It promised to be one of the most contentious annual shareholder meetings since the financial crisis, but in the end, despite recommendations from at least two leading proxy firms opposing the re-election of many board members and the removal of several enraged attendees, Wells Fargo shareholders on Tuesday re-elected all 15 members of the bank’s board of directors, and supported the bank’s position on all other proxy items.
Those items included ratification of the bank’s auditor, KPMG, which failed to detect the cross-selling sales scandal that has plagued the bank, and votes against shareholder proposals requesting reports on executive compensation, gender pay equity, divestment of noncore businesses and retail sales practices to uncover the root practices of the bank’s fraudulent activity and steps taken to improve risk management and control processes.
Those sales practices involved setting up 2 million deposit and credit-card accounts for bank clients without their permission, which led to a $185 million settlement with the Consumer Financial Protection Bureau in September. In addition, 5,300 employees were dismissed along with CEO John Stumpf and former retail banking hand Carrie Tolstedt, who have both had to give back millions of dollars in compensation.
(Related on ThinkAdvisor: Wells Fargo Fined $185M for Opening Secret Unauthorized Accounts)
Also on Tuesday, Sens. Elizabeth Warren and Edward Markey, both Democrats from Massachusetts, wrote to the Public Company Accounting Oversight Board, asking whether the board, which sets standard for audits of public company financial statements, has conducted a review of KPMG’s financial report and if board rules hold auditors responsible for reporting illegal activity by their clients.
Shareholders at the annual meeting were told by Wells Fargo Board Chairman Stephen Sanger that KPMG’s role was “to certify financial results” and “improper behavior wasn’t something in their purview.”
Just 56% of shareholders voted in favor of Sanger remaining on the board; 99% voted for the three newest board members, including CEO Timothy Sloan; between 53% and 80% voted for the remaining board members.
Sanger called the vote a “clear message of dissatisfaction.”
Institutional Shareholder Services had recommended that investors oppose 12 of the 15 directors of the board, and Glass Lewis has recommended against voting for six of them.
Earlier this month, the board released a 110-page report based on an independent investigation into the company’s retail banking sales practices and related matters, assisted by Shearman & Sterling LLP to understand the factors that led to the sales practices issues, and Sanger recounted changes the bank has made in response to the fraud that was uncovered by the CFPB, including the naming of the new CEO Tim Sloan and new head of Community Banking Mary Mack.
But some shareholders at Tuesday’s meeting weren’t satisfied.
Bruce Marks, head of Neighborhood Assistance Corporation of America (NACA), said he wanted to hear from board members about what they knew of the fraud and when they knew it to explain “why they should be reappointed.”
When he didn’t hear from them he refused to sit down, the meeting was adjourned temporarily and ultimately he was physically removed by guards after, said Sanger, he “approached each board member.”
An asset manager who owns 40,000 shares later said no such approach occurred and Sanger owed Marks an apology.
There were other protesters who were escorted out of the meeting and other critical moments including one when a shareholder told the chairman that the bank “gets to protect the board, but who is defending the employees who got fired?” and another when the board was asked why it hasn’t apologized for its performance during the fake account scandal.
The board was accused of being tone deaf, a lapdog, a failure and suffering from mushroom management – a term used to describe keeping people in the dark and feeding them a diet of manure.
Sister Nora of the Sisters of St. Francis of Philadelphia, which sponsored the shareholder proposal calling for a report on bank practices, said the bank had changed the title of the proposal, limiting the report to the practices of a single business unit, retail.
She also spoke in support of a shareholder proposal for the bank to disclose its lobbying efforts and costs and noted her concern about the board membership in the Business Roundtable, which has proposed tighter requirements for shareholders to introduce resolutions at annual meetings – longer holding periods and bigger stakes. “Why are you not encouraging the Business Roundtable to support shareholders in filing resolutions?”
The meeting lasted a few hours, during which other shareholders were heard, including a representative from the Sioux tribal council, Mr. Taken Alive, speaking on behalf of a proposal for the bank to develop and adopt a global policy that respects the rights of indigenous peoples. He requested that that bank stop funding the Dakota Access Pipeline. “You say you can’t withdraw from financing. ING did less than a month ago.”
During the meeting, the board chairman and CEO spoke about the progress that the bank has made in altering its practices since the fake account scandal was discovered. In the end, the bank prevailed in all the votes on shareholder resolutions.
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