Case Analysis Of Wells Fargo

MGMT 512 – CORPORATE GOVERNANCE – EXAM I

Bora Düngel – MMBA (53304)

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WELLS FARGO - CORPORATE GOVERNANCE ISSUE

Wells Fargo & Company is an American international banking and financial services holding

company engaging in the provision of banking, investments, mortgage, consumer & commercial

finance and insurance. It operates through the Wholesale Banking, Community Banking and

Investment & Wealth Management. According to Forbes-The World’s Biggest Public Companies

(2017 Ranking), Wells Fargo is 4th company among major banks and 5th company in all industries

worldwide.1 The company operates across 35 countries and has over 70 million customers globally.

On 8th September 2016, Wells Fargo was fined $185 million

As mentioned before, the scandal had been going on at least for five years.

Two million customers’ accounts had been affected. More than 5,300 employees had been fired

over several years. Nevertheless, no senior executives had been terminated.

Wells Fargo executives were notable mainly in their inertia although there existed years of evidence

that a policy coming from the top level was driving abusive/illegal practices & irregularities at the

Bank. In 2013, when the Los Angeles Times reported that fake accounts were opened by the

employees to fulfill unrealistic sales objectives; and in 2016 (September), when the Bank admitted

that its employees has created more than 2 million phony accounts and then agreed to pay a fine

of $185 million, none of the senior executives went into an action. They decided to take back some

of CEO Stumpf’s compensation only after he was reprehended in congressional hearings. Still, they

never fired him - he resigned on his own.3

Wells Fargo board acted as if it were asleep in the early fall and had been too trusting of

management. Corporate boards are failing at their job of overseeing management. If regulators

can’t address the problem, shareholders can and

In addition, numerous steps are aimed including scrapping the sales goals, hiring of Tim Sloan (COO

of Wells Fargo) as its new CEO to replace longtime boss John Stumpf and stripping top executives of

their 2016 bonuses. Most importantly, the bank replaced the unrealistic sales goals. It recently

reached a $110 million preliminary class action settlement to compensate customers impacted by

the scandal. In previous weeks, Wells Fargo took out a full-page ad in the Wall Street Journal, USA

2 Wall Street Journal - Wells Fargo CEO John Stumpf Steps Down (https://www.wsj.com/articles/wells-fargo-ceo- stumpf-to-retire-1476306019) 3 Bloomberg - Where Was Wells Fargo's Board? (https://www.bloomberg.com/view/articles/2016-10-20/where-was- wells-fargo-s-board) 4 https://www.wellsfargo.com/about/corporate/governance/

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Today, the Los Angeles Times and other media outlets in 30 markets and the ad thanked customers

for sticking by “as we have worked to make things right.”

Wells Fargo's board of directors received “regular” reports since 2005 warning that most of the

bank's internal ethics hotline complaints and firings were linked to sales violations. That's