Stephen Sanger, the chairman of Wells Fargo & Co., will step down from the board of the embattled bank effective Jan. 1 and will be replaced by former Federal Reserve official Elizabeth A. “Betsy” Duke, the bank announced Tuesday.
Two other long-serving directors, Cynthia H. Milligan and Susan G. Swenson, also will retire at the end of this year. They’re the latest casualties in the bank’s long-running scandal over sham accounts, which has spurred a wide-ranging shake-up at the San Francisco financial giant.
All three are among the company’s longest-tenured board members, with Milligan having served for a quarter of a century. The trio received only tepid support from shareholders at the company’s annual meeting in April, a sign of investors’ dissatisfaction with the board’s oversight of the bank amid an ever-growing list of misdeeds.
In a statement Tuesday, Sanger said Duke, who joined the board in January 2015 and has served as vice chairwoman since last October, “was the unanimous choice to lead the board as it continues its focus on strengthening oversight and rebuilding the trust of shareholders, customers, and other stakeholders.”
Nearly a year ago, the bank reached a $185-million settlement with regulators, admitting it created as many as 2.1 million checking, savings and credit card accounts without customers’ knowledge. The bank’s practice of opening unauthorized accounts was first exposed by a 2013 Los Angeles Times investigation.
The settlement led to public outcry, a bevy of related investigations by federal and state agencies, two bruising Capitol Hill hearings and the resignation of Chief Executive and Chairman John Stumpf in October.
He was replaced as CEO by longtime Wells Fargo executive Tim Sloan, who remains on the bank’s board. Sanger, a longtime board member and former General Mills chief executive, was named chairman.
Since that initial shake-up, though, the number of potential sham accounts has grown and the bank has acknowledged or been investigated for a wide array of other bad practices, including forcing unneeded auto insurance policies on auto loan customers and charging improper fees on mortgage borrowers for bank-caused delays.
The board upheaval came as no surprise to analysts, who had expected such a move after April’s annual meeting. A significant number of shareholders withheld support for most board members, with Sanger and six other directors receiving less than 70% of shareholders’ votes despite running unopposed.
Typically, corporate board members are elected with near-unanimous support. At the April 25 meeting, held at a Florida resort, Sanger called the vote tally “a clear message of dissatisfaction” from shareholders.
At the time, analyst Scott Siefers at investment bank Sandler O’Neill said he expected the shareholder vote would lead to “accelerated turnover.”
Robert Hockett, a law professor at Cornell who specializes in financial and corporate governance matters, said recent revelations about more bad practices at the bank made a board shake-up even more of a foregone conclusion.
“It’s like the grift that keeps on grifting — just one scandal after another,” Hockett said. “The board probably thought, ‘We’re going to have to do something dramatic.’ ”
He also said that by elevating Duke, a former Fed official, to chairwoman, Wells Fargo may be trying to tell regulators and lawmakers that it is serious about its turnaround efforts.
“She’s someone who everyone takes seriously and who would take a compliance mission seriously as well,” he said.
Duke served as a member of the Board of Governors of the Federal Reserve System from 2008 to 2013. Previously, she was an executive at a handful of regional and community banks in the Southeast and a member of the board of the American Bankers Assn., a trade group.
Brian Kleinhanzl, an analyst at investment bank Keefe, Bruyette & Woods, said in a note to investors Tuesday that it was inevitable Sanger would step down. He also said, though, that the board changes alone will not mollify investors, especially if more bad news about the bank continues to surface.
“In the end, there still will be pressure to see greater management changes if more wrongdoing is found, since much of the wrongdoing was directly overseen by Wells' management,” Kleinhanzl wrote.
Other changes announced Tuesday include the appointment of a new board member, Juan A. Pujadas, a retired principal at accounting firm PricewaterhouseCoopers, and the rejiggering of several board committees. The bank said as many as three additional board members will be appointed before the company’s 2018 shareholder meeting.
In removing Sanger, Milligan and Swenson, the bank is parting ways with three of its longest-tenured board members, though not the directors who received the least support from shareholders.
Enrique Hernandez Jr., who has been on the bank’s board for 14 years and is chief executive of Pasadena firm Inter-Con Security Systems, garnered the least support, with votes from just 53% of shareholders. He will remain on the board but will be replaced by Karen B. Peetz, a former executive at the Bank of New York Mellon who joined Wells Fargo’s board in February, as chair of the board’s risk committee.
Federico F. Peña, who served as secretary of education and secretary of energy during the Clinton administration, received votes from just 54% of shareholders. He will remain on the board and keep his position as chairman of the bank’s corporate responsibility committee.
The bank’s board said in a statement that the latest board moves were prompted by a self-evaluation conducted with the help of Mary Jo White, the former chairwoman of the Securities and Exchange Commission. White returned to law firm Debevoise & Plimpton after resigning from the securities regulator.
The board changes were announced after markets closed. In after-hours trading, shares of Wells Fargo were down 15 cents to $52.70.
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6:45 p.m.: This article was updated with background information on former Federal Reserve official Elizabeth A. “Betsy” Duke.
4:45 p.m.: This article was updated with additional details on the board changes and comments from analysts.
2:15 p.m.: This article was updated with additional details on the bank’s accounts scandal and other problems.
This article was originally published at 1:35 p.m.