| April 10
April 10 An out-of-control sales culture, a
defensive boss obsessed with stamping out negative views about
her division and a group chief executive who called her the "the
best banker in America" were to blame for Wells Fargo & Co's
devastating sales scandal, an internal investigation
The probe into how the San Francisco-based bank could have
allowed abusive sales practices to fester for years at its
branch network laid most of the blame on the former head of the
retail division, Carrie Tolstedt, and some of her management
team, in a report released to media on Monday.
In the report, which was carried out by the bank's chairman
Stephan Sanger and three other independent directors, Tolstedt
is blamed for ignoring the systemic nature of the problem which
was pinned instead on individual wrongdoers and she was accused
of obstructing the board's efforts to get to the bottom of what
was going on.
John Stumpf, the chief executive who retired under pressure
from the scandal in October, was criticized for failing to grasp
the gravity of the sales practice abuses and their impact on the
In the 110-page report, Stumpf was described as someone who
was 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 over 2 million unauthorized accounts when the
bank reached a $185 million settlement with regulators in
September last year.
On the advice of her lawyers, Tolstedt declined to be
interviewed for the investigation.
Wells Fargo said that she had been fired for cause and it
would be forfeiting her outstanding stock options with an
approximate value of $47.3 million.
Wells Fargo said it had decided to claw back approximately
$28 million of Stumpf’s bonus, which was paid in March 2016.
In total, the bank has fired five senior retail bank
executives, including Tolstedt, over the scandal and has imposed
forfeitures, clawbacks and compensation adjustments on senior
leaders totaling more than $180 million, including $69 million
from Stumpf and $67 million from Tolstedt.
Since the scandal broke, the bank has seen a steady decline
in the number of consumers opening checking and credit card
accounts and it has lost its status as America's most valuable
bank by market value.
Sanger, a board member since 2003, is under pressure to
assure investors and regulators that he is rooting out the
bank's problems after a welter of criticism that the board
didn't do enough despite knowing about the problem since 2014.
According to the report, multiple board members felt misled
by a presentation by Tolstedt and others to the board's risk
committee in May 2015. The board members said they left thinking
that between 200 and 300 employees had been fired for sales
practice abuses and the problem was largely concentrated in
Last week, influential proxy adviser Institutional
Shareholder Services recommended investors vote to replace the
majority of directors at Wells Fargo, including Sanger and the
other three independent directors, at its April 25 annual
The Justice Department, meanwhile, is investigating whether
executives hid details from the company board and regulators as
the problem grew over the years, people familiar with the matter
have told Reuters. U.S. Attorney offices in San Francisco and
Charlotte, North Carolina, are also investigating.
The report criticized the board for not centralising the
risk functions at the bank earlier, for not requesting more
detailed reports from management and for not insisting Stumpf
get rid of Tolstedt sooner.
Tim Sloan, who replaced Stumpf as chief executive, is
described in the report as having little contact with sales
practices at the bank before becoming chief operating officer
and Tolstedt's boss in November 2015. Six months later he told
her to step aside.
Since the scandal broke, the bank has ended sales targets,
changed pay incentives for branch staff, separated the role of
chairman and chief executive and hired new directors to its
A NOTEWORTHY RISK
A big part of Wells Fargo's problem was its decentralised
business model, which meant the retail bank was able to keep
inquiries from head office at arm's length and there was no
joined-up effort by either the bank's human resources or legal
divisions to track and analyse the scale of the problem.
As far back as 2002, Wells Fargo's retail bank was taking
steps to deal with sales practice violations and in 2004, a
report by the bank's Internal Investigations division
recommended eliminating sales goals for employees.
That report was sent to, among others, the chief auditor, a
senior in-house employment lawyer, retail bank HR personnel and
the head of sales & service development in the retail bank. No
action was taken.
Externally, Wells was lauded by investors for its ability to
cross-sell individual customers multiple products and for its
squeaky-clean reputation relative to peers in the wake of the
Internally, the sales pressure was oppressive, particularly
in California and Arizona, where senior bankers sometimes called
subordinates several times a day to check in and chastise those
who failed to meet sales objectives.
A sales push, dubbed "Jump into January", saw bankers
encouraged to make lists of friends and family who were
potential sales targets. Staff turnover usually increased that
Sales practices were identified as a “noteworthy risk” to
the board and its risk committee, of which Sanger was a member,
after a series of stories in the Los Angeles Times detailed some
of the sales practices.
But Tolstedt was left to deal with the issue and she was
“notoriously resistant to outside intervention and oversight”
the report said.
Tolstedt was also perceived as having the support of Stumpf,
who, in turn, was seen not seen as someone to raise problems
"Stumpf was ultimately responsible for enterprise risk
management at Wells Fargo, but was not perceived within Wells
Fargo as someone who wanted to hear bad news or deal with
(Reporting by Carmel Crimmins; Editing by Muralikumar