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January 21 2018, 12:20 | Alonzo Simpson
The board determined that an insular community banking division, led by Carrie Tolstedt, and top executives' devotion to aggressive customer cross-selling practices formed the culture that enabled the practices to take root.
The board's report, which praised the changes the bank had made since the sales scandal erupted into public view, is unlikely to quell the bank's critics. That was the year the Los Angeles Times published a landmark investigation on Wells Fargo's sales culture.
The board increased the amount of executive compensation clawbacks from Stumpf and Tolstedt by an additional $75 million. The board did not learn that 5,300 employees had been terminated over sales practices until the settlement was reached in September 2016 with the Office of the Comptroller of the Currency, the Consumer Financial Protection Bureau and the Los Angeles City Attorney, the report says.
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.
Former general counsel Strother, who retired last month, also comes up for serious scrutiny in the report including that the board's risk committee felt badly misled for a presentation he was involved in.
A woman walking into a Wells Fargo bank in Washington, DC.
Stumpf, 63, who stepped down as CEO in October, agreed around that time to forfeit $41 million in equity awards built up over his career. And in Stumpf's, it's coming from his retirement plan payouts. Elizabeth Warren, Democrat of MA, noted in her questioning of Stumpf at a Banking Committee hearing in September.
The law firm of Shearman & Sterling LLP assisted the bank in the investigation, conducting 100 interviews of current and former managers, employees, board members and other relevant parties.
The fact that it is written by a law firm, and critiques a corporate law department for focusing too much on cost containment and not seeing the big picture marks an "intriguing turnaround" from the normal roles, he added.
In September, the Labor Department said it opened an investigation after authorities accused the San Francisco-based company of putting excessive pressure on branch workers to sell products and financial services.
The report also said problems in the bank's sales culture date back to at least 2002, far earlier than what the bank had previously said, and that Stumpf knew about sales problems at a branch in Colorado since at least that year.
It is not clear whether investors will respond overall favorably to the board's steps.
Wells Fargo releases its first quarter results on Thursday night, our time, while the company's 216 annual meeting will be held on April 25 where a motion to remove all but the three latest directors from the board will be put by shareholder advisory group, ISS.
The bank will recoup a total of $180 million in executive compensation in the wake of the scandal. Community bank executives also minimised the extent of the dismissals in their interactions with the board. The bank emerged largely unscathed from the 2008 financial crisis largely because it hadn't engaged in the sort of fraudulent and irresponsible practices that crippled other major institutions and almost collapsed the global economy.
A Wells Fargo spokesman declined to immediately comment on the investigation's release Monday morning. Bank officials said the cash incentive pay is synonymous with cash bonuses.
Wells Fargo favored a management style that offered "strong deference" to the leaders of various business lines with lax checks and balances, the board investigation found. Wells Fargo said the review, which looked into media reports and other documents, remains ongoing.
The bank has been working to regain its footing since the scandal, but said it opened 43 percent fewer new checking accounts in February compared to the same month a year earlier.
Watching her own father at work, Tolstedt told U.S. Banker magazine, she came to appreciate the difficulties of running a small business, how owners have to juggle finance and marketing and so many other tasks at once.