Wells Fargo & Co. changed its bylaws to require a separate chairman and chief executive officer, breaking with most of its U.S. peers after years of sales abuses in its branches spiraled into a national scandal.
That move is significant in an industry that has long fought off pressure from corporate governance activists and shareholders including pension managers, but it won’t change Wells Fargo’s current leadership. John Stumpf had held both roles at Wells Fargo until he stepped down in October under pressure from lawmakers. Tim Sloan was promoted that month to CEO, while Stephen Sanger became non-executive chairman.
“Formalizing this structure is the right decision at this time,” Sanger said in a statement. “Efforts to restore the trust of our customers and team members are well underway and will continue until we have fully addressed the issues surrounding retail banking sales practices.”
The approach differs from almost all of Wells Fargo’s biggest competitors, including Bank of America Corp. and JPMorgan Chase & Co., which have persuaded shareholders not to divide the jobs in recent years. Citigroup Inc. is the only other bank among the nation’s top six that hasn’t granted both titles to its current leader.
Proxy advisors typically advocate for separating the two most powerful roles at a corporation. The issue resulted in a special vote last year at Bank of America after CEO Brian Moynihan was granted the chairman role without shareholder input. He ultimately prevailed in keeping both titles. At JPMorgan, similar proposals were defeated last year and in 2013. The idea was also put forth in 2014 and withdrawn before a vote.
Splitting the roles at Wells Fargo, the third-largest U.S. lender by assets, buttresses the case that other banks should follow suit, according to CtW Investment Group’s research director, Richard Clayton.
“Shareholders at all the banks are going to press for changes,” said Clayton, whose organization speaks for a consortium of retirement funds managing more than $200 billion. “This is going to be one element in their thinking.”
Wells Fargo should also consider further steps to improve its board, he said. CtW urged the San Francisco-based company in September to add directors with experience linking employees’ pay to corporate objectives.
The bank has faced a barrage of criticism and calls for closer scrutiny since agreeing in September to pay $185 million over claims that employees may have opened more than 2 million unauthorized accounts for customers. Lawmakers including Democratic Senator Elizabeth Warren of Massachusetts had called on Stumpf to resign and have pushed federal authorities to open additional probes.
“Though from a business perspective it is debatable whether separating the chairman and CEO into two roles is beneficial, we view the separation in roles more favorably from a political perspective,” Gerard Cassidy, an analyst at RBC Capital Markets, said in a note to investors. “It should help relieve some of the political pressures the company has felt.”
Under the bylaw change, the chairman and vice chairman of the board must be independent, the bank said Thursday. The changes are effective immediately.
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