In the aftermath of the fake-accounts scandal that shook Wells Fargo last year, the bank’s board of directors decided to recoup some $60 million in stock awards from Carrie Tolstedt, the retiring executive who led the unit where the alleged misconduct occurred, and former CEO John Stumpf. The scandal also motivated the bank to revamp its compensation practices, which may have precipitated the scandal by creating an incentive for employees to cheat in order to meet their aggressive sales goals. On Monday, the New York Times reports, the board announced that it was clawing back an additional $75 million in compensation from Stumpf and Tolstedt on the same day it released a 110-page report on the findings of an investigation into these problematic sales practices conducted by the law firm Shearman & Sterling LLP.
The report attributes the development of improper sales practices primarily to a culture that gave senior executives too much autonomy and too little oversight, making it difficult for the company to recognize and address the problem before it snowballed into a major scandal:
The root cause of sales practice failures was the distortion of the Community Bank’s sales culture and performance management system, which, when combined with aggressive sales management, created pressure on employees to sell unwanted or unneeded products to customers and, in some cases, to open unauthorized accounts. Wells Fargo’s decentralized corporate structure gave too much autonomy to the Community Bank’s senior leadership, who were unwilling to change the sales model or even recognize it as the root cause of the problem. Community Bank leadership resisted and impeded outside scrutiny or oversight and, when forced to report, minimized the scale and nature of the problem.
The former Chief Executive Officer, relying on Wells Fargo’s decades of success with cross-sell and positive customer and employee survey results, was too slow to investigate or critically challenge sales practices in the Community Bank. He also failed to appreciate the seriousness of the problem and the substantial reputational risk to Wells Fargo. Corporate control functions were constrained by the decentralized organizational structure and a culture of substantial deference to the business units. In addition, a transactional approach to problem-solving obscured their view of the broader context. As a result, they missed opportunities to analyze, size and escalate sales practice issues.