By Dan Freed and Ross Kerber
| PONTE VEDRA BEACH, Fla./BOSTON
PONTE VEDRA BEACH, Fla./BOSTON Wells Fargo & Co (WFC.N) shareholders showed displeasure with the scandal-hit bank's board on Tuesday, offering scant support for several directors, including Chairman Stephen Sanger, in a vote capping a contentious annual meeting.Only three directors received more than 80 percent support from voting shareholders, a benchmark corporate governance experts cite as a vote of confidence. Sanger received just 56 percent approval."Wells Fargo stockholders today have sent the entire Board a clear message of dissatisfaction," Sanger said in a statement. "Let me assure you that the Board has heard that message, and we recognize there is still a great deal of work to do to rebuild the trust of stockholders, customers and employees."Two directors, Federico Peña and Enrique Hernandez, received even less support than Sanger, at 54 percent and 53 percent, respectively. The two directors chair board committees related to risk, finance or corporate responsibility.The meeting, which ran nearly three hours, was repeatedly interrupted by angry shareholders seeking answers about the bank's sales practices scandal. There was a brief recess after one shareholder made what Sanger called a "physical approach" toward a board member and was removed."You're saying we're out of order. Wells Fargo has been out of order for years!" said Bruce Marks, chief executive of Neighborhood Assistance Corporation of America, before being ejected.Other shareholders were escorted out, as they demanded answers related to the bank having created as many as 2.1 million accounts in customers' names without their permission.The dozen directors who received weak support had faced negative recommendations from influential proxy adviser Institutional Shareholder Services (ISS), which argued the group failed in their oversight duties.
The three directors who received 99 percent approval from voting shareholders were recent additions: Sloan, who was named CEO in October after the scandal erupted, as well as Ronald Sargent and Karen Peetz, who were newly elected to the board this year.Wells Fargo's guidelines require that directors offer to resign if they fail to receive a majority of votes cast. But in practice, directors who win with less than 80 percent support should consider exiting the board, said Charles Elson, a University of Delaware expert on corporate governance."If they're below 80 (percent) I'd say they have a lot of soul-searching to do," he said.Wells Fargo's board and management said the steps taken to fix problems and punish employees responsible for abuses show there is now strong oversight, and that directors nominated deserved to be elected. But the public firestorm that hammered its shares last year and led to the resignation of then-Chairman and Chief Executive John Stumpf was not forgotten.They apologized to angry shareholders, customers and employees repeatedly at the meeting on Tuesday.
"We are deeply sorry for letting you, our shareholders, down and letting down our customers, our team members and the communities that we do business in," said Sloan. "You expect and deserve much more from us."Sanger tried to show patience as he was repeatedly interrupted, though he struggled at times as speakers ignored his pleas to follow the usual order of proceedings. "When I say I'm sorry ... I think that speaks for all of the board," he said at one point.Management also faced questions and demands from activist investors on topics ranging from Wells Fargo's funding of a controversial oil pipeline to whether it should break itself up.After investors had time to speak, Sloan and Sanger opened the floor to a general audience Q&A. Two borrowers gave emotional recountings of their ordeal with Wells Fargo's mortgage operation, both breaking into tears. Management apologized and promised to personally look into their issues.
The bank's top investor, Warren Buffett's Berkshire Hathaway Inc (BRKa.N) had cast votes in favor of the board nominees, but some other major investors were less supportive.California's two largest public pension funds, for instance, opposed nine directors."We do want a core of directors left able to reconstitute the board," said Anne Simpson, Calpers' investment director of sustainability. "Simply declaring 'off with their heads' is not reasonable."At most S&P 500 companies, director support averages around 95 percent of votes cast, according to pay consulting firm Semler Brossy. Typically a recommendation from ISS that investors vote "against" a director will reduce support they receive by an average of 17 to 18 percentage points.Before the vote tally, analysts and corporate governance experts said they expect few immediate changes even if shareholders rejected the board.It would be impractical to get rid of a nearly full slate of directors, said Vining Sparks analyst Marty Mosby. But low vote totals concentrated on certain directors would likely force them to step down soon, he added."The only thing they haven't really changed substantially is the board," he said. "That last step would have completed the whole process and made this vote much easier on them." (Reporting by Ross Kerber in Boston and Dan Freed; Editing by Lauren Tara LaCapra and Meredith Mazzilli)
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Updated Date: Apr 25, 2017 23:48 PM