The heat on Wells Fargo is starting to scorch
Under the gun to take more definitive action in the wake of the phony account scandal that has dented its reputation and prompted further regulatory probes, the Wells Fargo (WFC) board of directors is reportedly thinking about recouping pay from CEO John Stumpf and former head of retail banking Carrie Tolstedt.
But one expert in corporate governance said the board should be considering far more than rescinding some of the millions paid to executives, including separating the chairman and chief executive roles that Stumpf holds.
What the board is reportedly mulling is a “no-brainer,” said Kenneth Thomas, a retired finance lecturer at the Wharton School of the University of Pennsylvania for 42 years. “Clawbacks are the most basic thing to be done here.”
A spokesperson said Wells Fargo did not have any comment on The Wall Street Journal report, which cited a person familiar with the matter saying a board decision could come before Stumpf’s return to Capitol Hill for more hearings on Thursday.
Wells Fargo earlier this month agreed to pay nearly $200 million to settle civil charges alleging its employees had set up about 2 million accounts and credit cards on behalf of unknowing customers.
“The board needs to really take some aggressive action here,” said Thomas. “The next issue is not just Stumpf should go, but repopulating the board, as they knew about ratio,” he added of the cross-selling numbers that the Stumpf touted to investors in conference calls and were nearly four times that of other major banks.
The cross-sell ratios claimed by Wells Fargo should have been red flags to its board and to the Securities and Exchange Commission (SEC), according to Thomas.
The only thing that could save Stumpf from losing his job is support from Berkshire Hathaway’s (BRK.A) Warren Buffett. Thomas believes Buffett has an obligation to weigh in on the issue that’s causing such damage to an institution in which Berkshire Hathaway is a major shareholder, with a just under 10 percent stake.
Buffett “clearly needs to come out from behind the curtain and say something,” said Thomas. “Stumpf is going to go, the only way he stays is if Buffett says, ‘this is my guy.’”
Berkshire Hathaway did not return a call seeking comment.
Stumpf’s scheduled appearance before the House Financial Services Committee follows testimony he gave before a Senate panel last week. During that session, Stumpf apologized for the creation of fake bank accounts, but he insisted the illegal behavior originated with 5,300 low-level workers who the bank has fired.
Pressed by senators including Massachusetts Democrat Elizabeth Warren, Stumpf acknowledged that Wells Fargo had not fired any senior executives, and he added it was up to the board as to whether any executive pay is returned.
Warren told Stumpf he should resign and face a criminal investigation, then followed up with a request to the Department of Labor (DOL) to probe whether Wells violated labor laws by failing to pay overtime to tellers and other hourly employees who worked late trying to meet sales quotas.
Labor Secretary Thomas Perez responded with a vow that regulators would review all cases, complaints and other alleged violations his department gots regarding Wells Fargo in recent years. The DOL also set up a web page to inform former and current Wells Fargo employees about worker-protection laws.
The bank also faces multiple lawsuits, including several filed in recent days on behalf of workers who claim they were fired or demoted for not behaving unethically and falling short of sales goals as a result.
“We disagree with the allegations in the complaint and will vigorously defend against the misrepresentations it contains,” Wells Fargo said in a statement.
Another class-action complaint alleges violations of the Securities and Exchange Act, saying Wells Fargo withheld material information from investors.
“The recent revelations of Wells Fargo’s fraudulent and abusive conduct targeting its own customers and overseen by its senior management are staggering,” Shawn Williams, a lawyer at Robbins Geller Rudman & Dowd, said in a statement. “While the resulting stock price declines have obviously harmed shareholders, the misconduct has exposed the company to criminal probes that could prove even more damaging to the public and shareholders.”