Bank Watch

Wells Fargo’s board raises eyebrows with hiring of powerful lobbying firm

Wells Fargo CEO Tim Sloan talks to employees in November during a town-hall meeting in Des Moines, Iowa. Sloan serves on Wells Fargo’s board as the only non-independent director. In the wake of a sales scandal, the bank’s independent directors have hired a high-powered lobbying firm – an unusual move for the board of a public company.
Wells Fargo CEO Tim Sloan talks to employees in November during a town-hall meeting in Des Moines, Iowa. Sloan serves on Wells Fargo’s board as the only non-independent director. In the wake of a sales scandal, the bank’s independent directors have hired a high-powered lobbying firm – an unusual move for the board of a public company.

Wells Fargo’s board has turned to a powerful lobbying firm as the bank grapples with government scrutiny of its sales scandal, in what experts call an unusual move for the board of a public company.

The San Francisco-based bank’s independent directors have hired Brownstein Hyatt Farber Schreck, one of Washington’s top lobbying shops, whose client roster has included giants like Anheuser-Busch, McDonald’s and FedEx.

The independent directors, who aren’t employees of the bank, hired the firm during the last three months of 2016, according to federal lobbying disclosures. A spokesperson for the board, which is conducting its own investigation of the scandal, said it hired the lobbying firm to assist it in responding to inquiries from state and federal officials.

It’s common for large companies to use lobbyists as they seek to influence lawmakers. What’s unusual is for a board to hire its own lobbyists as the company faces ongoing government probes. That raises questions, experts say, because the role of a board is to provide independent oversight of a company on behalf of its shareholders.

“I’ve never heard of a board hiring a lobbying firm for a board,” said Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware. “Certainly outside counsel is appropriate and a good response. But a lobbying firm seems to be a bit outside of the sphere.”

“I find it very unusual and a bit concerning,” said Elson, who also owns Wells Fargo shares. “Why does a board representing the shareholders need to hire lobbyists?”

Wells Fargo CEO John Stumpf faced another round of questioning Thursday by the House Financial Services Committee over his bank's creation of fake accounts. "I am fully accountable for all unethical sales practices in our retail banking business,"

Craig Holman, government affairs lobbyist for Public Citizen, a Washington-based consumer advocacy group, also criticized the board’s move: “They’re trying to protect themselves. They did not accept that they were at fault. So they hired a lobbying firm to protect their own interests.”

Wells Fargo’s directors paid $150,000 for lobbying on “issues related to congressional investigations of Wells Fargo & Company,” according to the short description on disclosures.

I’ve never heard of a board hiring a lobbying firm for a board....I find it very unusual and a bit concerning.

Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware.

Asked about the lobbying, a spokesperson for Wells Fargo’s 15 independent directors pointed to questions state and federal officials have asked the board after authorities in September fined Wells $185 million over the sales scandal. Authorities said bank employees racing to meet high-pressure sales goals may have opened millions of accounts that customers never authorized.

Congress has been conducting its own probe of the sales practices and has sent questions to Wells Fargo CEO Tim Sloan and board chairman Stephen Sanger, who is part of a committee of independent directors investigating the scandal. Sloan is the only non-independent director, since he works for the company. On Tuesday, the bank announced it had fired four executives in its community banking unit based on findings from the board investigation.

“Inquiries at the state and federal level have asked specific questions about the independent directors’ investigation, and the board believed it appropriate to retain their own advisers relative to responding to these and other questions,” the spokesperson for the independent directors said in a statement.

The spokesperson wouldn’t answer any further Observer questions. Wells Fargo and Brownstein Hyatt wouldn’t comment.

Ongoing scrutiny

The hiring of Colorado-based Brownstein Hyatt comes as Wells’ board remains under lawmakers’ scrutiny in the wake of a scandal that drew ire from both Republican and Democratic lawmakers during congressional hearings last year.

One letter signed this month by Massachusetts Sen. Elizabeth Warren and five other Democrats raised concerns about Wells Fargo’s practice of notifying branches ahead of internal inspections. The bank later announced it would end the practice, which was first reported by The Wall Street Journal.

In their letter, the members of the Senate Banking Committee said the advance notices raised “yet another red flag indicating that top management and the board of directors of Wells Fargo knew or should have known about the extensive fraud occurring throughout the bank.”

Inquiries at the state and federal level have asked specific questions about the independent directors’ investigation, and the board believed it appropriate to retain their own advisers...

Spokesperson for Wells Fargo’s independent directors, on the board’s hiring of a lobbying firm

Holman, of Public Citizen, said he’s never seen a company’s board hire its own lobbyists. Wells’ lobbying suggests board members, who are supposed to oversee what the company is doing, might be seeking to avoid being held liable for the scandal, he said.

“The board itself was not held accountable,” Holman said, noting the bank fired 5,300 employees for secretly opening deposit and credit card accounts. Wells Fargo CEO John Stumpf and community banking head Carrie Tolstedt also left the bank amid the fallout.

Holman called the board’s hiring of a lobbying firm “a troubling move, particularly for the company and shareholders.”

An Observer search of lobbying activity on Opensecrets.org found no examples of board lobbying by more than a dozen firms that have faced large scandals in recent history – from Enron and Arthur Andersen to, more recently, JPMorgan Chase & Co., Volkswagen and drug company Mylan.

Michael Useem, professor of management at the University of Pennsylvania’s Wharton School, said that while hiring a lobbying firm “definitely is unusual” for a board, it reflects higher board accountability expected nowadays by investors and others.

If the Wells Fargo scandal had occurred 20 years ago, its board probably would not have faced congressional investigation, Useem said. Today, he said, boards can expect to be scrutinized when a crisis erupts on their watch.

“Outside parties, Congress in this case, state houses also, have recognized that boards are more engaged, more strategic and more responsible,” Useem said.

‘That does raise a red flag’

The lobbying revelations are concerning some shareholders who were already troubled by the scandal.

“That does raise a red flag,” said Tim Brennan, treasurer for the Boston-based Unitarian Universalist Association, which holds Wells shares. “Are they in there trying to persuade the congressional investigators to back off?”

“I think it is appropriate and maybe a good thing for them to be hiring counsel separate from management,” he said. “(But) why are they classified as ‘lobbyists’?”

Beyond lobbying, Wells Fargo’s board has taken other steps in response to the crisis. In December, it announced a change to its bylaws to formally require its chairman and CEO roles to be held by separate people.

No board member has stepped down over the scandal aside from Stumpf, who had been chairman. Last year, it was announced board member Elaine Chao would be leaving, but that was to serve as Transportation secretary for the Trump administration.

On Monday, Wells Fargo announced two new board members: Karen Peetz, retired president of The Bank of New York Mellon Corp., and Ronald Sargent, retired CEO of Staples.

Wells Fargo shareholders will get to vote on whether board members serve another year during the company’s annual meeting in April, the first since the bank was fined over the scandal.

Brennan declined to say how his organization might vote on board members, but he said he doesn’t place blame for the scandal itself “at the feet of the board.”

“This issue was pretty far down in the operations of the organization,” Brennan said. He said the board was supposed to make sure the bank’s management was being held accountable to Wells’ ethics policies, among other things.

“I think the board’s job is oversight of top management,” he said. “My understanding is they actually did drop the ball as far as holding the top management accountable.”

Deon Roberts: 704-358-5248, @DeonERoberts

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