Wells Fargo & Co.’s new chief executive officer, Tim Sloan, just survived his biggest test yet, when a board investigation found he wasn’t to blame for the bank’s notorious account scandal. But his next is just days away: Persuading investors not to expel much of the board.
His message on that is blunt. Not one person, not one, should get tossed.
“It would be a shame if any one of our directors didn’t receive an overwhelming majority of the vote,” Sloan said Wednesday in an interview at Bloomberg’s headquarters in New York. “I think that would be a mistake.”
Shareholders would be doing further harm to the embattled bank, according to Sloan, if they follow advice from Institutional Shareholder Services Inc. -- one of the most influential counselors to stock investors -- to remove all but three of the bank’s 15 directors at an annual meeting April 25.
“That’s crazy from my perspective -- you can quote me on that,” Sloan said. The current board is experienced, engaged and steeped in the issues being worked out, he said. Gutting the board would be “absolutely irresponsible.”
But he’s equally clear that he gives himself an Incomplete on cleaning up the debacle that drew national condemnation last year, prompting congressional hearings and the ouster of his longtime friend and predecessor, John Stumpf.
Since he took the helm in October, Sloan and his deputies have restructured how retail branches are managed, bolstered internal controls and abandoned sales targets and bonus practices faulted for pushing employees to open legions of accounts without customers’ permission. Much of what’s bothering ISS is that internal warnings about misconduct went unchecked for years, leading to a situation that blew up when Wells Fargo paid $185 million in September to settle government probes, damaging the stock.
“The board failed to implement an effective risk-management oversight process in a timely way and that could have mitigated the harm to its customers, its employees and the bank’s brand and reputation," ISS wrote earlier this month. “The long-standing sales practices and unchecked incentive program evidences a sustained breakdown of risk oversight on the part of the board.”
Subodh Mishra, a spokesman for ISS, declined to comment on Sloan’s response Wednesday.
Read More: ISS lays out its case for ejecting board members
At least some of the bank’s investors doubt Sloan’s campaign to defend the board will succeed -- and they aren’t necessarily siding with him on the matter.
Smead Capital Management portfolio manager Tony Scherrer, who oversees 3.3 million Wells Fargo shares, told Bloomberg Television Tuesday that he expects a few directors will be voted out. Parnassus Investment CEO Jerome Dodson, whose firm holds 29.7 million shares, said his company is thinking through ISS’s report and another from Glass Lewis & Co. that said investors should vote out six directors.
On Wednesday, California Treasurer John Chiang published an open letter to shareholders, calling on them to oust Chairman Stephen Sanger and six other directors. The people Chiang singled out include five members of the board’s corporate responsibility committee. And he pointed to Sanger and Susan G. Swenson as the board’s longest-serving members, arguing they should have at least known what was happening.
“Investors and the banking public deserve a Wells Fargo governance team capable of detecting and preventing fraud,” Chiang wrote. “Especially fraud on such a massive scale that occurs right under management’s nose.”
Sloan and Sanger snapped up more than $5 million of the company’s stock Monday after the price tumbled in recent weeks to the lowest in more than three months. The decline erased most of the stock’s 31 percent surge in the wake of Donald Trump’s election.
Sloan said he wasn’t declaring the bottom of the slump. After the board published the results of its investigation and the bank reported first-quarter earnings last week, he thought the price -- then $51.65 -- was attractive and that buying signaled his confidence in the company’s future. The stock has since gained 1 percent.
Additional probes still may “unearth some things that we need to fix” even if the bank already has taken many steps to address what happened, he said. Agencies that have disclosed inquiries include the U.S. Labor Department.
“It’d be inappropriate to declare victory and say this is all behind us,” Sloan said, because addressing the impact on employees, customers and other stakeholders “is still a work in process.”