Miércoles, 17 Octubre, 2018

Wells Fargo claws back $75 million from top execs in sales scandal

Wells Fargo Board Says Leaders Shrugged Off Scandal, Then Hid It Wells Fargo Board faults aggressive culture in sales scandal
Manuel Armenta | 20 Abril, 2017, 19:45

Wells Fargo employees had opened some two million accounts that customers did not authorize. Trying to meet unnaturally high sales goals, Wells Fargo employees even created phony email addresses to sign customers up for online banking services. The lawyers also combed through hundreds of interviews of lower-level employees that were conducted by Wells Fargo.

In reality, more than 2,500 employees had been fired those years, according to the report.

"This exhaustive investigation identified serious issues related to Wells Fargo's decentralized structure and the sales culture of the community bank, all of which the board and management have been working diligently to rectify", Chairman Stephen Sanger said in a statement.

Tim Sloan, who replaced Stumpf as CEO, is described in the report as having little contact with sales practices at the bank before becoming chief operating officer and Tolstedt's boss in November 2015.

"Community Bank leadership resisted and impeded outside scrutiny or oversight and, when forced to report, minimized the scale and nature of the problem".

Sloan called the report "a necessary examination of what went wrong" at Wells Fargo. The company will "continue to review the report and incorporate its key findings", he said.

Stumpf, who retired under pressure from the scandal in October, was criticized for failing to grasp the gravity of the sales abuses and their impact on the bank.

The board is also clawing back Ms. Tolstedt's outstanding stock options worth about $47.3 million, following $19 million in earlier clawback activity.

The result of its dithering was the nuclear explosion of a $185-million settlement with Feuer and federal regulators last September, followed by multiple Congressional investigations, Stumpf's resignation, and continuing doubts about Well Fargo's integrity by banking customers. "In addition to the progress we've already made to fix these issues, the Board has taken significant employment actions and executive compensation actions totaling over $180 million".

The bank's corporate structure gave too much power to the community bank's senior leadership, who the report concluded were "unwilling to change the sales model or even recognize it as the root cause of the problem". For example: "Tolstedt and certain of her inner circle were insular and defensive and did not like to be challenged or hear negative information".

The report sheds light on how the bank's desire to show strong growth on cross-selling led to ethical breaches and created a brutal sales-first culture. On Monday, the Washington Post reported that the bank's internal report had been completed and it was pretty damning: Not only will two executives have to return $75 million in compensation, but the report determined that the bank knew about the fake account epidemic all the way back in 2002.

The agency has also warned Wells Fargo that it is likely to order the bank to rehire another worker who said she was sacked in 2011 after trying to gain her supervisors' attention to accounts that she said had been fraudulently created. The abusive sales practices were considered "a problem of relatively modest significance, the equivalent of a tolerable number of minor infractions or victimless crimes", the report said.

The board also found that Tolstedt actively worked to downplay any problems in her division.

Stumpf also received his share of criticism. Under Stumpf, Wells operated in a decentralized fashion, with executives of each of the businesses running their divisions nearly like separate companies.

Stumpf - who had a long and warm professional relationship with Tolstedt and was inclined to trust her and let her manage on her own - was warned as early as 2012 about "numerous" customer and employee complaints about the company's sales tactics but ignored growing evidence that the problem was pervasive, the board said in its report.

One way the Wells Fargo board investigation measured the fake account problem is by looking at what percentage of the bank's accounts were funded with at least the minimum amount of deposits. Last week, proxy advisory firm Institutional Shareholder Services Inc. suggested Wells Fargo investors vote against 12 of the bank's 15 directors at the firm's annual meeting April 25. The company said that it rejected the ISS recommendation, calling it "extreme and unprecedented". Despite that, the Community Bank continued to increase the sales goals under her direction until 2013, the report states.

Ken Sweet is the banking and consumer financial issues writer for The Associated Press.