Sunday, April 23, 2017

"Wells Fargo fiasco raises question of what corporate boards are for" ect...

"Wells Fargo shareholders will decide at its annual meeting Tuesday whether some or all of the company’s 15 board members should lose their jobs for failing to stop the fraudulent-account scandal before it blew up in September.

...Wells disclosed in a settlement with regulators on Sept. 8 that it had fired about 5,300 employees since 2011 for opening more than 2 million deposit and credit card accounts that customers probably didn’t want or know about.

If the board is not held responsible, then you have to ask: What exactly is it that boards are expected to do?

Wells Fargo’s 12 independent directors earned $326,002 to $485,630 last year...

...On Friday, April 21, 2017, Wells Fargo agreed  to expand a recently settled class-action lawsuit by an additional $32 million as well as extend claims for fraudulent accounts that may have been opened going back to 2002.

...All 15 board members are up for election at the meeting...

...Berkshire Hathaway, Wells Fargo’s largest shareholder with a 10 percent stake, said last week it has voted all of its shares in favor of the bank’s board.

But Institutional Shareholder Services, an influential company that advises large investors on how to vote in corporate elections, has recommended voting against 12 directors for “failure to provide sufficient timely risk oversight.”...

San Francisco’s Glass Lewis, another such adviser, recommends voting against John Baker II, Lloyd Dean, Enrique Hernandez Jr. and Cynthia Milligan, who have served on the board’s corporate responsibility committee since at least 2011. This committee’s job is to oversee reputational, political, environmental and consumer lending risks, as well as customer service and complaints. This, essentially, is where the fire broke out.

...Last week, California Treasurer John Chiang issued a press release urging shareholders to vote against all five directors on the corporate responsibility committee (including its newest member, Federico Peña) and two of the board’s longest-serving directors, Sanger and Swenson, who have 13 and 18 years, respectively.

He also urged his “fellow board members of the California Public Employees’ Retirement System and the California State Teachers’ Retirement System — which collectively hold $2.3 billion in Wells Fargo equities — to vote to demand these resignations.”

CalPERS and the teachers system said Friday they are voting against the company’s nine longest-tenured directors for oversight failures.

Sanger declined a request for an interview, and an email to the company’s independent board members went unanswered.

On Sept. 25, the board formed a committee to investigate, with the help of an independent law firm, allegations of wrongdoing that surfaced in the Sept. 8 settlement. On April 10, the board released the results in a 110-page report.

The report primarily blamed former management for misleading directors about the true number of branch employees who, to meet sales quotas, had been fired for opening deposit and credit accounts without customers’ knowledge or permission. It also blamed the bank’s “decentralized organizational structure,” which impeded oversight and influence over the retail network.

The investigation found “mass terminations” of employees for sales practice violations dating back to “at least 2002.” But the report says management did not identify sales practices as a “high risk” activity to the board until February 2014.

That followed a December 2013 story in the Los Angeles Times exposing the sales pressure that led to fraudulent account openings...

Management assured the board that those practices were being dealt with, the report says. But in May 2015, the Los Angeles city attorney filed a lawsuit alleging widespread improper sales practices at Wells Fargo branches in Los Angeles.

At its meeting that month, the board was led to believe that only 230 people had been fired for sales practices in 2013 and 2014, when in fact the number was 2,522, the report said. It wasn’t until the settlement was announced Sept. 8 that the board “learned for the first time” that 5,300 people had been fired since 2011.

...An early review of whistle-blower complaints found no “pattern of retaliation” against branch employees who complained about sales practices, the report said.

The board’s actions “could have been improved in three respects,” it added. It could have started to centralize its risk function earlier than it did in 2013. Starting in February 2014, it should have insisted on “more detailed and concrete” plans to deal with sales abuses. And it should have “been more forceful” in pushing Stumpf to oust Tolstedt.

Some corporate governance experts think the board should have taken more responsibility.

“They didn’t have the visibility you would expect from such a big organization with so many movable parts,” said Greg Waters, a research director with Glass Lewis.

Elson said he agrees with the Institutional Shareholder Services recommendation. “Given what occurred, it is time to refresh the board.”

Under California law, directors are supposed to act in the best interests of the corporation and its shareholders. They can rely on opinions, reports and financial statements provided by officers or employees they deem reliable and competent, on independent accountants and lawyers and on board committees on which they do not serve...

A shareholder lawsuit filed by Burlingame attorney Joe Cotchett claims that Wells Fargo directors breached their duty..."

http://www.sfchronicle.com/business/networth/article/Wells-Fargo-fiasco-raises-question-of-what-11090731.php
.
.
Wells Fargo’s Regulator Admits It Missed Red Flags

"For years, as Wells Fargo secretly set up millions of fake bank and credit card accounts without customers’ consent, the bank’s federal regulator was learning of hundreds of whistle­blower complaints against the company for its sales tactics.

But that regulator, the Office of the Comptroller of the Currency, did not act.

In a damning, 15­page report published on Wednesday, the Office of the Comptroller of the Currency admitted that its oversight of Wells Fargo was “untimely and ineffective.” The report said the agency failed to spot clues that would have allowed it to connect the dots in one of the most brazen banking scandals of the recent past.

Since 2005, Wells Fargo’s board had received regular notifications indicating that “the highest level” of ethics line complaints and employee firings were related to sales integrity violations, according to the report. It also said that even though the regulating agency started receiving those reports around early 2010, there was no evidence that it adequately followed up on those concerns.

And even after the regulator confronted a Wells Fargo executive in 2010 about 700 cases of whistle-blower complaints, the regulator did not require the bank to provide p provide adequate analysis, according to the report, which was issued by the comptroller’s office of enterprise governance and its ombudsman.

