Several large Wells Fargo & Co. investors say they are looking for changes on the board of directors in the wake of a sales scandal that has caused months of upheaval for the bank and cost its former chief executive his job.
Four shareholders who spoke to Reuters voiced concerns about the 15-member board’s initial response to the crisis, its size, directors’ responsibilities and their outside commitments. Another, Gamco CEO Mario Gabelli, would not discuss the board’s performance. However, he said he would welcome Warren Buffett, whose company is Wells Fargo’s top investor, becoming a director.
Reuters contacted more than two dozen of the top 100 Wells Fargo investors to determine whether the sales scandal affected their views on the stock. Five — the California State Teachers’ Retirement System (CalSTRS), New York City Retirement Systems, union-affiliated CtW Investment Group and fund managers Gardner, Russo & Gardner and Gamco Investors Inc. — offered comments. Others declined to be interviewed or did not respond.
Investors who spoke to Reuters directly own or advise others who own about 71 million Wells Fargo shares, 1.4 percent of all outstanding stock.
One key criticism: the board was slow to tackle and disclose sales practices that led to the opening of as many as 2 million accounts without customers’ permission.
Shareholders also said they had trouble understanding who was responsible for what on various board committees.
For instance, the finance committee oversees “financial risk” and “reputation risk,” according to its charter. However, there is also a separate risk committee, and a corporate responsibility committee that “monitor(s) the company’s reputation generally.” Committee chairs are supposed to coordinate to avoid unnecessary duplication.
“Until we get a bit more of this information it’s hard to know whether the board should change or who should be held accountable,” Anne Sheehan, director of corporate governance at CalSTRS, told Reuters.
CalSTRS had just under $500 million worth of Wells Fargo stock in its most recent disclosure.
Three of the shareholders told Reuters it was too early to tell whether they would bring any of the issues to a vote at the annual shareholder meeting in April or take any other action if the results of the bank’s internal investigation and their conversations with the board proved unsatisfactory.
Shares of Wells Fargo, the third-largest U.S. bank, lost as much as 12 percent of their value in the weeks after the scandal erupted. The stock began to recover after John Stumpf resigned as chairman and chief executive on Oct. 12. Tim Sloan replaced him as CEO and independent director Stephen Sanger became chairman.
In step with other banks, Wells Fargo’s stock has soared since the U.S. presidential election. The bank’s shares are down 2.1 percent so far this year compared with a 12.1 percent gain for the S&P 500 Banks Index.
A Wells Fargo spokesman declined to comment for this story and said neither Sloan nor Stumpf were available. A spokesman at Sard Verbinnen representing outside directors declined to comment, as did Buffett. Individual board members either declined to comment, did not return requests for comment, or could not be reached.
Since Wells Fargo reached a settlement with regulators on Sept. 8, it has launched an internal probe, apologized to customers and employees, changed compensation plans and hired a consultant to review sales practices.
A seldom-used clawback provision was also triggered to recover $41 million in stock compensation from Stumpf and $19 million from Carrie Tolstedt, who ran the retail banking unit in which 5,300 employees were fired for improper account openings.
Earlier this month, Sloan said management would “leave no stone unturned” in its review and that the bank would learn from its mistakes.
Encouraged by Wells Fargo’s response to the crisis, Morgan Stanley analyst Betsy Graseck has recommended its shares, saying management is strong and the board is “taking action.”
In a CNN interview last week, Buffett said he did not sell any Wells Fargo shares because he has faith in the bank over the long term — as well as Sloan, whom he described as “exactly right” for the CEO job. Buffett declined to make further comment to Reuters.
However, Thomas Russo, managing member at Gardner, Russo & Gardner, Wells Fargo’s 40th-largest shareholder, said the board allowed problems to fester. “I’d say that was tone deaf on the part of the board,” he told Reuters.
Russo nevertheless said he was optimistic the bank would seek “a smaller and more responsive board” with more regulatory, banking and technology experience, but has no plans to lobby the management for action.
CtW Investment Group, which works with union pension funds that manage more than $250 billion, said it will keep pushing for change in private discussions with the board.
CtW will be meeting with them “soon” and expects progress before the next proxy statement is filed, a spokesman said. The group had asked Wells Fargo to appoint two new directors before Stumpf resigned.
Wells Fargo typically files its proxy statement, which lists matters that will be up for a vote, in March. Its annual meeting is scheduled for April 26.
CtW has been in contact with several other shareholders, said executive director Dieter Waizenegger, who declined to name them.
Officials at New York City’s pension funds, which together own more than $500 million worth of Wells Fargo, told Reuters they also wanted fewer directors and more clarity about responsibilities.
“In the coming months, my office will continue to engage Wells Fargo and ensure they make real reforms,” New York City Comptroller Scott Stringer said in a statement.
California’s teacher pension system is in discussions with Wells Fargo, said Sheehan, who declined to elaborate.