Wells Fargo takes back $75M more in stock from former executives in sales scandal

Wells Fargo’s board said it clawed back an additional $75 million in stock awards from former CEO John Stumpf and former community bank head Carrie Tolstedt, as a report released Monday put blame for a massive sales scandal largely on top executives in the community bank.

In its 113-page report, the board said the scandal stemmed from the bank’s sales culture and a decentralized corporate structure that gave too much authority to leaders in the community bank. Management was also slow to inform the board about the serious nature of the problem, including the firing of thousands of lower-level employees over sales practices, the report said.

The board has now taken back about $180 million in compensation from senior executives and terminated Tolstedt and four other community bank leaders over the scandal. The directors do not plan any further firings or clawbacks, board chairman Stephen Sanger said in a conference call with reporters Monday.

The report is the latest effort by the bank to eradicate and punish a sales culture that for years pushed employees to open fake accounts to meet aggressive sales goals. In September, Wells Fargo agreed to pay $185 million in fines over the scandal, which has tarnished the bank’s reputation, led to Stumpf’s retirement and spurred multiple investigations and lawsuits.

The report comes about two weeks before the bank’s annual shareholder meeting on April 25, when all directors 15 directors will be up for re-election.

Dennis Kelleher, CEO of Better Markets, called the board’s investigation and actions “grossly deficient,” urging shareholders to vote against all of the directors at the shareholder meeting.

“It is laughable to claim that only two senior executives should be terminated and meaningfully held accountable,” said Kelleher, whose group advocates for financial reform. “It is clear that the board was seriously and repeatedly misled by numerous officers, including a number who remain in senior positions at the bank.”

In the conference call with reporters, Sanger said the board “took the appropriate action with the information it had when it had it.” He acknowledged the board could have pushed more quickly for action, including the centralization of risk and human resources functions that could have helped identify the problem earlier.

The investigation was conducted by the board’s independent directors, with help from law firm Shearman & Sterling. The law firm conducted 100 interviews of current and former employees and other parties and searched more than 35 million documents. Stumpf, who was replaced by Tim Sloan last fall, gave an interview, but Tolstedt declined.

According to the report, Tolstedt “resisted and impeded scrutiny” from the bank’s risk management staff and the board, while minimizing the scale of the problem. And Stumpf was too slow to investigate and did not appreciate the seriousness of the reputational damage to the bank, it added.

The report said management did not identify sales practices as a “noteworthy risk” to the board until 2014, after a 2013 Los Angeles Times story on the issue. By early 2015, management told the board that corrective actions were working, the report says.

The board was “regularly engaged” on the issue in 2015 and 2016, but management did not “accurately convey the scope of the problem,” according to the report. The board did not learn that 5,300 employees had been terminated over sales practices until the settlement was reached in September 2016 with the Office of the Comptroller of the Currency, the Consumer Financial Protection Bureau and the Los Angeles City Attorney, the report says.

Even in 2015 and 2016, Stumpf did not appreciate the scope of the problem, continuing to say that the bank’s sales goals were appropriate, the report says. After the Los Angeles City Attorney filed a suit over the bank’s sales practices in May 2015, he sent an email to Sloan vowing to fight.

“I have worked over the weekend with Carrie on the LA issue – I really feel for Carrie and her team,” he wrote. “We do such a good job in this area. I will fight this one to the finish.”

Stumpf added: “Did some do things wrong – you bet and that is called life. This is not systemic.”

The report said that Stumpf was hesitant to criticize Tolstedt and to let her go even after Sanger and another director urged him to do so in December 2015.

After his promotion to president in November 2015, Sloan discussed with Tolstedt that “she needed to be more open to change and to resolve the sales practice issues quickly,” the report says. In July 2016, he informed her that she no longer would lead the community bank and would retire, the report says.

The $180 million in compensation taken back from executives includes $69 million from Stumpf and $67 million from Tolstedt. It’s not clear, however, how much in compensation they were allowed to keep after collecting millions in salary, bonus and stock awards during their lengthy Wells Fargo careers.

In the call with reporters, Sanger highlighted other actions taken by the bank, including the elimination of the sales goals that helped produce the scandal. He also expressed support for current management.

According to report, current CEO Sloan had little involvement in sales practice matters in previous jobs as chief financial officer and head of the wholesale bank. However, he had heard complaints that Tolstedt was “a controlling manager who was not open to criticism,” the report says.

The board is under pressure to show that it’s acting decisively. Last week, influential proxy advisory firm Institutional Shareholder Services urged shareholders to vote against the election of 12 of the 15 board members at the upcoming annual meeting, including Sanger.

That recommendation came after proxy advisory firm Glass Lewis suggested shareholders vote against six directors, including four who sat on the corporate responsibility committee.

Charlotte is the San Francisco-based bank’s biggest employment hub, and the community bank is now led by Charlotte-based executive Mary Mack.

This story was originally published April 10, 2017 at 8:29 AM with the headline "Wells Fargo takes back $75M more in stock from former executives in sales scandal."