Wells Fargo (WFC) has been perceived by many as mostly avoiding large fines, penalties, SEC violations, and lawsuits similar to their colleague banks during the Great Recession and Financial Crisis of 2008 (WFC, however, had over $11 billion in penalties). Recently it was disclosed that for five years, employees under heavy sales pressure by the bank fraudulently opened customer savings and credit/debit card accounts, dramatically increasing the excessive cross-selling culture of the bank. According to William K. Black of Bank Whistleblowers United, bank employees were “terrorized, viciously threatened – with getting fired – and not just occasionally; four times a day they were called in on whether they had met their quotas.” Since 2011, over 5300 employees were fired. We, however, don’t know if the firings were for fraudulent activities or because the employees didn’t meet their quotas.
This resolution points out, that based upon WFC’s intense selling pressure on employees to perform, and employees who have traditionally been paid non-living hourly wages (many employee families rely on public assistance), the Consumer Financial Protection Bureau (CFPB) filed a consent order for WFC to review sales goals, training and supervision, but failed to address lower level employees’ compensation and incentives as potential inducements to perpetuate fraudulent conduct which could lead to harming customers and other stakeholders, create systemic banking risk, and expose WFC to material losses. This resolution addresses such gaps in CFPB action and calls on the bank to address its serious social injury and harm to stakeholders, especially employees and customers.
WFC challenged the resolution on the grounds that the proposal duplicates another shareholder proposal previously submitted that the company intends to include in the 2017 Proxy Materials.
The SEC sided with Wells Fargo and agreed to allow the corporation to omit our resolution from the proxy material.
A similar proposal submitted by the Sisters of St. Francis of Philadelphia, however, will appear on the shareholder ballot.
Recently, The Wall Street Journal took notice of the current battle. Emily Glazer and Joann S. Lublin report (“Wells Fargo Locks Horns With Some Shareholders Over Proxy Proposals“):
In the wake of its sales-practices scandal, Wells Fargo & Co. shareholders are proposing resolutions for this spring’s annual meeting to demand more information about risk management, directors’ suitability for the board and employees’ bonus payments.
The bank is responding by having directors and executives meet with shareholders. But in some instances, it is pushing back. read more…
Shareholder Resolution 2017
“Report on Risks of Incentive-Based Compensation
of Low Level Employees”
A clear lesson from the financial crisis is that actions of low level employees as well as top executives of large banks can affect the stability of the economy and confidence in the banking system. Section 956 of the Dodd-Frank Act directed federal regulators to set rules examining bank employees’ “incentive-based compensation arrangements … [that] could lead to material financial loss.” The focus is on employees “that individually have the ability to expose the institution to possible losses that are substantial in relation to the institution’s size, capital, or overall risk tolerance.” (emphasis added)
As such, the law largely neglected to focus on incentives to low level employees who may not individually expose the institution to material losses, but can do so in the aggregate. Low level employees are driven to excess risk taking when poor compensation combines with aggressive sales goals and incentives. Their actions have accumulated into an institutional disaster: the epidemic of cross-selling fraud at Wells Fargo.
In a study conducted December 2013 regarding changes to the banking sector since 2008, 35 percent of surveyed workers reported increased sales pressure.
• An employee of HSBC stated that workers failing to meet sales goals had the difference taken out of paychecks.
• Twenty-nine percent of surveyed workers reported issues with layoffs or turnover.
• Eighteen percent mentioned jobs shifted from full-time to part-time, or job freezes.
Another study found approximately 31 percent of families of bank tellers rely on public assistance.
In the LA Times, Rita Murillo, a former Wells Fargo branch manager, said “We were constantly told we would end up working for McDonald’s…If we did not make the sales quotas… we had to stay for what felt like after-school detention, or report to a call session on Saturdays.”
The Consumer Financial Protection Bureau (CFPB) consent order with Wells Fargo requires review of sales goals and employee training and supervision. Yet it largely fails to address low level employees’ compensation and incentives as potential inducements for fraud.
RESOLVED Shareholders request that the Board prepare a public report to investors, at reasonable cost, that analyzes, to the extent permitted under applicable law and the Company’s contractual obligations:
• whether compensation and incentives policies relating to low level employees may create pressures exposing the Company to an aggregate of material losses, and
• categories of incentives or activities posing greatest risk.
The Board may integrate to the report, as appropriate, any information developed as a result of arrangements or consent orders with the CFPB.
Support for this proposal indicates your interest as a shareholder in preventing banking activities that harm consumers and create systemic risk, undermine confidence in the banking system and expose the bank to material losses. These concerns transcend the ordinary business of our Company and necessitate investor oversight.