News Worms
News Worms


'Best banker in America' blamed for Wells Fargo sales scandal

"Tolstedt never voluntarily escalated sales-practice issues and, when called upon specifically to do so, she and the community bank provided reports that were generalised, incomplete and viewed by many as misleading", according to the report.

The bank has fired five senior retail bank executives, including Tolstedt, over the scandal and imposed forfeitures, clawbacks and compensation adjustments on senior leaders now totaling more than $180 million, including $69 million from Stumpf and $67 million from Tolstedt. According to the report, efforts by board members to bring Tolstedt and her division to heel were thwarted by management's failure to provide accurate information about the unfolding scandal.

The review of the cases is ongoing, the report said, and has included files for almost 900 ex-employees who were fired within a year after calling in a tip to the bank's ethics hotline or within a month of the bank disclosing in a $185 million settlement in September that employees had opened as many as 2 million accounts without customer permission. 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. More recently, the federal government ordered Wells Fargo to rehire one fired whistleblower and warned it may force the bank to welcome back another.

Six of Wells Fargo's 15 board members, including all of those who served on bank's risk committee, should not be re-elected, according to Glass Lewis, which advises shareholders on governance matters. "It is laughable to claim that only two senior executives should be terminated and meaningfully held accountable". However, the bank continues to face numerous government probes of the matter.

The ISS move "fails to recognize the active engagement of the Board and the substantial actions it has already taken to strengthen oversight and increase accountability at all levels of Wells Fargo, including important improvements to corporate governance", Wells said in a statement. The board itself should have been more diligent.

The report criticized the board for not centralizing risk functions at the bank earlier, not requesting more detailed reports from management and not insisting Stumpf get rid of Tolstedt sooner.

And Stumpf was too slow to investigate and did not appreciate the seriousness of the reputational damage to the bank, it added.

While there is nothing wrong with operating a large company like Wells in a decentralized fashion, the report said, the structure backfired in this case by allowing Tolstedt and other executives to hide the problems in their organization from senior management and the board of directors.

"Stumpf was by nature an optimistic executive who refused to believe that the sales model was seriously impaired", the report states. "This is not systemic".

Stumpf resigned as CEO and chairman in October.

One regional president was particularly aggressive in her Jump into January campaigns, creating a practice known as "running the gauntlet", in which district managers dressed up in themed costumes and ran down to a whiteboard to report the number of sales they achieved.

Tolstedt, on the advice of counsel, declined to participate in or be interviewed for the Wells Fargo internal report. That will take the amount clawed back from former directors and executives to $US180 million. In dollar terms, that inquiry proved very costly to former Wells Fargo (wfc) CEO John Stumpf, who will give up another $28 million of past compensation in addition to a previously announced $41 million clawback, as well as Tolstedt, who will relinquish $47 million more of her pay on top of the $19 million that was already revoked.

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.

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