Wells Fargo Board Gets Black Eye in Shareholder Vote

Wells Fargo & Co shareholders showed displeasure with the scandal-hit bank's board on Tuesday, offering scant support for a dozen directors, including Chairman Stephen Sanger, in a vote capping a contentious annual meeting.

Only three directors received more than 90 percent support from voting shareholders, a benchmark cited by Sanger as what would be the outcome of a normal vote. He 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."

The meeting, which ran nearly three hours, was repeatedly interrupted by angry shareholders seeking answers about how and why thousands of bank employees were able to open 2.1 million fake accounts in customers' names without their permission.

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.

Others were escorted out after ignoring pleas to simmer down from Sanger and Chief Executive Tim Sloan.

The directors who received weak support had faced negative recommendations from influential proxy adviser Institutional Shareholder Services (ISS), which argued they failed in their oversight duties.

Two directors, Federico Peña and Enrique Hernandez, received even less support than Sanger, at 54 percent and 53 percent, respectively. They chair board committees related to risk, finance or corporate responsibility. All but three directors received support of 80 percent or less.

The other three received 99 percent approval, and 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.

At most S&P 500 companies, director support averages around 95 percent of votes cast, according to pay consulting firm Semler Brossy.

Six Wells Fargo directors will reach a mandatory retirement age of 72 in the coming years and are expected to leave when they do, Sanger said. He will hit that mark next year, but would not say when he planned to retire.

The bank's guidelines require that directors offer to resign if they fail to receive a majority of votes cast. But in practice, directors who receive less than 80 percent support should consider exiting the board, said Charles Elson, a University of Delaware expert on corporate governance.

"It's a really strong signal from shareholders, and I think they need to immediately consider refreshing that board," he said of Wells Fargo.

Wells Fargo's board and management had 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.

Sloan and Sanger reiterated those comments and apologized repeatedly to shareholders, customers and employees 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 frequently interrupted, but struggled at times as speakers ignored his requests 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.

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.

It was not clear how or whether the board will refashion itself in response to the vote.

Although shareholders sent a clear signal of dissatisfaction, some said it would not be wise to wipe out a nearly full slate of directors at once.

"We do want a core of directors left able to reconstitute the board," said Anne Simpson, investment director of sustainability at Calpers, which opposed nine directors. "Simply declaring 'off with their heads' is not reasonable."

(Reporting by Ross Kerber in Boston and Dan Freed; Editing by Lauren Tara LaCapra and Meredith Mazzilli)