Investors re-elect all Wells directors
Wells Fargo shareholders re-elected all 15 of the company’s directors at the company’s annual meeting in Florida Tuesday, despite calls that some should be jettisoned for not acting sooner to prevent the fraudulent-account scandal that has engulfed the San Francisco bank since September.
The individual directors received votes in favor ranging from 53 to 99 percent. A vote as low as 53 percent is highly unusual in the corporate world, where directors are routinely reelected with percentages in the high 90s. In 2016, only 44 directors at the 3,000 U.S. companies in the Russell 3000 index failed to win a majority vote, according to the Council of Institutional Investors.
Board Chairman Stephen Sanger got only 56 percent of the vote. He has served on the board for 13 years and had been the lead independent director until former Chairman and CEO John Stumpf resigned under pressure in October.
The lowest vote-getters were Enrique Hernandez, Jr., with 53 percent, and Federico Peña, with 54 percent. Both are members of the board’s corporate responsibility committee, which oversees political, environmental and consumer lending risks, as well as customer service and complaints. It was considered most responsible for areas of the bank involved in what Wells calls the “sales practices” issue. Peña is a former U.S. secretary of
the energy and transportation departments.
The other members of that committee — John Baker II, Lloyd Dean and Cynthia Milligan — got 70, 62 and 57 percent, respectively.
The three newest directors, including CEO Timothy Sloan, got 99 percent of the vote. They all joined the board after Wells disclosed in a settlement with regulators on Sept. 8 that it had fired about 5,300 employees since 2011 for opening more than 2 million deposit and credit card accounts without customers’ knowledge or authorization.
The overall vote is “a significant show of opposition to board members,” said Greg Waters, a research director with Glass Lewis, a San Francisco firm that advises large shareholders how to vote in corporate elections.
“Shareholders will expect some kind of response from the board,” he added. “I wouldn’t be surprised if we saw some kind of reshuffle.”
After the vote was announced, Sanger said that stockholders had sent the board “a message of clear dissatisfaction.”
At one point during the three-hour meeting, Sanger called a recess so that a shareholder could be removed. The shareholder, Bruce Marks, CEO of the nonprofit Neighborhood Assistance Corporation of America, would not stop demanding to hear from each individual director about their knowledge of fraudulent account openings.
Glass Lewis recommended voting against the four longest-serving members of the corporate responsibility committee. It recommended voting against two other directors, but only because they serve on too many boards (three each).
Institutional Shareholder Services, another proxy advisory firm, recommended voting against 12 directors for “failure to provide sufficient timely risk oversight.” It recommended voting for the three new directors who were appointed since the scandal erupted, including CEO Tim Sloan.
“I am surprised that everybody received a majority vote,” said Jason Shloetzer, an associate business professor at Georgetown University.
“It will be interesting to see if the directors who received just barely a simple majority will at least offer their resignations,” he said. “It could be set up where you tender the resignation and the board refuses to accept it.”
Shloetzer said receiving a low percentage of the vote could have “a negative spillover effect” for Wells Fargo directors serving on other corporate boards. Those directors might offer to resign to “preserve their own reputation and protect seats they may have on other boards.”
The state’s two largest public pension funds — the California Public Employees’ Retirement System and the California State Teachers’ Retirement System — both voted against the company’s nine longesttenured directors for oversight failures. Together they own about 0.5 percent of Wells Fargo’s shares.
Berkshire Hathaway, the bank’s largest shareholder with a roughly 10 percent stake, said it was voting in favor of the entire slate of directors.
The board formed a committee to launch an in-depth investigation of the unauthorized account openings on Sept. 25. A report on the investigation issued April 10 found “mass terminations” of employees for sales practice violations dating back to “at least 2002.”
Wells Fargo said last week it would increase the size of a preliminary class-action settlement to $142 million to cover claims arising from fraudulent accounts dating back to 2002. The original settlement, for $110 million, only went back to 2009. Kathleen Pender is a San Francisco Chronicle columnist. Email: kpender@sfchronicle.com Twitter: @kathpender