Wells Fargo’s board is on the hot seat ahead of Tuesday’s annual shareholder meeting as some large investors, including North Carolina’s treasurer, say they will vote against the re-election of directors who oversaw the bank during its sales scandal.
North Carolina Treasurer Dale Folwell, who has investment responsibility for the state’s pension funds, told the Observer Monday he voted the 4.9 million shares held by the retirement plans against four of the bank’s 15 directors. The state’s vote, he said, is based on the recommendation of a proxy advisory firm using criteria set up by his predecessor, Janet Cowell.
North Carolina joins major California and New York City pension funds that have already said they will cast their shares against a swath of the San Francisco-based bank’s board. Combined, the four pension funds own about 42 million Wells Fargo shares, but that’s still less than 1 percent of the bank’s 5 billion outstanding.
“This scandal was the result of a serious oversight failure by Wells Fargo’s board, and the directors responsible need to be held accountable,” New York City Comptroller Scott Stringer said in a statement. “It’s time for change at the top.”
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The opposition from major pension funds and two big firms that advise shareholders on how to vote is adding an unusual dose of drama to Tuesday’s annual meeting in Ponte Vedra Beach, Fla. Normally stockholder meetings are relatively quiet affairs, but Wells Fargo has been under fire for more than seven months over a sales scandal that has tarnished the bank’s image, cost the CEO his job and spurred multiple investigations.
Large and small shareholders can change their votes up until Tuesday’s meeting, where the outcome of the director vote is expected to be announced. It’s extremely rare for corporate directors to be voted out or even to have a poor showing in annual shareholder votes. Wells Fargo declined to comment on Monday.
The third-largest U.S. bank by assets does have the support of its largest investor, Warren Buffett’s Berkshire Hathaway, which owns about 10 percent of the company’s shares.
The Wells directors need a majority of votes cast to be re-elected, but any vote percentage that isn’t in the high 90 percent-range would be a major rebuke. The average backing for nearly 5,000 S&P 500 director elections in 2016 was 97.4 percent, according to ISS Analytics, the data unit of proxy advisory firm Institutional Shareholder Services. Only two failed to get a majority.
ISS and Glass Lewis – the two major advisory firms that recommend how large investors should vote at shareholder meetings – have both urged “no” votes for some directors. ISS is recommending shareholders vote against as many as 12 directors, while Glass Lewis came out against six.
The California Public Employees’ Retirement System and the California State Teachers’ Retirement System are voting against nine directors each, including chairman Stephen Sanger, while New York city cast votes against 10 board members, including Sanger.
North Carolina is voting against four directors opposed by Glass Lewis who sit on the corporate responsibility committee – John Baker, Lloyd Dean, Enrique Hernandez and Cynthia Milligan. The firm opposed these directors because of what it said was their failure to uphold their duties amid the scandal.
Folwell, who was elected treasurer in November, said he is abstaining on two other directors – John Chen and Susan Swenson – that Glass Lewis opposed because it contended they sit on too many boards. The treasurer’s office is in the process of assessing what proxy adviser it will use going forward and will add its own criteria in the future, Folwell said.
In September, Wells Fargo agreed to pay $185 million in fines to settle allegations that its employees potentially opened more than 2 million fraudulent accounts to meet aggressive sales goals. The bank has since faced heated congressional hearings and investigations by federal prosecutors and the Securities and Exchange Commission.
The Wells Fargo board conducted its own investigation of the scandal and in a report this month placed the blame squarely on two former executives: former community banking head Carrie Tolstedt and former CEO John Stumpf. The board has taken back about $180 million in compensation from senior leaders and terminated five community banking executives, including Tolstedt.
After the report came out, Sanger said the board “took the appropriate action with the information it had when it had it.” He acknowledged the board could have pushed more quickly for action, including the centralization of risk and human resources functions that could have helped identify the problem earlier.
Wells Fargo executives have repeatedly apologized for the scandal and have laid out numerous steps they have taken to win back customer trust, including eliminating sales goals in the community bank, making payments to customers who were harmed and reaching a $142 million class-action settlement with customers affected by the scandal as far back as May 2002.
Wells has its biggest employee hub in Charlotte.
Directors under fire
Here is a look at 10 Wells Fargo board members facing “no” votes from North Carolina, California and New York City pension funds.
North Carolina/California employees’ and teachers’ systems/New York City
▪ John Baker, Lloyd Dean, Enrique Hernandez and Cynthia Milligan
California employees’ and teachers’ systems/New York City
▪ John Chen, Donald James, Federico Peña, Stephen Sanger, Susan Swenson
New York City
▪ James Quigley