The bank’s board is blaming former CEO John Stumpf for being blind to an out-of-control sales culture<\/b>
Wells Fargo ( WFC ) is clawing back more than $75 million of pay from its former chief executive, John Stumpf, and the retail bank leader blamed for creating an out-of-control sales culture.
A \u201cbroken\u201d sales model and a defensive boss obsessed with stamping out negative views about her division are among the root causes of Wells Fargo & Co\u2019s devastating sales scandal, an internal investigation found. Carrie Tolstedt, the retail bank leader, had been fired for cause and it would be forfeiting her outstanding stock options with an approximate value of $47.3 million, the company said. Wells Fargo said it had decided to claw back approximately $28 million of Stumpf\u2019s bonus, which was paid in March 2016.
Stumpf, who had been named \u201cbanker of the year\u201d before the problems came to light, last year became a lightning rod over banking ethics when an investigation found employees had covertly opened more than 2 million accounts that may not have been authorized by customers. The probe into how the San Francisco-based bank could have allowed abusive sales practices to fester for years at its branch network laid most of the blame on Tolstedt and some of her management team, in a report released to media on Monday.
\u201cTolstedt fostered an insular culture at the top of the Community Bank and had an \u2018inner circle\u2019 of staff that supported her, reinforced her views and protected her,\u201d the 110-page report said. \u201cShe resisted and rejected the near-unanimous view of senior regional bank leaders that the sales goals were unreasonable and led to negative outcomes and improper behavior.\u201d
In the report, which was carried out by the bank\u2019s chairman Stephan Sanger and three other independent directors, Tolstedt is blamed for ignoring the systemic nature of the problem which was pinned instead on individual wrongdoers and she was accused of obstructing the board\u2019s efforts to get to the bottom of what was going on.
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Stumpf, who retired under pressure from the scandal in October, was criticized for failing to grasp the gravity of the sales practice abuses and their impact on the bank.
\u201cStumpf\u2019s commitment to the sales culture also led him to minimize problems with it, even when plausibly brought to his attention,\u201d the report stated. \u201cStumpf was by nature an optimistic executive who refused to believe that the sales model was seriously impaired.\u201d
Stumpf was described as someone who was blinded by Wells Fargo\u2019s cross-selling success. He was also full of admiration for Tolstedt, with whom he had a long working relationship. According to one director, Stumpf praised Tolstedt as the \u201cbest banker in America.\u201d
The report said Tolstedt hid the scale of the misconduct from the board, which only discovered that 5,300 staff had been fired for opening over 2 million unauthorized accounts when the bank reached a $185 million settlement with regulators in September last year.
On the advice of her lawyers, Tolstedt declined to be interviewed for the investigation.
In total, the bank has fired five senior retail bank executives, including Tolstedt, over the scandal and has imposed forfeitures, clawbacks and compensation adjustments on senior leaders totaling more than $180 million, including $69 million from Stumpf and $67 million from Tolstedt.
Wells Fargo CEO John Stumpf took another beating from Congress Thursday over phony accounts employees created to meet sales quotas. But he insist…
Among its regional bank-wide sales campaigns, Wells Fargo & Co\u2019s \u201cJump into January\u201d program was notorious for the impact it had on staff.
Initially designed to motivate branch employees to exceed sales goals, the pressure to beat higher daily sales targets instead encouraged them to forge customer signatures, hold off on opening accounts signed for in December and target friends and family to make up the numbers, according to the report.
The campaign \u201cbecame a breeding ground for bad behavior that helped cement the sales culture\u2019s negative characteristics,\u201d witnesses told the report\u2019s authors.
One former branch worker told CBS MoneyWatch last year that the sales goals created a stressful work environment, and that workers were pushed to sell accounts to their family, friends and acquaintances. \u201cWells Fargo doubled our goals and decreased our performance pay,\u201d the worker said. \u201cEvery year the goals went up more and more. Everyone was on anti-anxiety medication.\u201d
Since the scandal broke, the bank has seen a steady decline in the number of consumers opening checking and credit card accounts and it has lost its status as America\u2019s most valuable bank by market value.
Sanger, a board member since 2003, is under pressure to assure investors and regulators that he is rooting out the bank\u2019s problems after a welter of criticism that the board didn\u2019t do enough despite knowing about the problem since 2014.
According to the report, multiple board members felt misled by a presentation by Tolstedt and others to the board\u2019s risk committee in May 2015. The board members said they left thinking that between 200 and 300 employees had been fired for sales practice abuses and the problem was largely concentrated in southern California.
It was another tough week for top executives at Wells Fargo. The bank’s CEO was grilled again on Capitol Hill over allegations that Wells Fargo o…
Last week, influential proxy adviser Institutional Shareholder Services recommended investors vote to replace the majority of directors at Wells Fargo, including Sanger and the other three independent directors, at its April 25 annual meeting.
The Justice Department, meanwhile, is investigating whether executives hid details from the company board and regulators as the problem grew over the years, people familiar with the matter have told Reuters. U. S. Attorney offices in San Francisco and Charlotte, North Carolina, are also investigating.
The report criticized the board for not centralizing the risk functions at the bank earlier, for not requesting more detailed reports from management and for not insisting Stumpf get rid of Tolstedt sooner.
Tim Sloan, who replaced Stumpf as chief executive, is described in the report as having little contact with sales practices at the bank before becoming chief operating officer and Tolstedt\u2019s boss in November 2015. Six months later he told her to step aside.
Since the scandal broke, the bank has ended sales targets, changed pay incentives for branch staff, separated the role of chairman and chief executive and hired new directors to its board.
A big part of Wells Fargo\u2019s problem was its decentralized business model, which meant the retail bank was able to keep inquiries from head office at arm\u2019s length and there was no joined-up effort by either the bank\u2019s human resources or legal divisions to track and analyze the scale of the problem.
Wells Fargo CEO John Stumpf will forfeit $41 million in stock rewards. CBSN’s Vladimir Duthiers and Kristine Johnson have the latest.
As far back as 2002, Wells Fargo\u2019s retail bank was taking steps to deal with sales practice violations and in 2004, a report by the bank\u2019s Internal Investigations division recommended eliminating sales goals for employees.
That report was sent to, among others, the chief auditor, a senior in-house employment lawyer, retail bank HR personnel and the head of sales & service development in the retail bank. No action was taken.
Externally, Wells was lauded by investors for its ability to cross-sell individual customers multiple products and for its squeaky-clean reputation relative to peers in the wake of the financial crisis.
Internally, the sales pressure was oppressive, particularly in California and Arizona, where senior bankers sometimes called subordinates several times a day to check in and chastise those who failed to meet sales objectives.
A sales push, dubbed \u201cJump into January,\u201d saw bankers encouraged to make lists of friends and family who were potential sales targets. Staff turnover usually increased that month.
Sales practices were identified as a \u201cnoteworthy risk\u201d to the board and its risk committee, of which Sanger was a member, after a series of stories in the Los Angeles Times detailed some of the sales practices.
But Tolstedt was left to deal with the issue and she was \u201cnotoriously resistant to outside intervention and oversight\u201d the report said.
Tolstedt was also perceived as having the support of Stumpf, who, in turn, was seen not seen as someone to raise problems with.
\u201cStumpf was ultimately responsible for enterprise risk management at Wells Fargo, but was not perceived within Wells Fargo as someone who wanted to hear bad news or deal with conflict.\u201d
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