Wells Fargo claws back $75M US from top execs in sales scandal
Bank's board says executives dragged their feet for years regarding problems
The problems at Wells Fargo and its overly aggressive sales culture date back at least 15 years, and management had little interest in dealing with the issue until it spiraled out of control resulting in millions of accounts being opened fraudulently, according to an investigation by the company's board of directors.
The bank's board also clawed back another $75 million US in pay from two former executives, CEO John Stumpf and community bank executive Carrie Tolstedt, saying both executives dragged their feet for years regarding problems at the second-largest U.S. bank. Both were ultimately unwilling to accept criticism that the bank's sales-focused business model was failing.
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The 110-page report has been in the works since September, when Wells acknowledged that its employees opened up to 2 million checking and credit card accounts without customers' authorization. Trying to meet unrealistic sales goals, Wells employees even created phoney email addresses to sign customers up for online banking services.
"(Wells' management) created pressure on employees to sell unwanted or unneeded products to customers and, in some cases, to open unauthorized accounts," the board said in its report.
Many current and former employees have talked of intense and constant pressure from managers to sell and open accounts, and some said it pushed them into unethical behaviour. The report backs up those employees' accounts.
"It was common to blame employees who violated Wells Fargo's rules without analyzing what caused or motivated them to do so ... (or determine) whether there were responsible individuals, who while they might have no directed the specific misconduct, contributed to the environment (that caused it)," the board said.
The report also says that 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.
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The bank has already paid $185 million US in fines to federal and local authorities and settled a $110 million US class-action lawsuit. The scandal also resulted in the abrupt retirement last October of longtime CEO John Stumpf, not long after he underwent blistering questioning from congressional panels. The bank remains under investigation in several states, as well as by the Securities and Exchange Commission, for its practices.
"Insular and defensive"
The board's report recommended that Stumpf and Tolstedt have additional compensation clawed back for their negligence and poor management. Tolstedt will lose $47.3 million US in stock options, on top of $19 million US the board had already clawed back. Stumpf will lose an additional $28 million US in compensation, on top of the $41 million US the board already clawed back. Along with the millions clawed back from other executives earlier this year, the roughly $180 million US in clawbacks are among the largest in U.S. corporate history.
The board found that, when presented with the growing problems in Wells' community banking division, senior management was unwilling to hear criticism or consider changes in behaviour. The board particularly faulted Tolstedt, calling her "insular and defensive" and unable to accept scrutiny from inside or outside her organization.
The board also found that Tolstedt actively worked to downplay any problems in her division. In a report made in October 2015, nearly three years after a Los Angeles Times investigation uncovered the scandal, Tolstedt "minimized and understated problems at the community bank."
Tolstedt declined to be interviewed for the investigation, the board said, on advice from her lawyers.
Tolstedt did issue a statement to the media, however, disputing the board's conclusions.
"We strongly disagree with the report and its attempt to lay blame with Ms. Tolstedt. A full and fair examination of the facts will produce a different conclusion," said Enu Mainigi with the law firm Williams & Connolly.
Stumpf also received his share of criticism. In its report, the board found that Stumpf was also unwilling to change Wells' business model when problems arose.
"His reaction invariably was that a few bad employees were causing issues ... he was too late and too slow to call for inspection or critical challenge to (Wells') basic business model," the board said.