Lack of new blood casts
doubt over Wells Fargo's change plan
Send a link to a friend
[October 17, 2016]
By Dan Freed
NEW
YORK (Reuters) - Wells Fargo & Co's decision not to introduce new names
onto its board or into the ranks of its senior management in the wake of
a sales scandal has raised questions about whether it can truly fix the
culture which caused its problems.
The United States' third-largest bank by assets has been plunged into
crisis by revelations that its branch staff created as many as 2 million
accounts without customers' knowledge in order to meet internal sales
targets.
John Stumpf, the bank's chairman and chief executive, left last week in
response to a public outcry and the bank put Tim Sloan, a 29-year Wells
Fargo veteran and Stumpf's heir apparent, into the CEO role.
Once viewed as an unambiguous asset, Sloan's long tenure at the bank is
now prompting questions about whether he has the necessary critical
distance to overhaul an aggressive sales culture that allowed the
misconduct to fester for years.
"There's something wrong with Wells on a cultural basis and you'd think
they'd need to bring in an outsider to fix it," said Paul Miller, an
analyst with FBR Capital Markets.
Wells Fargo declined comment.
The San Francisco-based bank has long had a reputation as a place where
a tight-knit group of senior managers worked together to deliver
industry-leading returns.
But the recent episode has made the closeness of top executives look
like a handicap.
During Sloan's first earnings call last week, Miller asked him whether
the bank would bring an outsider into its executive leadership ranks.
"It's a fair question and one we've been getting asked," the new CEO
replied. However, Sloan said that following recent changes, the board
"is comfortable with and very supportive of the management team."
CHANGE IS HARD
While the bank needed to make a change quickly and Sloan is a proven
commodity, Columbia Business School professor William Klepper said the
board should have named Sloan CEO on an interim basis so it could
conduct a thorough search including outside candidates.
"It's very difficult for anyone within that organization to make a
change," Klepper said. "The last thing they might sense is the water
they're swimming in."
Klepper pointed to Lou Gerstner, a longtime American Express Co
executive who came in as Chairman and CEO of International Business
Machines Corp in 1993 to lead a successful turnaround of the lumbering
computer giant, as the prime example in U.S. business of the value of
bringing in fresh blood.
Most major U.S. and European banks have seen shake-ups of top management
and their boards of directors following the financial crisis of 2008.
Wells Fargo, which avoided the sort of crises suffered by rivals during
the financial meltdown, has seen very little change at the top, and that
seems set to continue.
[to top of second column] |
A Wells Fargo branch is seen in the Chicago suburb of Evanston,
Illinois, U.S. on February 10, 2015. REUTERS/Jim Young/File Photo
The bank did separate the roles of chairman and chief executive
following Stumpf's departure, with Stephen Sanger, the board’s lead
director, chosen as chairman.
But the bank did not announce any new faces to its board, which has some
of the longest-tenured members among major U.S. banks.
BOARD VETERANS
Three of Wells Fargo's directors have been in place since the 1990s. The
trio helps put the average duration of service for a Wells Fargo
director at 9.7 years, compared to 8.5 years for companies in the S&P
500 Index, according to a report by executive search firm Spencer
Stuart.
There have also been questions about the wisdom of appointing Mary Mack,
a former wealth management executive, to lead the retail division at the
center of the scandal.
The consumer bank had previously been led by Carrie Tolstedt, a 27-year
Wells Fargo veteran. She left the bank last month.
Mack joined Wells Fargo when it acquired Wachovia at the end of 2008.
Wells Fargo declined to make Mack available for an interview.
"Can you just give us a sense why, because we're looking for a culture
shift or culture enhancement change in the business model and that's a
big ask, so I'm just wondering what you saw in her," Morgan Stanley
analyst Betsy Graseck asked Sloan last week on the earnings call.
Sloan responded: "I saw an executive with decades of experience in the
financial services industry and decades of experience at Wachovia and
Wells Fargo, who has been through a variety of challenges in her career,
and who is an incredibly effective leader."
(Additional reporting by Olivia Oran; Editing by Carmel Crimmins and
Bill Rigby)
[© 2016 Thomson Reuters. All rights
reserved.] Copyright 2016 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed. |