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Is Wells Fargo’s board to blame? Shareholders will weigh in this week

Wells Fargo CEO Timothy Sloan and the rest of the bank's board of directors are up for election at the embattled company's shareholder meeting this week.
(Richard Drew / Associated Press)

Top corporate bosses who failed to change a flawed system before it went out of control. Mid-level executives who pushed workers too far. Bank regulators who for years were blind to warning signs.

Over the past few months, there’s been plenty of blame to go around for the widespread misdeeds of Wells Fargo & Co., where workers, driven by onerous sales goals, opened as many as 2.1 million bank and credit card accounts for customers without authorization, moved customers’ money around without permission and forged signatures along the way.

This week, yet more blame may be assigned.

On Tuesday, the San Francisco financial giant will hold its annual shareholder meeting, its first since a $185-million regulatory settlement last September thrust the bank’s unethical practices into the national spotlight. The results of a shareholder vote at the conclave, to be held at a resort hotel near Jacksonville, Fla., will show the extent to which Wells Fargo investors believe the company’s board members are responsible for the scandal.

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Shareholder votes are often rubber-stamp affairs, but Wells Fargo’s could prove more dramatic. All 15 of the company’s directors are up for election, and two firms that advise mutual fund managers and other major shareholders on how to vote have recommended casting ballots against many of the board members for failing to properly oversee the bank.

Advisory firm Glass Lewis recommended voting against six directors — four because of the accounts scandal and two others because the firm believes they serve on too many other corporate boards. Institutional Shareholder Services went further, recommending votes against 12 board members, including Chairman Stephen Sanger, saying their lax oversight has led to “untold reputational harm” at Wells Fargo.

The firm recommended voting for the other three directors, who all joined the board after the scandal become public. That includes current Chief Executive Timothy Sloan.

Wells Fargo board members called the ISS recommendation “extreme and unprecedented,” and said the firm had not taken into account all of the board’s actions over the past several months. That includes firing several regional executives and revoking compensation from former bank Chairman and Chief Executive John Stumpf and from Carrie Tolstedt, who led the Wells Fargo community banking division that’s at the heart of the accounts scandal. Stumpf resigned and Tolstedt was fired last year.

“The board and management are working tirelessly to rebuild the trust of customers, employees and investors, and are making substantial progress in strengthening Wells Fargo,” the directors said in a statement.

In an interview with Bloomberg News, Sloan called the ISS recommendation “crazy” and said he hopes shareholders cast their ballots for all board members.

The bank’s current board members are the only names on the ballot, so shareholders can’t vote for anyone else. Directors need a majority of votes cast to win election, though they may be able to remain on the board even if a majority of shareholders vote against them, according to the bank’s public filings.

Even so, voting against board members is a way for investors to express dissatisfaction with the board’s actions. And some big investors are likely to do just that. The New York State Common Retirement Fund, a pension fund that manages $186 billion in assets and owns more than 13 million Wells Fargo shares, plans to vote against all but the bank’s two newest board members — Karen Peetz and Ronald Sargent, who joined the board this year.

“The systemic breakdown that allowed these abuses to take place demands new leadership,” New York State Comptroller Thomas DiNapoli said in a statement.

California Treasurer John Chiang, who sits on the boards of the California State Teachers’ Retirement System and the California Public Employees’ Retirement System, said last week that he was pushing the pension funds to vote against seven board members, including Sanger, who took over as chair after Stumpf resigned.

In a statement Friday, CalSTRS, which owns nearly 10 million Wells Fargo shares, said it had voted against nine board members, including Sanger.

Wells Fargo’s annual meeting begins Tuesday at 7 a.m. Pacific time. The bank is providing a live audio feed. In years past, the bank has provided a brief update on shareholder voting on the day of the meeting. Full results may not be available until a few days later.

Here’s how ISS and Glass Lewis recommended shareholders vote at this year’s Wells Fargo meeting:

John D. Baker (chairman of FRP Holdings Inc.)

ISS: Against

Glass Lewis: Against

John S. Chen (CEO of BlackBerry Ltd.)

ISS: Against

Glass Lewis: Against

Lloyd H. Dean (CEO of Dignity Health)

ISS: Against

Glass Lewis: Against

Elizabeth A. Duke, vice chair of Wells Fargo

ISS: Against

Glass Lewis: For

Enrique Hernandez Jr. (CEO of Inter-Con Security Systems Inc.)

ISS: Against

Glass Lewis: Against

Donald M. James (former CEO of Vulcan Materials Co.)

ISS: Against

Glass Lewis: For

Cynthia H. Milligan (former dean of University of Nebraska business school)

ISS: Against

Glass Lewis: Against

Karen B. Peetz (former president of Bank of New York Mellon Corp.)

ISS: For

Glass Lewis: For

Federico F. Peña (former U.S. secretary of Transportation)

ISS: Against

Glass Lewis: For

James H. Quigley (former CEO of Deloitte)

ISS: Against

Glass Lewis: For

Stephen W. Sanger, chairman of Wells Fargo

ISS: Against

Glass Lewis: For

Ronald L. Sargent (former CEO of Staples Inc.)

ISS: For

Glass Lewis: For

Timothy J. Sloan, CEO of Wells Fargo

ISS: For

Glass Lewis: For

Susan G. Swenson (CEO of Inseego Corp.)

ISS: Against

Glass Lewis: Against

Suzanne M. Vautrinot (retired U.S. Air Force major general)

ISS: Against

Glass Lewis: For

james.koren@latimes.com

Follow me: @jrkoren

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