Wells Fargo Fake Bank Accounts Scandal Haunts Shareholder Elections
DAVID GREENE, HOST:
Later today, Wells Fargo shareholders will vote on whether or not to fire most of the bank's board members. This does not happen every day in corporate America. Well, actually, it almost never happens but this is the recommendation of an influential shareholder advisory firm in the wake of one of the biggest consumer banking scandals in history. NPR's Chris Arnold has been following this whole story. Hey, Chris.
CHRIS ARNOLD, BYLINE: Hey, David.
GREENE: So just give us a quick thumbnail of the background here. Why are shareholders going after the board here?
ARNOLD: Well, this is about accountability. And it's important to remember, like you say, that the scale and the brazen nature of this banking scandal, I mean, we're talking about millions of accounts that were opened fraudulently without customer knowledge.
GREENE: This was like credit card accounts, checking accounts, lines of credit, I mean, all - the consumers - and not having a clue.
ARNOLD: Right. And this was going on all across the country. And all of that was driven by what was described by workers over and over again as a - at times brutal high-pressure sales culture. You know, if you don't meet the sales goals, you're going to get fired sort of thing. And that encouraged a lot of workers to break the rules.
On top of that, some employees told NPR that when they did try to push back and they called the company ethics line and said hey, you know, there's fraud all over the office here, they said they would get fired and nothing would change. And this went on for years.
So when the scandal broke, John Stumpf, who was then the CEO, he was criticized for scapegoating lower level workers, saying look, OK, we have some bad apples. We had some bad apples but we got rid of them. And as far as upper management, there's nothing to see here. In the end, he lost his job and had, I think, it was $60-plus million clawed back from him in terms of compensation by the bank. But in terms of the board outside of Stumpf, it didn't quite get that hot.
GREENE: Well, I mean, usually a CEO losing his job, having to give back money, I mean, the board is then sort of insulated. Why is that - looking like a different picture here?
ARNOLD: Well, the scandal was just - went on for so long and it was so widespread. And the argument is that look, the board should be held accountable for not doing its job. And this shareholder advisory firm is saying therefore, you should vote out the board members.
GREENE: How unusual is this?
ARNOLD: It doesn't happen often. It happens on occasion. And board members do step down, not all the time but sometimes when there are these shareholder recommendations.
GREENE: Can the shareholders really vote to get rid of a board? I mean, is that within their right? Is it within their legal abilities here, or are there going to be some legal questions to answer here?
ARNOLD: Ultimately, that decision is going to rest with Wells Fargo. It has discretion. There'll be a lot of pressure to respond to a dramatic vote if it happens. And what the bank says is look, the board and the management team have taken "decisive action," quote, unquote, to identify the problems and fix them. And it strongly disagrees with what it called a, quote, "extreme and unprecedented recommendation," that is this recommendation from the board or from this advisory group.
So to hear about that, we called up the advisory group. It's called ISS - Institutional Shareholder Services. Patrick McGurn is the top research guy there. And we said Wells Fargo says you're being extreme and unprecedented.
PATRICK MCGURN: I mean, that's just, you know, a PR statement I think on their part. I think what was unprecedented was the reputational harm that was done to the company itself. And what was extreme was the size and the duration of these problems.
ARNOLD: So in other words, it's - ISS is standing behind the recommendation and saying the board should be voted out.
GREENE: But then we have all of these other - the Department of Justice, Department of Labor, SEC, I mean, Wells Fargo is obviously far from out of the woods even with this vote.
ARNOLD: There could be more to come, right.
GREENE: Chris Arnold, thanks so much.
ARNOLD: Thanks, David. Transcript provided by NPR, Copyright NPR.