Wells Fargo Directors Face Uncertain Prospects

By Emily Glazer, David Benoit and Joann S. Lublin Features Dow Jones Newswires

The battle over Wells Fargo & Co.'s board is going down to the last possible moment, with uncertainty hanging over the re-election prospects of several directors at Tuesday's annual shareholder meeting, according to people familiar with the matter.

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Some large institutional shareholders have yet to weigh in and are expected to place their votes Monday, just ahead of the conclave. But, as of Sunday, votes already placed had left several directors at risk of losing re-election, the people familiar with the matter said.

Nonexecutive Chairman Stephen Sanger isn't among those directors, but Enrique Hernandez, head of the bank's board risk committee, is vulnerable, one of the people said.

While it is unclear whether any directors will be voted out, the bank needs decisive victories -- especially because directors are running unopposed. If directors get less than 80% of the vote for re-election, it would send a clear message to the San Francisco bank that shareholders are seeking bigger changes after its sales-practices scandal, said Charles Elson, director of the University of Delaware's John L. Weinberg Center for Corporate Governance.

And shareholders, in meetings with the bank in recent weeks, already have been sending the message that more needs to be done to address systemic problems at the bank, according to people familiar with the meetings.

Employees over a five-year period opened as many as 2.1 million accounts using fictitious or unauthorized customer information, leading to a $185 million settlement with regulators last fall. A $142 million settlement over customer class-action lawsuits is also pending.

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On top of that, the bank has said it is cooperating with state and federal investigations into the sales-practices scandal.

In an interview last Wednesday, Chief Executive Timothy Sloan said he doesn't think the bank needs to make any changes to its board risk committee, which comprises chairs from its other board committees. He also said a recent report from the bank's board about the scandal showed that Mr. Hernandez had raised questions with management about aggressive sales tactics.

The independent board report largely placed blame on two executives who are no longer with the bank. While the bank named two new directors to the board earlier this year, there have been no other major changes to the way it operates.

Some institutional investors briefed in recent days by Wells Fargo executives and directors said the bank tried to reassure them that the board's makeup will change in coming years because of mandatory retirements. Some investors said they were told that six members hit the maximum age of 72 and will leave over the next four years.

While bank officials also made no promises to rotate committee memberships or chairmen, an official from an institutional shareholder said "there needs to be a thoughtful but accelerated response to constitute a new board."

Meanwhile, influential proxy-advisory firm Institutional Shareholder Services Inc. has recommended that shareholders vote against Mr. Sanger and 11 of his colleagues on Wells Fargo's 15-member board. It is unusual for the firm to recommend against so many directors and the move drew the ire of Wells Fargo management, including Mr. Sloan.

The second-largest proxy-advisory firm, Glass Lewis & Co., recommended investors vote for Mr. Sanger, but against six directors.

The average support level for 4,934 S&P 500 director elections in 2016 was 97.4%, with just two failing to get majority support, according to ISS Analytics, the data arm of the influential proxy adviser.

The bank already has at least 10% of the vote for director re-election from top shareholder Berkshire Hathaway Inc., run by Warren Buffett.

But just days ahead of what is shaping up to be a contentious shareholder meeting, a number of public pension funds collectively holding about 0.75% of the bank's shares outstanding came out against the majority of directors on Wells Fargo's board. These included the Office of the New York City Comptroller, California State Teachers' Retirement System and the California Public Employees' Retirement System.

Smaller shareholders want change, too. Jonas Kron, from Boston-based Trillium Asset Management LLC, said his firm is voting against re-electing 12 of Wells Fargo's 15 board directors. "In order for the company to move forward, it's really going to take more than just a change in CEO," said Mr. Kron, Trillium's director of shareholder advocacy.

Trillium's clients hold about 14,000 shares, or nearly $750,000, of Wells Fargo stock.

(END) Dow Jones Newswires

April 23, 2017 18:11 ET (22:11 GMT)