Donna Mae A.

Singson BSA 2
REACTION PAPER
The following case study looks at corporate governance challenges at Wells
Fargo & Company. The bank was embroiled in issues as a result of its cross-selling
practices and the considerable pressure that management put on personnel to ensure
the bank's success. Investigations by the media, followed by governmental
organizations, uncovered the creation of false accounts without the consumers'
knowledge, sometimes forging their signatures. Following a scathing US Senate
Banking Committee hearing, the bank's CEO was forced to resign. Wells Fargo was
fined USD185 million by multiple regulatory bodies. The board of directors to imposed
repayment measures on the CEO and head of Community Bank. The latter was held
accountable for the ambitious sales culture that resulted in concerns with sales ethics.
Apart from seven board committees, Wells Fargo appeared to have a perfect board, a
lead director, and as much praised CEO. One of the "big four" was external auditors.
This scenario is meant to spark class debate about why corporate governance practices
fail despite an apparently healthy governing structure.
Wells Fargo, based in San Francisco, was the world's largest bank by market
capitalization in 2015. The subprime crisis had not affected the bank much; Wells Fargo
avoided risky lending. It was featured as one of Fortune's most admired companies.
Cross-selling was adopted as a strategy by Norwest Corp CEO Richard Kovacevich in
1998. For him, it was a means of deepening engagement with customers. He believed
that by having multiple accounts with customers in different financial services such as
checking accounts, credit cards and insurance, the bank can cement ties with them.
The risk oversight was done primarily through the CRO, who reported to the Risk
Committee of the board. In addition, the internal auditors, headed by the Chief Audit
Officer, reported to A&E Committee. The Risk Committee also functioned as the
coordinating committee to the other standing committees on the risks faced. Wells
Fargo had an almost perfect board. Most directors were independent: experts in their
own fields. The seven board committees and the lead director were meant to ensure full
and fair oversight. Despite all these, corporate governance could not help in preventing
such a major scandal.
Wells Fargo had a Lead Director, Stephen Sanger, who also headed the
Governance and Nominating Committee. The lead director had authority to call
independent directors to meet and act as 'sounding boards'. Shareholders had a 'say on
pay' of the executives. Sloan took over as CEO following the resignations of Stumpf and
Tolstedt. The Chairman's and CEO's offices have been split. Betsy Duke, the new Chair
of the Board of Directors, assumed office in January 2018. Some of the longest-serving
directors have stepped down. The bylaws will be amended to guarantee that the
chairperson is an independent director. A process for director self-review has been
implemented, with the assistance of a third party. Three more independent directors are
likely to be recruited prior to the 2018 AGM. Wells Fargo has also developed a
stakeholder advisory group, which will provide periodic feedback from various
stakeholders' perspectives.

Ramachandran Veetikazhi & Gopinath Krishnan. Wells Fargo: Fall from Great to
Miserable: A Case Study on Corporate Governance Failures (2019). South Asian
Journal of Business and Management Cases Vol 8. Retrieved from.