Show Wells’ Sloan the door
CEO should be fired — or the bank needs to shrink
Sen. Jon Tester, D-Mont., offered this stark warning to Wells Fargo CEO Timothy Sloan on Tuesday during a hearing in Washington about the company’s latest breaches of the public trust.
“If we’re here again six months from now, it will not be good,” he said.
Allow me to take it one step further. If the U.S. Senate Committee on Banking, Housing and Urban Affairs once again drags Sloan in to testify about why the San Francisco bank has found yet more scandal and fraud, then one of two things needs to happens: The company should fire Sloan, or the company should break itself up.
Maybe both. Because the status quo is not acceptable. About one year ago, then-CEO John Stumpf went before the same committee to apologize for the bank’s disclosure that employees created up to 2 million fraudulent accounts in the names of real people. His performance was widely panned, and Wells Fargo soon forced him to resign.
Tuesday’s hearing had an air of deja vu. This time Sloan was reciting the mea culpas, but for new transgressions. As it turned out, employees actually created up to 3.5 million bad accounts, and sold auto insurance to consumers who didn’t want or need the policies.
Fixing Wells Fargo’s scandals is like playing whack-a-mole: smack one down and another pops up. But that prompts us to ask who’s most at fault: the leader or the company?
Let’s start with the former.
The board should never have hired Sloan as CEO in the first place. In order to re-establish its credibility, Wells Fargo needed to hire an outsider with no baggage.
Sloan has plenty of baggage. The company pinned its problems on Stumpf, but Sloan was riding shotgun, having served as both chief financial officer and chief operating officer. To say Stumpf was responsible for the scandals but not Sloan demonstrates a corporate delusion.
“You have been there for 30 years,” Sen. Elizabeth Warren, D-Mass., said to Sloan at the hearing. “The problem starts with leadership. These people should not be left in charge of the business.”
In his year as CEO, Sloan has matched Stumpf in tone-deafness.
He continues to insist that the board conducted an independent investigation. But as I noted many times before, the law firm the board hired to assist in the investigation is the same law firm that’s defending directors from a shareholder lawsuit. How can you possibly call that independent?
The company should fire the board of directors for failing to properly oversee the bank, said Richard Bove, a banking analyst with Vertical Group. But Sloan continues to refuse to assign any blame to the board, of which he is a member.
At the hearing, senators asked Sloan why Wells Fargo didn’t take action as soon as the Los Angeles Times published a story detailing the account fraud in 2013. Sloan said the newspaper hadn’t given him any documents or information.
Why is the media responsible for doing Sloan’s job? If Sloan wanted information, why not ask his own people?
“At best, you were incompetent,” Warren told Sloan. “At worst, you were complicit. You need to be fired. Wells Fargo is not going to change with you around.”
But Bove doubts that firing Sloan will make any difference. If Wells Fargo continues to confront scandals in the months ahead, then the problem is beyond any one person, he said.
“No one can manage it,” Bove said.
In other words, Wells Fargo has gotten too big, and should be broken up — not because of regulatory risk, the concern in the wake of the Great Recession, but because of ethical risk. Wells Fargo is proving too big to police.
During one exchange at the hearing, Sen. Brian Schatz, D-Hawaii, asked Sloan why the Office of the Comptroller of the Currency should not revoke its national charter. Sloan’s instinctive answer was revealing: Because Wells Fargo serves 1 out of 3 people in America, he said.
Presumably, Sloan meant the bank helps a lot of people. But that also means when Wells Fargo screws up, it hurts a lot of people.
Wells Fargo can’t have it both ways: an insider CEO in charge of a megabank mired in perpetual scandal.
Something has to give.
Sloan continues to refuse to assign any blame to the board, of which he is a member.