NEW YORK — Wells Fargo’s board said Monday that it would claw back an additional $75 million in compensation from the two executives on whom it pinned most of the blame for the company’s sales scandal: the bank’s former chief executive, John G. Stumpf, and its former head of community banking, Carrie L. Tolstedt.
In a scathing 113-page report that made it clear the warning signs had been glaring, the board released the results of a six-month investigation into the conditions and culture that prompted thousands of Wells Fargo employees to create fraudulent accounts in an effort to meet aggressive sales goals.
The report, compiled by the law firm Shearman & Sterling after interviewing 100 current and former employees and reviewing 35 million documents, said it was obvious where the problems lay. Structurally, the bank was too decentralized, with department heads like Tolstedt given the mantra of “run it like you own it,” and enjoying broad authority to shake off questions from superiors, inferiors, or lateral colleagues.
Many suspicious things should have added up, the report said: People were not funding — or putting money into — their new accounts at alarming rates. Regional managers were imploring their bosses to drop sales goals, saying they were unrealistic and bad for customers.
Particularly in Arizona and Los Angeles, managers explicitly told subordinates to sell people accounts even if they did not need them.
Because of the bank’s decentralized structure, the problem went unnoticed for a long time. When it finally came to light — thanks in part to a report in The Los Angeles Times — the bank was slow to take action. Tolstedt, who ran the community bank — Wells Fargo’s term for the branch network — was told to fix the problem she had created.
Her department saw itself as a “sales organization, like department or retail stores, rather than a service-oriented financial institution,” the report said. Further, Tolstedt was said to have kept hidden the true number of people who were fired for setting up false accounts. Her report to the board in October 2015 “was widely viewed by directors as having minimized and understated problems at the community bank,” the report said.
The board came away believing that only 230 employees had been terminated for acting unethically. The company had actually fired 5,300 over a five-year period — something the board learned only in September, after Wells Fargo said it would pay $185 million in penalties and fines to settle lawsuits brought by federal regulators and the Los Angeles city attorney over its creation of as many as 2 million sham accounts in the names of real people.
Stumpf — who had a long and warm professional relationship with Tolstedt — was warned as early as 2012 about numerous customer and employee complaints about sales tactics, but ignored growing evidence the problem was pervasive, the board said in its report.
Much of the pressure-cooker climate stemmed from Tolstedt, according to the report, who led Wells Fargo’s community bank for eight years before retiring last year. The report casts her as a powerful and insular leader who focused obsessively on sales targets and turned a blind eye to signs managers and employees were cheating to meet them.
“She 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,” according to the report, which was commissioned by a committee of Wells Fargo independent directors.
Timothy J. Sloan, who succeeded Stumpf as chief executive, was largely exonerated, despite the fact he was also a career Wells Fargo executive. As president and chief operating officer, he became Tolstedt’s immediate supervisor in November 2015. At that point, the report said, he “assessed her performance over several months before deciding that she should not continue to lead the community bank.”
Stumpf, who retired in October, exercised all of his remaining options and converted them to stock, which he retained, in the months before Wells Fargo announced its regulatory settlement. He held 2.5 million shares as of late February, currently valued at $137 million.
Asked about the timing of Stumpf’s options exercise, Stephen Sanger, the board’s chairman and leader of its investigation, cast it as a routine move. The $28 million the board is retracting from Stumpf — the proceeds of a 2013 equity grant — will be deducted from his retirement plan payouts, Sanger said.
The board’s report, which praised changes the bank has made since the sales scandal erupted, is unlikely to quell the bank’s critics. Better Markets, a nonprofit that lobbies for stricter regulation of Wall Street, called the report a compendium of “too-little, too-late cosmetic actions” and urged shareholders to oust all of Wells Fargo’s board members at the company’s annual meeting this month.
Two influential shareholder advisory firms have also called for significant changes to the board.