Wells Fargo Claws Back $41M of CEO During Inquiry Period
Amid sharp criticism of its actions during the alleged sham accounts scandal – specifically the inaction to it – the board for Wells Fargo is clawing back some $41 million from its embattled CEO and chairman John Strumpf. That money comes from unvested stock awards. Stumpf is also going to forego his salary while the company delves into its own retail banking practices – specifically sales – that resulted in bank employees opening hundreds of thousands of pony accounts without customer approval. Those employees were reportedly trying to reach account goals set by the bank.
In addition to taking action against Strumpf, the bank’s previous head of community banking is giving up her unvested equity stock awards, which currently are valued at $19 million. She is also immediately retiring and also will not receive certain retirement benefits, valued in the millions. Neither is going to take home any bonuses for this year.
This practice of “clawing back” executive awards has been within the power of federal regulators. However, it was rarely tried because typically, it required a criminal conviction – or at least the serious threat of one. However, it’s likely that this move by Wells Fargo is going to prompt other companies to think about doing the same. Reforms passed in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 asks for stronger clawback rules. Right now, the Securities and Exchange Commission is fielding public commentary on setting some new rules on the practice. If those new rules are finalized, the agency could force clawback action in many more cases beyond what constitutes as obvious, deliberate fraud. Negligence resulting in restated earnings could also prompt clawbacks. The Sarbanes-Oxley Act of 2002, which overhauled certain accounting practices, also expanded the legal power to take back high-level executive compensation upon finding evidence of misconduct.
One interesting thing about the action recently taken by Wells Fargo’s board is that it suddenly seems to underscore something several of its own members apparently forgot: They have power.
Those actions, while well-received, were awful slow in coming, only happening a week before the board itself is slated to go before a Congressional committee and testify under oath.
Corporate boards have a lot of responsibilities, but the most important of those we find are at the center of this crisis. Those responsibilities are:
- Assess the risks inherent in a business and deal with them before they get out-of-control;
- Don’t dispense compensation in a way that encourages bad behavior;
- Monitor a company’s culture – starting with its top executive.
Our Miami consumer rights lawyers know Wells Fargo’s board failed on each of these three critical areas. Specifically, it fired people much lower on the totem pole, analysts said, rather than targeting the entire supervisory chain and corporate culture. The bank was pressing employees to sign customers up for as many accounts as possible – no matter if the customers actually needed or wanted those accounts – and then rewarded handsomely those workers that came through. This push was so intense, some workers took to forging the signatures of customers in order to get those new accounts going and make their required quotas.
That kind of toxic corporate culture is what allowed this fraud to take root and go on as long as it did. That the board is taking action is good. That it didn’t do so years ago is shameful.
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