The Office of the Comptroller of the Currency recently removed its top Wells Fargo examiner, Bradley Linskens, from a position in which he led 60 regulatory supervisors.

The regulating agency’s review follows a similarly harsh report from a panel of Wells Fargo’s board members, published last week, that identified red flags that should have indicated that something was awry years ago. An increasing number of customers seemed to be opening accounts without ever making a deposit, for instance. And as early as 2004, a manager with Wells Fargo’s internal investigations group noticed the so­called sales gaming cases, in which bankers tinkered inappropriately with customer accounts, had risen to about 680 in 2004, from 63 in 2000.

Mr. Sloan added that last week’s report was “incredibly difficult to read” because of “the very direct criticism of a company that I care a lot about.” Some of the facts unearthed in the report “were new to me,” he said.

Ms. Tolstedt, who was initially allowed to retire but was later fired, refused to be interviewed by the board’s investigators and disputed the report’s conclusions. Mr. Sloan said he thought the report offered a “fair description of her management style”...

The federal regulator’s report said that in 2010, the agency asked Ms. Tolstedt about the whistle­blower cases, but she played down the issue, attributing the high volume of cases to a culture that “encourages valid complaints, which are then investigated and appropriately addressed.”

.
.
"Why Wells Fargo is expanding a class-action settlement over its sales scandal

Wells Fargo said it is expanding a class-action settlement over the bank’s fake accounts, opening the deal up to customers affected by the scandal as far back as May 2002 following findings from its recent board investigation.

...The settlement’s class will now include all customers who claim Wells opened an account in their name, enrolled them in a product or service or submitted an application for a product or service without their consent from May 1, 2002, through April 20, 2017, the bank said.

...In its report last week on the scandal, the board pointed to Wells sales culture and a decentralized corporate structure that gave too much authority to leaders in the community banking unit where the improper behavior took place.

Friday’s decision also comes just days before Wells Fargo will face shareholders at the bank’s first annual meeting of investors since the scandal erupted in September.

.
.
Even the Watchdog Overseeing Wells Fargo Blew It

Wells Fargo & Co and its U.S. bank regulator discussed complaints of high-pressure sales tactics as early as 2010 but officials took no action for years, according to the regulator's review of the scandal.

Bank examiners "failed to follow-up on significant complaint management and sales practices issues," according to an internal review from the Office of the Comptroller of the Currency which oversees many national banks.

...A lawyer for Tolstedt has said the former executive was being used as a scapegoat for broader problems at the bank...

The OCC review recommended nine changes to internal processes to better detect and address such scandals. Whistleblowers will have a more direct line to senior officials under one change, the document said.

Earlier this year, the OCC fired its most senior Wells Fargo examiner..."

.
.
"Feds knew of 700 Wells Fargo whistleblower cases in 2010

America's chief federal banking regulator admits it failed to act on numerous "red flags" at Wells Fargo that could have stopped the fake account scandal years earlier.

One particularly alarming red flag that went unheeded: In January 2010, the regulator was aware of "700 cases of whistleblower complaints" about Wells Fargo's sales tactics.

An internal review published on Wednesday by the Office of the Comptroller of the Currency found that the regulator didn't live up to its responsibilities. The report found that oversight of Wells Fargo was "untimely and ineffective"...

The review painted a damning picture of the OCC's ability to spot what in retrospect should have been obvious problems at one of the nation's biggest banks.

The OCC did confront Carrie Tolstedt, then head of Wells Fargo's community bank, about the stunning number of whistleblower claims. However, there are no records that show that federal inspectors "investigated the root cause," or force Wells Fargo to probe it.

...From top management to Wells Fargo's board of directors, everyone turned a blind eye to these issues. There's evidence now that some of this was flagged as early as 2004 to management.

And the OCC report says that Wells Fargo's board of directors received "regular" reports going back to 2005 indicating that most ethics line complaints and firings were related to sales violations.

That appears to be earlier than the Wells Fargo board has indicated it was aware of a problem. A 110-page investigation launched by Wells Fargo's board said the bank's management did not flag sales practices as "noteworthy risks" to the board prior to 2014.

The OCC examiners in charge of Wells Fargo received those same reports "since at least early 2010," the review found.

Ultimately, it took until September 2016 for several federal authorities, including the OCC, to finally sanction Wells Fargo...

"We made a number of mistakes, there's no question about it," Wells Fargo CEO Tim Sloan told CNN's Poppy Harlow this week. "We had an incentive compensation plan that drove inappropriate behavior."

...The OCC review may help explain how the Wells Fargo scandal was able to go on as long as it was. The massive investigation by Wells Fargo's board of directors found evidence of "mass terminations" related to improper sales tactics that went back to "at least 2002."

Regulators were apparently aware of hundreds of instances where employees spoke up about problems as well.

But the OCC "failed to document resolution of whistleblower cases," the OCC review found, adding that these early warnings were not properly researched, analyzed or resolved."

.
.
"Bank regulator faults itself for missing Wells Fargo issues

The nation’s big-bank regulator is faulting itself for failing to address the problems at Wells Fargo before it was too late.

Bank examiners saw sales problems at Wells Fargo as early as 2010 and met with executives but declined to investigate further... 

...That may partly explain why Wells Fargo’s behavior went on for years and was ignored by authorities, until The Los Angeles Times uncovered sales practices problems at the bank in Southern California...

...Despite knowing about these complaints and other issues, the OCC declined to investigate further into why these whistleblower complaints existed in the first place.

...The OCC’s examiners took no action against Wells Fargo through at least 2014, according to the report, which would have been months after the Times published its investigation in late 2013.

...The assessment by the bank’s own board said the problems date back at least 15 years — but that executives had little interest in dealing with the issue until it spiraled out of control...

Post a Comment