As CEO Tim Sloan stepped down and the bank said it would replace him with an outsider, industry watchers gave varied views on if a change at the top will make a difference for the scandal-plagued institution.
“With the departing CEO being in the press so much, you have people asking if this [situation] can ever be fixed,” said recruiter Danny Sarch. “There’s a franchise risk. Clients can get tired of seeing the headlines and relay that to the financial advisors.”
(Related: A Timeline of Wells Fargo’s Scandals)
The head of Leitner Sarch Consultants credits the bank for having “done some good things,” such as issuing a 100-page report on the bank’s culture and how it can be changed.
But regulators and others have continued to wonder, “How do you do that with the same people running the show?” he said. “It makes sense to have somebody from the outside come it and look at this with fresh eyes.”
Still, for an institution of Wells Fargo’s size, “It will be an astonishing task to get up to speed and make changes quickly,” Sarch cautioned. “Getting an outsider is necessary, but the risks cannot be underestimated. More … scandals could be the last straw for the advisors and wealth management folks.”
As of Dec. 31, 2018, Wells Fargo had 13,968 advisors, which is down nearly 600 from a year ago and over 100 from the prior quarter. Since the bank’s fake-accounts scandal erupted in the fall of 2016, when it had 15,086 registered reps, its wealth unit has lost 1,118 advisors.
Industry consultant Tim Welsh, though, sees the bank’s push for an outside CEO as a smart move. “Wells Fargo has a long way to go to repair their reputation and a great way to do it is to replace the CEO,” said the head of Nexus Strategy. “If it can work for Uber, it can work for Wells!”
To prevent another scandal, the bank likely will put tighter controls in place “and that can make it a harder place to work,” Sarch points out. “There is less trust, even for the top performers, and that risks alienating those you need to keep.”
In terms of recruiting, he wonders: “How do you make an argument for a client that this is the best place for them? That is hard to do.”
In general, scandals lead to unhappiness. “I do not see flagging interest in those looking to leave. This is a challenge. I don’t see folks leaving in droves, but it’s rare for someone to say they are fiercely loyal to Wells Fargo [after the scandals].”
Who Will It Be?
While there have been rumors that several ex-Goldman Sachs leaders were under consideration, the latest list from Bloomberg includes:
- Gordon Smith, co-president of JPMorgan
- Marianne Lake, chief financial officer of JPMorgan
- Dean Athanaia, head of Bank of America’s consumer and small-business unit
- Jane Fraser, head of Citigroup’s Latin America business
- Matt Zames, president of Cerberus Capital
“When a firm has been embroiled in scandal, it’s often helpful for it to change its senior leadership,” said executive search consultant Mark Elzweig.
“This gives the firm a new start both with regulators and with the public …,” he added. “But it’s important that this individual come from within the industry and have a deep knowledge of Wells Fargo’s many business lines.”
Back in 2003, Citigroup elevated Chuck Prince to the role of CEO, rather than hiring an outsider. “His legal background and good relationships with regulators didn’t help him avoid massive losses in [collateralized debt obigations and mortgage-backed securities],” Elzweig explained.
— Check out After Sloan’s Exit, What’s Next for Wells Fargo? on ThinkAdvisor.