In unusual move, prominent firm bashes Wells Fargo auditor

In an unusual move, a prominent firm that advises shareholders is urging Wells Fargo investors to oppose the bank's longtime auditor following a fake-accounts scandal that has rocked the company.

The firm, Glass Lewis, is making the recommendation as Wells investors prepare to vote this month at the bank's annual shareholders meeting to approve KPMG as Wells' independent accounting firm for 2018. In a report to investors, Glass Lewis notes it generally supports a company's choice of auditor, except when it believes the auditor's independence or integrity has been compromised. KPMG has been Wells' auditor since 1931, according to the report.

"Given the severity of the fraudulent account activity and KPMG's prior knowledge of the incident, we believe shareholders may question whether KPMG is adequately ensuring the integrity and transparency of financial information," the report said.

Wells Fargo declined to comment. KMPG could not be reached for comment.

Wells Fargo has disclosed that its employees may have created as many as 3.5 million unauthorized customer accounts from 2009 through September 2016, as they pushed to meet quotas in a pressure-cooker sales environment.

In a 2016 letter to U.S. lawmakers, KPMG acknowledged that it was aware of the illegal conduct but that it was satisfied Wells Fargo management was fully informed about it. In addition, KPMG said the opening of fake accounts was not deemed as having a significant impact on Wells' financial statements.

Glass Lewis did not recommend a vote against KPMG last year.

That's because the firm's bigger focus last year was urging shareholders to not re-elect some long-running directors who served on Wells' board during the years when the accounts scandal was unfolding, said Kern McPherson, a senior director at Glass Lewis.

Wells Fargo has taken some positive steps to improve its corporate governance and risk oversight since the scandal, he said. But McPherson said Glass Lewis has remained concerned whether KPMG, with its decades-long tenure at Wells Fargo, is effectively protecting the interests of shareholders. U.S. lawmakers also continue to question KPMG's dealings with Wells, he said.

"We've seen continued scrutiny being placed on KPMG's relationship with Wells Fargo over the past year," McPherson said, adding that Glass Lewis believes Wells shareholders would be better served by a fresh set of eyes on the company’s audit. In addition, large investors in general are becoming increasingly focused on the relationship auditors have with the public companies they work for, he said.

Proxy adviser Institutional Shareholder Services has not yet released its voting recommendations ahead of Wells' shareholder meeting scheduled for April 24 in Des Moines, Iowa.

Glass Lewis is also recommending Wells shareholders vote against the re-election of board director John Baker, who has served since 2009.

Glass Lewis said it is concerned that Baker continues to serve on the board's corporate responsibility committee in light of that body's failure to adequately identify and respond to the sales scandal.

This story was originally published April 4, 2018 at 11:44 AM with the headline "In unusual move, prominent firm bashes Wells Fargo auditor."