NEW YORK--An investigation by Wells Fargo & Co's board laid blame for the company's unauthorized accounts scandal on a high-pressure sales culture and a retail executive obsessed with stamping out negative views about her division.
The report, carried out by board Chairman Stephen Sanger and three other independent directors and released to media on Monday, said former retail division head Carrie Tolstedt ignored the systemic nature of abusive sales practices and accused her of impeding the board's efforts to address an issue that festered for years.
Lawyers for Tolstedt rejected the report's findings on Monday. She had declined to be interviewed for the investigation.
"We strongly disagree with the report and its attempt to lay blame with Ms. Tolstedt. A full and fair examination of the facts will produce a different conclusion," Enu Mainigi, Williams & Connolly LLP, attorneys for Tolstedt, said in a statement.
Sanger, a board member since 2003, faces pressure to root out the problems amid calls by advisory group Institutional Shareholder Services for investors to oust him and other directors in place when the scandal broke. Glass Lewis meanwhile has recommended votes against six board members at the bank's April 25 annual meeting.
In an interview with Reuters, Sanger said the bank was not scapegoating anyone. "I’m not surprised that some of the people involved see it differently but we stand by the findings of this investigation,” he said.
Sanger said the report showed the board had taken the appropriate action with the information it was given and had revamped compensation, leadership and its own structure to make sure such abuses did not reappear. “I’m very disappointed in the ISS and Glass Lewis recommendations, they do not take into account sufficiently the actions that the board has taken since the issue broke," he said. “We will trust investors to make their own decisions about how they will vote.”
With the U.S. Department of Justice looking into the sales practices, experts said Wells Fargo's board was under pressure to ensure the buck stopped with someone else. “There’s a tremendous amount of pressure from regulators to throw someone under the bus,” said Duke Law School professor James Cox, who specializes in corporate and securities law. “If they don’t, then Wells Fargo is going to be even more in the crosshairs.”
The Department of Justice declined to comment on its probe.
Wells Fargo said Tolstedt had been fired for cause and it would cancel approximately $47 million worth of stock options held by her. The bank said it would also claw back approximately $28 million from former chief executive John Stumpf, who failed to heed warnings about the scale of the problem
Stumpf, who retired under pressure from the scandal in October, was criticized for failing to grasp the gravity of the sales abuses and their impact on the bank. In the 110-page report, Stumpf was described as blinded by Wells Fargo's cross-selling success. He refused to believe the model was seriously impaired and was full of admiration for Tolstedt, with whom he had a long working relationship. According to one director, Stumpf praised Tolstedt as the "best banker in America."
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 more than 2 million unauthorized accounts when the bank reached a $185 million settlement with regulators in September. A lawyer for Stumpf declined to comment on the report.
