By Emily Glazer
Shareholders at scandal-scarred Wells Fargo & Co. voted
Tuesday to keep all 15 of the bank's directors, but in a stinging
rebuke rarely seen in corporate elections did so in some cases by
slim margins.
After a three-hour annual meeting replete with shareholder
outbursts and one unscheduled break to remove an angry investor,
the San Francisco company announced voting tallies that showed the
toll of the aggressive sales practices last fall that cost Wells
Fargo $185 million in fines.
Most striking, the bank's nonexecutive chairman, Stephen Sanger,
garnered only 56% of shareholders' support, far below the 95% or
more that most directors usually get with little fanfare. The head
of the bank's risk committee, Enrique Hernandez, fared even worse,
getting a 53% vote. In all, nine directors got votes of less than
75%. None of the board's longer-serving directors could muster more
than 80% of the vote.
"The outcome is a wake-up call that directors at U.S. companies
may no longer glide through a crisis without taking individual hits
in reputation," said Stephen Davis, associate director of Harvard
Law School's Programs on Corporate Governance and Institutional
Investors. "Institutional investors are staffing up for regular,
tougher scrutiny of directors."
Mr. Sanger, a former General Mills chief executive who
spearheaded the board's response to last year's fake-account
scandal, said Tuesday that shareholders "sent the entire board a
clear message of dissatisfaction."
Even so, neither Wells Fargo nor the board said there would be
any immediate changes in the wake of the vote. Instead, Mr. Sanger
reiterated what the bank has told some large shareholders
privately: that six directors will step down from the board within
the next four years when they hit the mandatory retirement age of
72 years old.
Mr. Sanger, who turned 71 this month, added that the board is
"urgently looking" to add new talent beyond the two directors who
joined the board in February. Those two directors, along with CEO
Timothy Sloan, who joined the board last year, received 99%
majorities from shareholders on Tuesday.
Bank investors have increasingly sent tough messages through the
ballot box. In 2015, Bank of America Corp. Chairman and CEO Brian
Moynihan survived a vote that would have stripped him of one of
those two roles at the Charlotte, N.C., bank. J.P. Morgan Chase
& Co. Chairman and CEO James Dimon survived a similar vote
after the "London whale" trading loss, but two of the New York
bank's directors left the board after they garnered vote tallies of
less than 60% in 2013.
In 2012, Citigroup Inc. shareholders rejected a board-approved
compensation plan for its senior executives, including CEO Vikram
Pandit, who left later that year. In 2009, Bank of America
shareholders voted to split the chairman and CEO positions in a
narrow vote that essentially stripped Kenneth Lewis of his duties
as chairman. He left the bank a few months later.
For Wells Fargo, while the unanimous re-election of directors is
a relief for the bank the fact that a majority of directors
received less than three-quarters support suggests that Wells
Fargo's board may face continuing pressure to make more
changes.
The breadth and scale of shareholders' limited support,
especially with no alternative board candidates, is "very rare,"
said Sandeep Dahiya, an associate professor at Georgetown
University's McDonough School of Business.
Over the past 10 years, only 22 directors a year, on average,
out of nearly 40,000 directors at S&P 500 companies received
less than 60% of the vote for re-election, according to ISS
Analytics, the data arm of proxy advisory firm Institutional
Shareholder Services Inc.
Focus on the board election built earlier this month, when ISS
recommended that shareholders vote against re-electing 12 Wells
Fargo directors who served while the sales practice issues
occurred. Some large shareholders thought the board was slow to
react to the sales-practices problems, though they have cited
improvements in the board's response more recently.
Though Wells Fargo's board has been active over the past several
months in seeking shareholder feedback, issuing detailed results of
an independent investigation over the sales practices and clawing
back about $183 million in pay from executives, Mr. Dahiya said
more actions may be necessary.
He said in the coming months it is possible some board members
may voluntarily depart as typically the more dissatisfied
shareholders are, the more likely directors are to leave. The bank
and board declined to comment beyond an earlier press release
Tuesday.
Tensions flared at the bank's meeting, held at a golf resort's
conference center in Ponte Vedra Beach, Fla. Among the roughly 300
shareholders attending, four shareholders spoke out of turn,
yelling at the board or management to voice complaints.
The first shareholder outburst prompted Mr. Sanger to halt the
meeting for several minutes while the investor was removed from the
room. The investor, Bruce Marks, a housing advocate and activist,
had requested that each director speak to what they knew about the
sales-practice issues, which resulted in about 5,300 employees
being fired over a five-year period.
When Messrs. Sloan and Sanger told Mr. Marks he was out of
order, Mr. Marks responded that "Wells Fargo has been out of order
for years."
The meeting restarted a few minutes later, with Mr. Sanger
saying Mr. Marks had been removed.
Before Mr. Sanger read the vote tallies at the end of the
meeting, former and current bank employees and customers came to a
microphone, sometimes fighting back tears. Some discussed health
problems and stress they say were brought about by the bank's
aggressive sales culture. Others recalled decisions by the bank to
foreclose their home.
Mr. Sloan in most of these cases directed the speakers to follow
up with Wells Fargo officials after the meeting.
One former employee apologized to customers for the bank's
aggressive sales tactics, and said that they were why she left the
company. Mr. Sloan, in response, asked her to "consider coming
back," adding that the bank has rehired more than 1,000 employees
who had left because they didn't feel comfortable with the sales
practices.
A bank spokesman said most of those rehires, since September,
are within the retail banking unit but declined to comment
further.
Still, "investors want change," said New York City Comptroller
Scott M. Stringer, whose office oversees New York City's pension
funds and voted against 10 Wells Fargo directors. "These wrongs
need to be made right."
Write to Emily Glazer at emily.glazer@wsj.com
(END) Dow Jones Newswires
April 25, 2017 19:51 ET (23:51 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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