(Adds comments from chairman interview, updates shares, adds
link to column)
By Carmel Crimmins and Karen Freifeld
April 10 An investigation by Wells Fargo & Co's
board laid blame for the company's unauthorized accounts
scandal on a high-pressure sales culture and a retail executive
obsessed with stamping out negative views about her division.
The report, carried out by board Chairman Stephen Sanger and
three other independent directors and released to media on
Monday, said former retail division head Carrie Tolstedt ignored
the systemic nature of abusive sales practices and accused her
of impeding the board's efforts to address an issue that
festered for years.
Lawyers for Tolstedt rejected the report's findings on
Monday. She had declined to be interviewed for the
"We strongly disagree with the report and its attempt to lay
blame with Ms. Tolstedt. A full and fair examination of the
facts will produce a different conclusion," Enu Mainigi,
Williams & Connolly LLP, attorneys for Tolstedt, said in a
Sanger, a board member since 2003, faces pressure to root
out the problems amid calls by advisory group Institutional
Shareholder Services for investors to oust him and other
directors in place when the scandal broke. Glass Lewis meanwhile
has recommended votes against six board members at the bank's
April 25 annual meeting.
In an interview with Reuters, Sanger said the bank was not
"I’m not surprised that some of the people involved see it
differently but we stand by the findings of this investigation,”
Sanger said the report showed the board had taken the
appropriate action with the information it was given and had
revamped compensation, leadership and its own structure to make
sure such abuses did not reappear.
“I’m very disappointed in the ISS and Glass Lewis
recommendations, they do not take into account sufficiently the
actions that the board has taken since the issue broke," he
“We will trust investors to make their own decisions about
how they will vote.”
With the U.S. Department of Justice looking into the sales
practices, experts said Wells Fargo's board was under pressure
to ensure the buck stopped with someone else.
“There’s a tremendous amount of pressure from regulators to
throw someone under the bus,” said Duke Law School professor
James Cox, who specializes in corporate and securities law. “If
they don’t, then Wells Fargo is going to be even more in the
The Department of Justice declined to comment on its probe.
Wells Fargo said Tolstedt had been fired for cause and it
would cancel approximately $47 million worth of stock options
held by her. The bank said it would also claw back approximately
$28 million from former chief executive John Stumpf, who failed
to heed warnings about the scale of the problem
BLINDED BY SUCCESS
Stumpf, who retired under pressure from the scandal in
October, was criticized for failing to grasp the gravity of the
sales abuses and their impact on the bank.
In the 110-page report, Stumpf was described as blinded by
Wells Fargo's cross-selling success. He refused to believe the
model was seriously impaired and was full of admiration for
Tolstedt, with whom he had a long working relationship.
According to one director, Stumpf praised Tolstedt as the "best
banker in America."
The report said Tolstedt hid the scale of the misconduct
from the board, which only discovered that 5,300 staff had been
fired for opening more than 2 million unauthorized accounts when
the bank reached a $185 million settlement with regulators in
A lawyer for Stumpf declined to comment on 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.
Since the scandal broke, the bank has seen a steady decline
in the number of consumers opening checking and credit card
accounts and has lost its status as America's most valuable bank
by market value.
A NOTEWORTHY RISK
Sales practices were identified as a “noteworthy risk” to the
board and its risk committee, of which Sanger was a member, in
2014 after a series of stories in the Los Angeles Times detailed
some of the practices.
But Tolstedt was left to deal with the issue and was
“notoriously resistant to outside intervention and oversight”
the report said.
Multiple board members felt misled by a presentation by
Tolstedt and others to the risk committee in May 2015. The board
members said they left thinking that between 200 and 300
employees had been fired for sales practice abuses and the
problem was largely concentrated in southern California.
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
Tim Sloan, who replaced Stumpf as CEO, was described in the
report as having little contact with sales practices at the bank
before becoming chief operating officer and Tolstedt's boss in
November 2015. Six months later he told her to step aside.
Since the scandal broke, the bank has ended sales targets,
changed pay incentives for branch staff, separated the role of
chairman and CEO and hired new directors to its board.
NO BAD NEWS, NO CONFLICT
A big part of Wells Fargo's problem was its decentralized
business model, which meant the retail bank was able to keep
inquiries from head office at arm's length. There was no
joined-up effort by either the bank's human resources or legal
divisions to track and analyze the problem.
As far back as 2002, Wells Fargo's retail bank was taking
steps to deal with sales practice violations and in 2004 an
internal report recommended eliminating sales goals for
That report was sent to, among others, the chief auditor, a
senior in-house employment lawyer, retail bank HR personnel and
the head of retail bank sales & service development. No action
Externally, Wells was lauded by investors for cross-selling
customers multiple products and for its squeaky-clean reputation
relative to peers following the financial crisis.
Internally, the sales pressure was oppressive, particularly
in California and Arizona, where senior bankers sometimes called
subordinates several times a day to chastise those who failed to
meet sales objectives.
Tolstedt was perceived by high-level employees as having the
support of Stumpf, with whom it was considered best to avoid
raising problems with.
"Stumpf was ultimately responsible for enterprise risk
management at Wells Fargo, but was not perceived within Wells
Fargo as someone who wanted to hear bad news or deal with
conflict," the report said.
Wells Fargo shares were down 0.44 percent at $54.6 in early
(Additional reporting by David Henry and Elizabeth Dilts in New
York and Ross Kerber in Boston; Editing by Muralikumar
Anantharaman and Meredith Mazzilli)