| April 25
April 25 A shareholder vote scheduled for
Tuesday could throw Wells Fargo & Co's leadership into
question if many directors, criticized for their slow response
to the bank's phony-account scandal, fail to win solid
A dozen of the 15 directors on the ballot face negative
recommendations from influential proxy adviser Institutional
Shareholder Services (ISS), which argued the group, including
Chairman Stephen Sanger, failed in their oversight duties.
Technically Wells Fargo's guidelines require that directors
offer to resign if they fail to receive a majority of votes
cast. But in practice, directors who win with less than 80
percent support should consider exiting the board, said Charles
Elson, a University of Delaware expert on corporate governance.
"If they're below 80 (percent) I'd say they have a lot of
soul-searching to do," he said.
Spokesmen for the bank and Wells Fargo's board said on
Monday that they would not comment ahead of the meeting. But the
country's third-largest bank has struggled for months to move
past revelations that thousands of employees created as many as
2.1 million accounts in customers' names without their
permission to hit lofty sales targets.
The bank's board and management have said steps taken to fix
problems and punish employees responsible for abuses show there
is now strong oversight, and that directors nominated deserve to
be elected. But the public firestorm that hammered its shares
and led to the resignation of then-Chairman and Chief Executive
John Stumpf last year is not forgotten.
At most S&P 500 companies, director support averages around
95 percent of votes cast, according to pay consulting firm
Semler Brossy. Typically a recommendation from ISS that
investors vote "against" a director will reduce the support they
receive by an average of 17 to 18 percentage points.
Not all of Wells Fargo's critics are in lockstep, meaning
some directors may do better than others. California's two
largest public pension funds, for instance, have said they
oppose only nine Wells Fargo directors.
"We do want a core of directors left able to reconstitute
the board," said Anne Simpson, Calpers' investment director of
sustainability. "Simply declaring 'off with their heads' is not
Should Wells Fargo directors win narrow majorities - between
50 to 80 percent of votes cast - the board would have to decide
whether to accept any individual director's resignation.
University of Pennsylvania law professor Jill Fisch said a
likely outcome, in the event of a close vote, would be for the
board to bring in fresh faces over a period of months or longer.
"From a business perspective that may be the best response
you could make," she said. "You don't want the whole leadership
to be in flux."
Banks can be sensitive to narrow wins. Goldman Sachs Group
Inc, for instance, revamped its pay structure this year
after 33 percent of votes cast went against executive
compensation packages in 2016.
Wells Fargo's top investor Berkshire Hathaway Inc
has already voted in favor of the bank's board. Representatives
for other top shareholders declined to comment.
If the whole Well Fargo board receives a narrow majority,
Vining Sparks analyst Marty Mosby expects few changes, saying it
would be impractical to get rid of a nearly full slate of
directors. But low vote totals concentrated on certain directors
would likely force them to step down soon, he said.
The board would have sent a stronger reform signal by naming
former banking regulator Elizabeth Duke as chair when it split
the chairman and CEO roles in October, Mosby said.
"The only thing they haven't really changed substantially is
the board," he said. "That last step would have completed the
whole process and made this vote much easier on them."
(Reporting by Ross Kerber in Boston and Dan Freed in New York;
Editing by Lauren Tara LaCapra and Tom Brown)