Coverage: Wells Fargo overhauls board in response to scandal

Wells Fargo & Co. is replacing three board members, with Vice Chair Betsy Duke replacing retiring Chairman Stephen Sanger next year, changes announced Tuesday in response to shareholder displeasure over the bank’s sales practices scandal.

Dan Freed of Reuters had the news:

Sanger will retire at year-end, even though he will not reach mandatory retirement age of 72 until April. Investors have pressured Wells Fargo to speed up the planned transition as the bank has dealt with fallout from the scandal.

The two longest-serving directors, Cynthia Milligan and Susan Swenson, will also retire at year end. Juan Pujadas, a former PricewaterhouseCoopers principal, will join as an independent director effective Sept. 1.

The board also detailed changes to four of its committees and said it will add more directors in the future “while maintaining an appropriate balance of experience and perspectives.”

Wells Fargo’s board hired Mary Jo White, a senior partner at law firm Debevoise & Plimpton LLP and former Chair of the U.S. Securities and Exchange Commission, to conduct a review of its structure and composition after a harsh shareholder vote in April.

James Rufus Koren of the Los Angeles Times reported the board turnover was not a surprise:

The board upheaval came as no surprise to analysts, who had expected such a move after April’s annual meeting. A significant number of shareholders withheld support for most board members, with Sanger and six other directors receiving less than 70% of shareholders’ votes despite running unopposed.

Typically, corporate board members are elected with near-unanimous support. At the April 25 meeting, held at a Florida resort, Sanger called the vote tally “a clear message of dissatisfaction” from shareholders.

At the time, analyst Scott Siefers at investment bank Sandler O’Neill said he expected the shareholder vote would lead to “accelerated turnover.”

Robert Hockett, a law professor at Cornell who specializes in financial and corporate governance matters, said recent revelations about more bad practices at the bank made a board shake-up even more of a foregone conclusion.

“It’s like the grift that keeps on grifting — just one scandal after another,” Hockett said. “The board probably thought, ‘We’re going to have to do something dramatic.’ ”

Renae Merle of The Washington Post reported that Duke is the first women to chair a major bank’s board:

The promotion of Duke, a former member of the board of governors of the Federal Reserve, is the latest move by the San Francisco megabank to satisfy its critics. Duke will be the first woman to serve as chair of a major U.S. bank.

While the changes are significant, they fall short of what has been called for by some of the bank’s staunchest critics, particularly Sen. Elizabeth Warren (D-Mass.), who has urged the ouster of the company’s entire 13-member board. The board, critics say, failed to detect the problems and then was slow to respond.

Wells Fargo has been engulfed in scandal since admitting last year that thousands of its employees had created millions of fake accounts, involving credit cards and banking, for customers without their knowledge to earn bonuses and meet sales goals. The revelations sparked multiple investigations and a strong backlash in Congress. Making matters worse, the bank said last month that there may be “significantly” more than the 2 million unauthorized accounts it initially estimated.

The pressure facing Wells Fargo increased recently after it announced that it had charged about 570,000 customers for auto insurance they didn’t need, driving some to default on their loan and have their cars repossessed. The bank said it would start refunding about $80 million, or about $140 each, to customers this month.