April 25 (Reuters) - 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 majorities.
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 reasonable."
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)