Incoming chief executive Tim Sloan is not the only new leader taking over at Wells Fargo as the embattled bank tries to turn the page on the damage caused by its fake accounts scandal. The boardroom will too, as Wells Fargo becomes only the second bank among the largest U.S. players to have a separate chairman and CEO — and one of the few large publicly traded companies to have an independent vice-chairman of the board.
Wells Fargo has named Stephen Sanger, its lead director and the former CEO of General Mills, chairman of the board, splitting the combined title that had been held by former chief executive and chairman John G. Stumpf before he abruptly retired Wednesday. It also named Elizabeth Duke, a former banking executive and member of the Federal Reserve Board of Governors, as vice chairman, one of just six independent directors to hold that title at S&P 500 companies, according to data from governance and compensation research firm Equilar. While no other board changes have yet been announced, governance experts expect the bank to switch out others, many of whom presided during the years when an aggressive sales culture pushed employees to create fake customer accounts. After the changes at the top, “the second tier of decisions is [to decide] who else should we bring on the board,” said Michael Useem, a professor at the University of Pennsylvania’s Wharton School who advised Tyco about the remake of its board following the conglomerate’s accounting scandal. ” ‘Should the nominations and governance committee rethink how it operates? And the same for the comp committee?’ I think the answer is yes to both.”
The elevation of Duke to the vice-chair role could help signal to investors that a director with financial and banking chops — and one who was only named to Wells Fargo’s board last year — has broader responsibilities. An external spokesperson for the board, who spoke on the condition of anonymity because deliberations have been private, said the primary reason for naming Duke to the post was that “someone on the board with that much banking and regulatory background had a unique experience base.” Governance experts said the move was unusual, and some were puzzled over what the role would entail. “It’s honorific,” said Charles Elson, who directs a center for corporate governance at the University of Delaware. “What does a vice chair do?” Nell Minow, who is vice chairman herself of ValueEdge Advisers, a governance consulting firm, said the move could be a signal that “we’re really doubling down on a higher standard of oversight and professionalism” over the new CEO, Sloan, a long-time veteran of the company. “Another reason why you want to have that double protection of two independent directors is because he’s an insider,” she said. Splitting the role of CEO and chairman is rare among major U.S. banks. Citigroup, and now Wells Fargo, are the only two among the largest banks in the United States where one person doesn’t currently share the chairman and CEO role. Both J.P. Morgan’s Jamie Dimon and Bank of America’s Brian Moynihan, both of whom are chairman and CEO, have survived efforts by shareholders to separate the titles in recent years. “It doesn’t make sense to have the person being monitored leading the group that’s doing the monitoring,” Elson argued.
Holding the dual titles can make for some uncomfortable moments, too. During a Senate Banking Committee hearing in September, amid questions about his pay, Sen. Elizabeth Warren (D-Mass.) told Stumpf: “You keep saying, ‘the board, the board.’ You describe them like they are strangers you met in a dark alley. Mr. Stumpf, you are the chairman of the board.” Splitting the jobs is often a go-to strategy for responding to a crisis, particularly when a new CEO is taking the reins, as is the case with Sloan. When the roles are split, said Wharton’s Useem, it’s often “when the company is struggling or the company needs a comeback. It would be shocking if it had gone the other way.” While no other changes to the board have yet been announced, Useem and other governance experts expect more to come. The average tenure of directors on Wells Fargo’s board is nearly 9.7 years, compared with 8.5 years across all S&P 500 boards. All of the members of the human resources committee, which approves compensation, have been directors since at least 2009. “The question begs to be asked, about what they missed or what they failed to act on decisively,” said Mark Bradford, a partner at VLP Law Group who handles executive compensation issues.
ISS, a proxy advisory firm, scored Wells Fargo poorly on its board structure in part because half the board has a lengthy tenure — seven members have served together for longer than nine years. Asked about whether any further changes are planned, the board’s spokesperson referred to an investigation launched in late September by its independent members and said the group would decide what comes next, based on the findings. “The board is focused on this investigation and completing it as quickly as possible. That’s the priority now.”
Some consumers may be shying away from Wells Fargo after learning that employees used customers’ information to open sham accounts, according to new figures reported by the bank. The nation’s largest retail bank beat expectations when it reported more than $5.6 billion in profit for the past three months. But the bank’s earnings report also hinted that the Wells Fargo may have some trouble convincing people to open new accounts in the wake of the scandal. The number of checking accounts the bank opened in September fell by 25 percent from the same time last year, the company reported Friday. Credit card applications filed during the month dropped by 20 percent from a year ago. And the number of visits customers had with branch bankers also fell by 10 percent from last year. Wells Fargo, which has built a reputation for being more focused on “Main Street” than “Wall Street,” said that it’s too soon to know if the trouble seen last month will lead to a long-term slowdown in business. September was the month in which it became widely known that employees opened as many as 2 million unauthorized accounts to meet sales targets. And the bank says at least part of the losses seen last month could have been caused by several changes it has made as it tried to regain customers’ trust, such as scaling back its marketing and sales efforts.
Still, a bigger question may be whether the bank can hold on to the consumers and small business customers that make up its retail business. Investing analysts on Friday asked the bank if it knew whether the customers affected by the sham accounts were closing their accounts. Bank executives said they didn’t have the information “at hand.” That irked analysts who were hoping for more specifics. “It’s a little frustrating not getting that retention information,” said Mike Mayo, a banking analyst with CLSA. “I think you’d want to know the customers that were impacted the most, what’s been your retention rate.”
People tend to stick with their bank accounts in the long run. Many consumers do everything they can to avoid having to move all of their cash or update payment settings. And some banking analysts have said in recent days that they think Wells Fargo customers will stay with the bank, especially after the headlines fade. What customers ultimately decide to do will become clearer in the coming months as the bank shares more information about how business is going. But since the scandal broke in early September, Wells Fargo has upped its outreach to customers to encourage them to stay.
In emails to customers and in full-page ads taken out in newspapers, the bank has reassured customers that it is trying to “make things right,” a sentiment that was reiterated on Friday. “I am fully committed along with the entire leadership team to fixing these issues and taking the necessary actions to restore our customers’ trust,” said Tim Sloan, who was appointed as the company’s new chief executive.