Wells Fargo’s massive sales scandal has cost the jobs of the CEO, more than 5,000 rank-and-file workers and the head of the company’s community banking unit.
But by and large, the faces at the top of the San Francisco-based bank remain the same. And for some, that raises the question of whether new CEO Tim Sloan, a Wells Fargo veteran, can keep his pledge to overhaul the company’s culture.
“When companies get into deep trouble financially, or in this case malfeasance, bringing in outside people is a common practice, and that was not done here,” said Michael Useem, professor of management at the University of Pennsylvania’s Wharton School. “It’s unusual given the magnitude of this disaster.”
Long-simmering populist anger at big banks has flared anew amid claims that Wells Fargo employees, rushing to meet sales goals, opened millions of accounts that customers may not have authorized.
The lack of prosecution so far of any bankers in connection with the Wells Fargo scandal has also given ammunition to critics who argue Wall Street executives too often are given a pass for wrongdoing.
“It’s not a square deal when the people that are fired are the tellers who make 15 bucks, and the senior execs walk off with $100 million,” U.S. Sen. Joe Donnelly, D-Ind., said at a September hearing on the scandal. “These 5,300 tellers, they didn’t come up with this scheme on their own.”
A new Observer analysis has also found more than half of the 60 regional community-banking presidents in place in 2011 – when authorities say the “widespread illegal” account activity began – remain in those roles or other positions in the company.
Some of those same people still have oversight in the West and Southwest, which had heavy concentrations of unauthorized customer accounts.
Speaking to employees in Charlotte on Tuesday, Sloan said the bank still has “weaknesses within it that we must change.” The 29-year Wells Fargo veteran said he and the bank’s senior leadership are personally committed to taking “decisive actions” to prevent a repeat of bad behaviors.
Changes at the top and elsewhere could be coming: The bank’s board is conducting an ongoing investigation, which might result in more departures.
It’s unclear when that investigation will wrap up. Meanwhile, the bank continues to face questions from lawmakers like Sen. Elizabeth Warren, the Massachusetts Democrat who signed a letter in October asking the bank’s board if it addressed the question of whether Sloan played any role in the scandal.
Paul Miller, a banking analyst at FBR & Co., said Wells Fargo needs a “new, fresh set of eyes” to change its culture.
“This is a major, major crisis for a major institution,” Miller said.
“One of the problems with that senior executive floor is they’ve all been at Wells for 20-plus years,” he said. “That’s where they needed to make some outside changes, and they didn’t.”
For its part, Wells Fargo notes a growing list of changes it has already made to rebuild trust with customers and others – starting with the 5,300 employees it dismissed over a five-year period for the misconduct. The terminations ranged from branch bankers up to an area president, former CEO John Stumpf testified to U.S. lawmakers in September. Weeks later, the bank announced Stumpf himself would step down.
Also, Wells Fargo in July named Charlotte-based Mary Mack, who had been running the brokerage unit, its new head of community banking, replacing San Francisco-based Carrie Tolstedt, who has left the company. Other steps the bank has taken included getting rid of product sales goals for retail bankers in branches and call centers. Sloan has also said the bank will use outside “culture experts” to help pinpoint weaknesses.
“Our entire leadership team is focused on fixing what failed and building a better and stronger Wells Fargo,” bank spokesman Mark Folk said in a statement.
Wells Fargo agreed in September to pay $185 million in government fines to settle allegations over its sales practices. The bank has also said Stumpf will forfeit all of his outstanding unvested equity awards, worth $41 million. He is still expected to walk away with millions in stock, deferred compensation and retirement benefits.
Some investors also want new members on the bank’s board, even after the board split the chairman and CEO roles and appointed a vice chair in response to the scandal. Nearly half of the 15 members on the bank’s board have been in place for a decade or more.
“Wells Fargo will not be able to adequately change its culture without changing its board,” said Dieter Waizenegger, executive director of CtW Investment Group, which advocates for labor union pension funds. “A new CEO does not fix the glaring governance failures that allowed this scandal to escalate.”
Praised for Wachovia role
Two Charlotte-based Wells Fargo executives said the bank’s 2008 purchase of Wachovia showcased Sloan’s skills as a leader in times of change.
Sloan, who was then Wells’ head of commercial banking, was responsible for analyzing Wachovia’s investment banking business, a Wall-Street style area in which Wells was not a top player. In those turbulent days, Wachovia employees were on edge, uncertain whether their jobs were in jeopardy. In the end, Wells Fargo kept the business and has continued to grow it.
