said the moves are "one way of putting the entire issue of credibility behind it."
"I still contend that Wells Fargo makes enormous amounts of money and that the company remains very well positioned for the future.
"This saga should soon be in the rearview mirror, just like most of the bad press against Bank of America, Citigroup and even JP Morgan Chase in the years following the financial crisis."
Sanger expressed confidence in Duke's ability "to lead the board as it continues its focus on strengthening oversight and rebuilding the trust of shareholders, customers, and other stakeholders. Her broad understanding of the financial system and markets combined with years of main street community banking experience make her the ideal chair."
Duke cited Sanger's willingness to serve as chairman "at a time of significant challenge for Wells Fargo."
The "board refreshment" includes Cynthia Milligan, a 25-year board member, and Susan Swenson, a 19-year board member, retiring at year's end.
As of Jan. 1, the board would consist of Chief Executive Timothy Sloan and 12 independent members. The independent members will have an average board tenure of six years.
"The board intends to continue adding new directors while maintaining an appropriate balance of experience and perspectives," the board said. The board size is expected to be in the 14- to 16-member range.
Warren and multiple advocacy groups have called for the dismissal of some, if not all, of Wells Fargo's board members.
ISS, an investor shareholder services company, recommended in April that shareholders vote against re-electing 12 of Wells Fargo's 15 board members, including Sanger. Shareholders kept every director, although four, including Sanger and Milligan, received less than 60 percent of the shares voted.
The board took seven months to issue what appeared to be a mea culpa for the scandal. The board concluded in a 113-page report released April 10 that Tolstedt and Stumpf were at the center of the fault and blame.
The report drew mixed responses from banking, investor and marketing analysts, with some praising the board for its thoroughness in describing the actions, while others accused the board of window-dressing tactics ahead of the 2017 shareholder meeting.
Tony Plath, a finance professor at UNC Charlotte, said the board moves, including Duke's appointment, "are clearly, at last, a step in the right direction, and aren't window dressing at all."
"It demonstrates that the board understands that it plays an important role in the culture and strategy of the organization. When that culture and strategy become dysfunctional, then the board bears final accountability for its mistakes."
However, Plath cautioned these moves alone "won't resolve all of the trust issues that face Wells Fargo since at this point they're simply too broad and pervasive within the bank's culture."
[email protected] 336-727-7376 @rcraverWSJ
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