"(T)o say that the individual is culturally constituted has become a truism. . . . We assume, almost without question, that a self belongs to a specific cultural world much as it speaks a native language." James Clifford
Showing posts with label Wells Fargo. Show all posts
Showing posts with label Wells Fargo. Show all posts

Thursday, April 27, 2017

Stockholders Retain Wells Fargo’s Board: A Low Bar for Corporate Governance

Corporate governance is supposed to hold management accountable. Slack in the mechanism enables not only a lack of managerial competence or ethics, but also an ineffectual board. Unfortunately, whether by proxies or connections—or just sheer power—a board’s chair and other directors can remain in place in spite of having failed to hold a management accountable. Put another way, it is not necessarily enough that an incompetent or unethical management (and other employees) is removed; replacing the derelict board may be more crucial and yet even more difficult.

 On April 25, 2017, the stockholders of Wells Fargo voted to retain the board that had oversight-responsibility while the management created millions of fake accounts. Even though 5,300 employees and the CEO, John Stumpf, lost their jobs due to the systemic fraud, 56% of the stockholder vote went in favor of retaining Stephen Sanger, the board’s chairman. Even though press referred to that as “a stinging rebuke for his failure as lead director,” the fact that he won re-election would hardly be felt by him as a rebuke.[1] That the perception would be otherwise signals just how low the bar had dropped on corporate governance. That the entire board survived intact is more important than that five of its directors failed to clear “the 70 percent threshold that typically denotes a serious protest vote.”[2] Clearly a “protest vote” is not worth much if the entire membership of such a negligent board is retained.

On account of the collusion that can occur between a management and the board tasked with overseeing that management, combined with the existing low bar in corporate governance generally, the system can ill-afford the proxy mechanism; the system is too tilted in favor of even sordid managements and board directors. Additionally, corporate social responsibility could be widened to include stockholder voting. At the Wells Fargo vote, Warren Buffett’s Berkshire Hathaway voted its 10 percent stake in favor of retaining the entire board. Even if retaining it was in Buffett’s company’s best financial interest going forward, there would be value societally and even in terms of fortifying corporate governance, which I submit would be good for business, were investors such as Warren Buffett willing to vote in favor of cleaning a sordid or ineffectual slate even if its members promise to do better. In other words, stockholders would strengthen corporate governance itself, as well as the particular companies even financially—and thus the stockholders themselves!—were they to vote to hold derelict boards accountable for bad oversight even if said boards convince stockholders of better financials ahead. Resisting such a narrow impetus can be said to be within the realm of corporate social responsibility because it is in the public interest and in line with societal norms that corporate boards actively hold their respective managements accountable even for past behavior or performance. Giving boards a pass is just as bad as a board giving its management a pass. If a narrow pursuit of financial gain comes at the expense of fortifying governance systems, then such gain is likely to be short-lived anyway because defective systems enable bad management with ineffective oversight. Fiduciary duty suffers. So, ironically, it is a matter of social responsibility that managements are held accountable, as are their respective boards themselves. Hence public policy toward reducing the power of board-management collusion is in the public interest, and corporate social responsibility should be expanded to include stockholder activism with an eye toward reforming corporate governance itself.   



[1] Antony Currie, “Wells Fargo Should Listen to Investors and Step Down,” The New York Times, April 26, 2017.
[2] Ibid.

Saturday, March 18, 2017

A Religious Stockholder-Test for Wells Fargo: Confronting Mediocre Accountability

Orienting executive compensation to accountability is easier said than done. For example, it might be supposed that the cause of accountability was aptly served by John Stumpf’s forfeit of $41 million in unvested stock when he resigned under pressure as Wells Fargo’s CEO because of the bank’s systemic overzealousness in signing customers up for unwanted services. Unfortunately, he “realized pretax earnings of more than $83 million by exercising vested stock options, amassed over his 34 years at the bank, and receiving payouts on certain stock awards.”[1] In other words, the man who presided over unethical business practices at the expense of customers received double that which he was forfeiting. How can accountability have any meaning against $83 million? This figure connotes reward rather than punishment. Tim Sloan, who succeeded Stumpf as the bank’s CEO, received compensation in 2016 of $13, up from the $11 million in 2015. Interestingly, it may have been religion to the rescue.

The full essay is in Cases of Unethical Business, available in print and as an ebook at Amazon.com.  


Wednesday, November 9, 2016

Societal Norms Understating Unethical Corporate Cultures: The Case of Wells Fargo

The case of Wells Fargo suggests that even when a massive scandal is revealed to the general public, the moral depravity of a company’s culture is skirted rather than fully perceived. Wells Fargo was fined a total of $185 million by regulatory agencies including the Consumer Financial Protection Bureau, which had accused the bank of creating as many as 1.5 million deposit accounts and 565,000 credit-card accounts that for which consumers never asked. The bank fired 5,300 employees over the course of about five years after it was revealed those employees had opened the accounts and credit cards. Wells Fargo's CEO at the time, John Stumpf, "opted" for a cushy early retirement after an abysmal performance before a U.S. Senate committee; he walked away from the bank with around $130 million, and none of the other members of senior management were fired, or "retired," obliterating any hope societally that any of the senior managers would be held accountable. This result is particularly troubling, given the true extent to which that management had turned the bank into an ethically compromised organization.

The full essay is in Cases of Unethical Business, available in print and as an ebook at Amazon.com.  


Tuesday, March 20, 2012

Fraudulent Foreclosures

Looking at foreclosures from 2008 to 2010 of federally-backed mortgages serviced by five major banks, federal investigators at the Department of Housing and Urban Development (HUD) found that bank managers “ignored widespread errors in the foreclosure process, in some cases instructing employees to adopt make-believe titles and speed documents through the system despite internal objections.” Generally, the banks engaged “in a pattern of unfair and deceptive practices.”[1] This finding contradicts the self-serving statements by managers at the banks that blamed low-level employees. The investigation found that the managers had actually been the active agents. That is, the shortcuts were in many cases formulated and directed by managers. The inspector general at HUD pointed to “simple greed” to explain how so many people could have participated in the misconduct.[2] Considering that millions of Americans were tossed out of their homes as a result, I would sociopathic indifference or even callousness to the mix. Additionally, the rush to sign documents may have undercut the banks’ own positions with respect to both the foreclosure process and the homeowners—adding incompetence to the mix.

                  Four million foreclosures in the US during the 2007-2011 period.      Spencer Platt/Getty


The full essay is in Cases of Unethical Business, available in print and as an ebook at Amazon.com.  


1. Nelson Schwartz and J.B. Silver-Greenberg, “Bank Officials Cited in Churn of Foreclosures,” The New York Times, March 13, 2012.
2. Ibid.