For months, Wells Fargo & Co. shareholders have watched the bank’s sham accounts scandal unfold, with each new revelation adding a layer of tarnish to the 165-year-old bank’s reputation.
Finally, on Tuesday, shareholders had a chance to vent their frustration, and they delivered a stinging rebuke to the San Francisco financial giant’s board of directors.
At the company’s annual meeting, held at a resort outside Jacksonsville, Fla., shareholders reelected the bank’s board members — but with remarkably little support, denying the kind of near-unanimous approval that directors at large public companies are accustomed to.
Angry shareholders at the resort ballroom let loose with a long list of personal grievances and interrupted board members more than once.
They demanded to know why the board didn’t act sooner to put a stop to employees’ practice of opening accounts without customers’ permission, something that the bank recently admitted dates back to at least 2002.
“If somebody wanted to know, they could have known,” one shareholder shouted well before the meeting’s question-and-answer session. “So why didn't you see it?”
The bank’s three newest directors, all of whom joined the board in the months after the scandal came to light, each received support from 99% of shareholders. That includes Timothy Sloan, who took over as chief executive and joined the board in October after the resignation of former Chief Executive John Stumpf.
Of the other 12 directors, though, none received more than 80% of shareholder support. At last year’s meeting, every board member won the support of at least 94% of voting shareholders.
The markedly lower vote tallies Tuesday show that shareholders are still not satisfied with the board’s response to the crisis, said Scott Siefers, an analyst with investment bank Sandler O’Neill.
“I can't recall a time in my career, and I’ve been doing this for 20 years, when a director has received anything less than the overwhelming majority of support,” he said. “It’s certainly not a vote of confidence.”
Wells Fargo has fired several regional executives and Carrie Tolstedt, who led the community banking division that’s at the heart of the accounts scandal. And it revoked a total of $135 million in compensation, including stock and options, from Tolstedt and Stumpf.
The bank also eliminated the sales goals that regulators have blamed for pushing workers to open sham accounts and hired a law firm to investigate the bank’s sales practices. That report, released two weeks ago, pinned much of the blame on Stumpf and Tolstedt, and painted the board as out of the loop.
Institutional Shareholder Services, which advises institutional shareholders, recommended votes against all 12 members of the audit, risk and human resources committees, which the advisory firm said failed to provide “sufficient timely and effective risk oversight.”
Four directors, all of them members of the bank’s risk committee, which is tasked with monitoring key risks facing the bank, received less than 60% of shareholder support.
Enrique Hernandez Jr., chairman of the risk committee, got the lowest level of support, with just 53% of shareholders voting for him. Chairman Stephen Sanger, a risk committee member and the board’s most visible face since the bank’s practices became national news last year, won the support of 56% of shareholders.
“Shareholders took a close look at this and at the committees the directors serve on,” bank consultant Bert Ely said. “It appears there was some rational targeting.”
Sanger, who opened the meeting with an apology to shareholders, acknowledged the importance of the results at the close of Tuesday’s meeting.
“Wells Fargo stockholders today have sent the entire board a clear message of dissatisfaction,” Sanger said. “Let me assure you that the board has heard that message, and we recognize there is still a great deal of work to do to rebuild the trust of stockholders, customers and employees.”
Though all board members were reelected, analysts and observers predict that members who received low levels of shareholder support may leave the board soon.
Siefers said he expects “accelerated turnover” on the board, and Dennis Kelleher, chief executive of financial advocacy group Better Markets, said the bank must replace several members.
“It's normal for directors to get close to 100% of the vote. To get 50-some percent of the vote is a clear and strong message that these directors have to go,” Kelleher said.
Within the first hour of the meeting, the proceedings were interrupted three times by angry attendees who railed against the bank and demanded answers from the board.
Sanger called for a brief recess after one attendee, Bruce Marks, chief executive of advocacy group Neighborhood Assistance Corp. of America, demanded that board members explain what they knew about unethical sales practices and when they knew it.
“Let them speak, or are they just mouthpieces for the executives?” Marks said, referring to the board members, before he was escorted from the meeting.
All 15 directors attended the meeting, though only Sanger and Sloan spoke.
“Your Wells Fargo is on the right track,” Sloan said in his opening remarks.
Later, during a question-and-answer period, bank customers, activists and former employees raised a bevy of issues, ranging well beyond unauthorized accounts.
One tearful investor told the board about her difficulty trying to get the bank to modify her mortgage. Another said the bank had taken advantage of her mother, who has Alzheimer’s disease, by approving loans she could never afford to repay.
Wells Fargo workers also told stories of the stress they felt as bosses pressured them to open more and more accounts, even if customers didn’t want or need them. Ruth Landaverde, a former Wells Fargo banker, said the bank’s sales-goal system was like a “constant treadmill” with ever-increasing targets.
Driven by those sales goals, thousands of Wells Fargo workers opened as many as 2.1 million checking, savings and credit card accounts without customers’ authorization over the past several years. That practice, first reported in a 2013 Los Angeles Times investigation, led to a 2015 lawsuit by Los Angeles City Atty. Mike Feuer and to a $185-million settlement with regulators last year.
That settlement put an end to Feuer’s lawsuit and inquiries by the Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency, but it marked the beginning of other troubles for the bank.
Since then, several federal and state agencies, including the Justice Department and the California attorney general’s office, have opened investigations into the bank’s practices and bank customers across the country have filed lawsuits.
This month, the bank said it would pay $142 million to settle consumer lawsuits, though that settlement is subject to court approval and will be challenged by attorneys for some customers.
Despite all that, Wells Fargo continues to produce massive profits, making the sum total of the settlements peanuts compared with the $5.5-billion profit the bank reaped in this year's first quarter alone.
Wells Fargo’s stock also is trading near its all-time high. It rose 91 cents, or 1.7%, to $54.56 on Tuesday.
Still, the scandal has slowed the company’s consumer business, which has seen a marked slowdown in new checking and credit card account openings.