Wells Fargo former executives Wells Fargo CEO rehires about 1,000 staff in to pay back RM337 million wake of account scandal
WELLS Fargo said last Monday that two former senior executives, including its long-time chief executive John Stumpf, must forfeit an additional US$ 75 million ( RM337 million) in compensation after a scathing internal report found that they did too little to rein in the abusive sales practices that have rocked the mega-bank.
Stumpf, who stepped down in October, will lose an additional US$ 28 million in bonus money and the bank is taking US$ 47 million from another former high-ranking executive, Carrie Tolstedt. Stumpf and Tolstedt had already given up US$ 41 million and US$ 19 million in compensation, respectively.
The “clawbacks” of executive pay by the company are among the largest in history and a sign that big US banks feel increasingly under pressure to show the public that they can hold themselves accountable for corporate wrong- doing.
Senior Wells Fargo executives knew as far back as 2002 - nearly a decade earlier than initially disclosed - that bank employees were setting up fake accounts that customers didn’t want in order to meet aggressive sales goals, according to the 113-page report by the bank’s independent directors.
Tolstedt was allowed to manage the bank’s massive retail banking operations with little oversight and repeatedly played down concerns that employees were engaged in risky behaviour, the report found.
“Stumpf was by nature an optimistic executive who refused to believe that the sales model was seriously impaired,” the report stated. “His reaction invariably was that a few bad employees were causing issues, but that the overwhelming majority of employees were behaving properly.”
Stumpf did not immediately respond to a request for comment through his attorney. He has apologised in the past for not being more vigilant, even as he insisted most employees behave ethically. Tolstedt’s attorney was defiant.
“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,” Enu Mainigi, of the law firm Williams & Connolly, said in a statement.
The report, which took six months to compile, is likely to do little to quiet Wells Fargo’s critics. Two influential shareholder advisory firms are calling for significant changes at the bank, including the ouster of all of its incumbent board members. And Stumpf and Tolstedt are only giving up a fraction of the US$ 280 million and US$ 100 million they earned, respectively, between 2011 and 2016, critics note.
“Despite the clawback, I still feel that Stumpf is getting off easy,” said Sarah Anderson, global economy project director for the Institute for Policy Studies, a social justice think tank.
Wells Fargo admitted last year that it had fired 5,300 employees between 2011 and 2016 for opening fake accounts. But, according to the report, Stumpf was notified of a problem at one of the bank’s Colorado branches in 2002 that led to “mass termination” of bank employees. An internal investigation at the time found that many branch employees in Colorado were gaming the system to meet sales goals, including issuing customers debit cards without their consent.
Several employees were fired or resigned but not all of them, the report found. There were similar large- scale terminations for such conduct over the next decade, the report said, yet top executives repeatedly failed to look at what the root problem might be.
While the report said Stumpf, who spent more than 30 years at the bank, was ultimately responsible for the scandal, it lays much of the blame on Tolstedt, who ran the bank’s community banking division, encompassing some 6,000 branches.
The report described a pressure cooker sales operation in which reaching aggressive new account goals often overshadowed repeated complaints about employees’ risky behaviour.
“The Community Bank identified itself as a sales organisation, like department or retail stores, rather than a service- oriented financial institution,” the report said.
Some employees went to dizzying lengths to meet the sales goals. One branch manager had a “teenage daughter with 24 accounts, an adult daughter with 18 accounts, a husband with 21 accounts, a brother with 14 accounts and a father with four accounts,” the report said. Another senior executive had district managers dress up in themed costumes during periodic reviews, then run a “gauntlet” to a whiteboard where they reported how many sales they had completed.
Wells Fargo gave managers wide latitude to run their divisions. When confronted with concerns about the aggressive sales goals, Tolstedt and those in her inner circle were “defensive and did not like to be challenged or hear negative information,” the report said.
Tolstedt was “scared to death” that changes would hamper sales growth, the report found.
Stumpf was interviewed as part of the probe, but Tolstedt declined to be interviewed on the advice of her attorney. — WPBloomberg WELLS Fargo & Co., accused of ousting branch workers who struggled to reach untenable sales targets or objected to burgeoning misconduct, has rehired about 1,000 former employees as Chief Executive Officer Tim Sloan tries to put the scandal to rest.
Sloan, who took the helm in October, 2016 announced the hiring spurt on a conference call with journalists last Monday as he ticked off reforms and promised managers are learning from a scathing 113-page report the board issued hours earlier on the long-running abuses. The bank created a human resources team months ago to help innocent employees rejoin the company, he said.
“When you violate your code of ethics at Wells Fargo, you don’t have an opportunity to come back,” said Sloan, 56. But many others “left because of their concerns,” or as a result of the bank’s long-time emphasis on selling more products, he said.
The board announced Monday that it clawed back an additional US$ 28 million from former CEO John Stumpf and canceled about US$ 47 million of ex- community bank head Carrie Tolstedt’s stock options after determining they were among senior managers who failed to heed warnings of spreading abuses for more than a decade. But while the panel’s public report may help rebuild shareholder trust, the firm still faces more government probes, as well as legal claims by employees who said they were unfairly punished.
In September, the Labor Department said it opened an investigation after authorities accused the San Francisco-based company of putting excessive pressure on branch workers to sell products and financial services. Democratic lawmakers have questioned whether the firm broke wage or overtime rules while enforcing quotas.
A six-month review by a panel of independent Wells Fargo directors found that senior community banking managers including Tolstedt resisted warnings from subordinates that sales targets were prompting misconduct. Stumpf allegedly failed to grasp the seriousness of abuses over the years and ultimately reacted too slowly.
“I can’t promise perfection,” Sloan said. “But I can promise that we are going to learn from these mistakes that are right there in black and white in this very exhaustive and thorough board report, and we’re not going to let those mistakes happen again.”
Tolstedt, who declined to be interviewed for the board’s investigation, rejected its conclusions in a statement from her attorney. “We strongly disagree with the report and its attempt to lay blame with Ms Tolstedt,” said Enu Mainigi, a lawyer with Williams & Connolly LLP. “A full and fair examination of the facts will produce a different conclusion.”
Stumpf, 63, who stepped down as CEO in October, agreed around that time to forfeit US$ 41 million in equity awards built up over his career. An attorney for the former CEO declined to comment on the report. The review largely exonerated Sloan and many deputies. — WPBloomberg