“He’s a very calm, thoughtful, deliberate critical thinker, and I saw him very methodically get his arms around, in very short order, a business that was very different than what Wells had,” said David Carroll, who at the time headed Wachovia’s capital management group. He now reports directly to Sloan as head of wealth and investment management. “Unlike a lot of people he’s not bound by the past,” Carroll said of Sloan.
Carroll said Sloan, 56, has also led efforts to decentralize and modernize Wells Fargo, even before he became president and chief operating officer last November. For example, Carroll said Sloan was architect of an ongoing initiative, known as Efficiency and Effectiveness, launched in 2015 to streamline parts of the company. In recent months, Wells’ efficiency efforts have included cutting technology jobs, some in Charlotte.
Wells Fargo’s strong sales culture hasn’t always sat well with former Wachovia employees. As the two banks combined operations, some former Wachovia executives said they didn’t understand how Wells was selling so many products and why it didn’t add up to more revenue.
Those who had come over from Wachovia “were priding ourselves on doing the right thing, not selling but really servicing client needs,” one former Wachovia executive said, speaking on a condition of anonymity to protect business relationships.
If former Wachovia executives asked questions about the numbers, “we were ostracized,” the executive said.
Rob Engel, head of investment banking and capital markets at Wells, called Sloan “a complete package around leadership.” Engel, who was Wachovia’s co-head of investment banking and capital markets, began reporting to Sloan after the merger with Wells Fargo. “From day one (he) was very candid, open, honest,” Engel said.
Both Carroll and Engel described Sloan as a down-to-earth, family man who also plays competitive basketball and is also known to promptly reply to 6 a.m. emails from his office in California, where it’s still the middle of the night. “I think he’s kind of nocturnal,” Carroll said.
George Johnson, chairman of Spartanburg-based Johnson Development Associates, which does business with Wells, says he supports the idea of an insider taking over as CEO to make fixes more quickly.
“I’m not whitewashing the significant mistakes that were made at Wells Fargo, but Tim wasn’t a part of that,” Johnson said. “I think Tim Sloan can correct the problems.”
Regional presidents unchanged
While Wells Fargo has fired workers for their involvement in the scandal, many regional presidents in the community banking segment at the center of the controversy remain in their positions.
The Observer analysis found more than 60 percent of the presidents in place in 2011 still hold such roles, including in Charlotte and elsewhere in North Carolina.
The group includes presidents overseeing the West and Southwest. Those two markets had more fraudulent account activity than elsewhere in Wells’ footprint, Stumpf testified to lawmakers in September.
Brian Simmonds Marshall, policy counsel at Americans for Financial Reform, called that “disturbing.”
“Wells Fargo needs to continue to undergo a change throughout its management to demonstrate that they are taking customers’ needs seriously,” Marshall said. “And it’s not enough only to fire 5,000-plus frontline workers and a handful of managers...and let everything in between stay the same.”
In other shifts in the executive ranks, the bank this month disclosed that San Francisco exec Kenneth Zimmerman, who headed Wells Fargo’s deposit products group and had reported to Tolstedt, left the company in July in a personal decision. Minneapolis-based executive Ed Kadletz was promoted as replacement.
In September, Wells disclosed Minneapolis-based Claudia Russ Anderson, top risk manager for community banking, had taken a leave of absence and been replaced in her role. Charlotte-based executive Vic Albrecht was shifted into Anderson’s post.
Insiders vs. outsiders
Companies facing scandals or crises have been known to tap both insiders and outsiders for senior leadership roles.
In 2002, Tyco International brought on Motorola CEO Edward Breen as chief executive and chairman as the industrial conglomerate was rocked by fraud indictments of some top executives. In 2004, HealthSouth Corp. named HCA executive Jay Grinney as replacement for its former CEO who was dismissed over fraud charges.
Other companies looking to navigate a crisis have promoted from within.
Charlotte’s Bank of America elevated Brian Moynihan to replace CEO Ken Lewis when Lewis retired in 2009 as he came under fire for the bank’s Merrill Lynch acquisition. At the time, Moynihan was running the bank’s consumer and small-business operations.
Earlier this year, Toshiba named a company veteran its new chief executive as that company seeks to recover from an accounting scandal.
“It’s hard to say an outsider is always going to be the right answer,” said Suraj Srinivasan, professor of business administration at Harvard Business School.
“Culture doesn’t happen overnight,” Srinivasan said. “It is something that the next management, whoever that is, has to start talking about.
Changing a culture, he said, is “a hard problem. It’s easier said than done.”
Observer staff writer Rick Rothacker contributed.