Sen. Elizabeth Warren, D-Mass., on Monday took direct aim at the biggest elephant in the capacious room of the Wells Fargo unauthorized-accounts scandal — the question of why the board of directors hasn’t been fired.
In a letter to Federal Reserve Chair Janet Yellen, Warren named the 12 Wells Fargo directors who served while the scandal developed, from 2011 through 2015 at least. She observed that their dereliction “caused Wells Fargo to suffer massive financial losses, including nearly $200 million in settlements with government entities, and… long-lasting reputational damage to the bank.”
Yet while the Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency both have taken regulatory steps against the bank, Warren said, “the Federal Reserve has done nothing to date, despite its ample statutory authority.”
The scandal, it will be remembered, resulted from bank employees’ opening as many as several million unauthorized credit card and banking accounts in the names of existing customers, all to meet crushing sales quotas imposed from above. Senior bank managers, including former Chairman and CEO John Stumpf, were well aware of the misconduct but failed to take adequate steps to shut it down, according to an investigative report by the law firm Shearman & Sterling, which Wells Fargo made public in April, and from which Warren quotes liberally.
The activities were first uncovered by a 2013 Los Angeles Times investigation. Last year, the bank paid $185 million to settle complaints by the Los Angeles city attorney, the Consumer Financial Protection Bureau, and other regulators, but it still faces millions of dollars in civil claims.
Warren is right on two points. One is that the Fed certainly has the authority to remove directors of depository institutions for a variety of reasons — and to bar them from serving any other banks, too. The other is that the directors have gotten a pass on what is plainly their failure to do their jobs. (Two directors, Karen Peetz and Ronald Sargent, joined the board this year and aren't on Warren's hit list.)
As we’ve reported in the past, the continuing service of board members who allowed this scandal to go unchecked for so long makes a mockery of “corporate accountability.” Not only has Wells Fargo granted all the directors new terms, the bank elevated one of them, former General Mills Chairman Stephen Sanger, into the chairman’s slot in the wake of the scandal, as though he’s supposed to be a new broom.
Actually, Sanger has been on the board since 2003, making him one of the longest-serving members of a gang that has held on to their seats with what George Orwell would label “prehensile bottoms.” And why shouldn’t they? Their 2016 compensation averaged more than $370,000 each, which places them among the elite of corporate directors, a group that in general is obscenely overpaid.
All the nominated directors won more than 50% of the shareholder vote at the annual meeting in April, but still notched levels low enough to constitute lukewarm approval at best.
Wells Fargo still doesn’t get it. In response to Warren’s broadside, the bank said its “board and management team have taken many actions in response to its retail sales practices issues, including… numerous steps to ensure we make things right with any customer affected by unacceptable sales practices.” Yes, but where were they before? (The Fed says it has a “plan to respond” to Warren’s letter, but it isn’t known what the response will be.)
Shearman & Sterling laid considerable blame at its feet, but since it was paid by the board, the firm predictably shied away from recommending the directors’ removal. The investigators determined that the board’s Audit and Examination Committee had “sales integrity” issues on its agenda as early as 2012. In early 2013, a report by the consulting firm McKinsey made a vague reference to risks associated with sales practices, but “without further description of the actual problems.” Then again, the board didn’t ask them for further details.
Through 2015, the board fretted more and more about sales improprieties, but didn’t take any concrete actions, such as firing Carrie Tolstedt, the retail banking chief who oversaw the activity. Tolstedt finally was forced into retirement last year and lost about $19 million in unvested stock compensation. Stumpf was forced out in October, following spectacularly maladroit appearances before congressional committees looking into the scandal, and gave up about $41 million in compensation. But he still left with about $134 million in deferred compensation and other benefits.
The directors, meanwhile, got away virtually scot-free. Management renominated the entire board for another term this year, with the exception of Elaine Chao, who took a job as secretary of Transportation in the Trump administration, and Susan Engel, who retired.
Here’s a list of the Wells Fargo directors named by Warren, along with their dates of initial appointment and other board memberships where applicable. It’s a group that looks plenty distinguished on paper, yet turned in one of the most incompetent and destructive performances in the annals of corporate management.
--John D. Baker II, business executive (director since 2009); director of FRP Holdings
--John S. Chen, technology executive (2006): BlackBerry Ltd. (also CEO), Walt Disney Co.
--Lloyd H. Dean, CEO of Dignity Health (2005): McDonald’s, Navigant Consulting
--Elizabeth A. Duke, banking executive and ex-Fed governor (January 2015)
--Enrique Hernandez Jr., business executive (2003): Chevron, McDonald’s, Nordstrom
--Donald M. James, retired executive (2009): Southern Co.
--Cynthia H. Milligan, business school dean, University of Nebraska-Lincoln (1992): Kellogg Co., Raven Industries
--Federico F. Pena, former secretary of Transportation (2011): Sonic Corp.
--James H. Quigley, former CEO, Deloitte LLP (2013): Hess Corp., Merrimack Pharmaceuticals
--Stephen W. Sanger, former CEO, General Mills (2003): Pfizer Inc.
--Susan G. Swenson, CEO, Novatel (1998): Harmonic Inc., Novatel Wireless
--Suzanne M. Vautrinot, cybersecurity expert (February 2015): Ecolab Inc., Symantec Corp.