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How much blame should go to Wells Fargo directors?

By Laurie Bennett

July 30, 2017 at 6:58am

Wells Fargo (WFC), already reeling from revelations that it fraudulently opened accounts in customers’ names, has been hit with a new scandal.

The New York Times reports that the bank charged more than 800,000 people who took out car loans for insurance they didn’t need.

CEO John Stumpf resigned under criticism for his handling of the accounts scam. More than 5,300 others - most of them low-level employees - lost their jobs.

How much responsibility should directors bear for a corporate culture fosters such practices?

The Wells Fargo board has boasted influential people with extensive experience, finance and government. Those with the highest profiles include:

Elaine Chao
Chao is the Trump administration’s secretary of transportation and wife of Senate Majority Leader Mitch McConnell. She served as a Wells Fargo director from 2011 until January 2017, when she was confirmed to the cabinet post. Her compensation last year, in cash and stock, totaled $312,000.

Federico Pena
Pena was secretary of energy and of transportation during Bill Clinton’s administration. He previously served as mayor of Denver. He was a fundraiser for Barack Obama in both of his presidential campaigns. Pena’s compensation last year was $385,675.

John Chen
On the board since 2006, Chen is chairman & CEO of Blackberry and former head of Sybase. He’s a former member of the President’s Export Council.

Enrique Hernandez Jr.
Hernandez, chairman and CEO of Inter-Con Security Systems, has served on the Wells Fargo board since 2003. He’s also a director of Chevron and McDonald’s and a trustee of Notre Dame.

Stephen W. Sanger
Sanger has been a Wells Fargo director since 2003 and chairman of the board since October 2016.
He’s a retired chairman and CEO of General Mills and also a director of Pfizer Inc.

Two directors were named to the board this year, after the account fraud and unneeded insurance activities. These were Karen Peetz, retired president of the Bank of New York Mellon Corporation, and Ronald Sargent, retired chairman and CEO of Staples.

With the backing of Warren Buffett, whose company, owns 10 percent of the bank, incumbent board members were elected at the annual meeting in April. The board argued that it had taken firm action after the revelations about the fraudulent accounts, clawing back $28 million of pay from Stumpf. Members also said that company executives had not provided them with full details about the abuses.

Rarely, in instances of company shenanigans, are corporate boards given the heave-ho. The bank’s annual meeting, as the New York Times noted, was raucous, but all 15 directors were re-elected.

The vote, said board Chairman Stephen W. Sanger, “sent the entire board a clear message of dissatisfaction.”

Now there’s the new insurance scandal, covering the time span of January 2012 through July 2016. To be fair, the report about the practice, which led to thousands of delinquencies and vehicle repossessions, was ordered internally, for the benefit of bank executives. Wells Fargo said it would compensate customers who were hurt.

News of the latest problems depressed company stock, which dropped 2.6 percent on Friday.

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