Chairman Stephen Sanger had just wrapped up his milquetoast presentation on Wells Fargo's sales-practices woes at the company's annual meeting last April when Bruce Marks, a housing activist and shareholder, jumped up and called on all of the board members to defend themselves.
"Tell us what you knew and when you knew it. Were you complicit or incompetent?" Marks demanded before being hauled out by security personnel. "Each one should stand up and explain why they should be reappointed to the board."
The directors, sitting in the front row with their backs to the crowd of assembled shareholders, shifted uncomfortably in their seats but remained silent.
When the election results were tallied a few hours later, four of the 15 directors, including Sanger, had received fewer than 60% of the votes cast, while another eight garnered less than 80% — an almost unprecedented rebuke for the board of a large company.
"What we clearly heard from shareholders was, 'We're sending a message,'" Sanger said after the annual meeting. "We don't view it as being about any individual director. We view it as being dissatisfied with the whole board."
Wells officials did not respond to interview requests, but it's difficult to see how the high-powered business leaders who sit on the company's board could not take personally being chastised in a public forum and rebuked by shareholders.
"That's the reality for board members today," said Susan O'Donnell, a partner with Meridian Compensation Partners in Newton, Mass. "When you have a scandal today, the question always rolls up: Where was the board?
"If you're a director, it stings," she added.
Most people who serve on bank boards will tell you that it's a rewarding experience — a way to give back to the community and learn about an important industry.
But anecdotal evidence also suggests that the work demands and perceived risks are making it tougher to find directors with the skills and diversity needed to lead companies in a competitive world.
Those concerns have even captured the attention of federal regulators, who in response to director feedback are working to clarify board regulatory expectations.
There was a time not that long ago when serving on a bank board was a ticket to respect, if not riches. Directors were local business leaders who plied their connections to land business for the bank, rubber-stamped the CEO's plans and boasted enviable cocktail-party credentials.
The post has always come with greater expectations and demands than serving on the board of a nonbank company. Prospective bank directors have long been expected to undergo FBI background checks, share personal financial data and get fingerprinted, for example, which is intimidating to many.
But it also carried prestige, country-club memberships and other perks, such as access to credit and preferential loan rates. And it really wasn't all that arduous. A few directors were even known to catch some shuteye during meetings.
"Fifteen or 20 years ago, things were pretty predictable," said David Porteous, who has been on the board of the $100 billion-asset Huntington Bancshares since 2003, and is the company's lead director. "If you had a challenge, you were able to build a bridge to solve it and then take a breath and assess. ...
"The outside scrutiny wasn't horrible."
Those glory days have passed, eclipsed by the industry's own missteps and the cacophony of the mob.
Over the past decade, bank directors have been pilloried in the press and vilified by some in Congress — transformed into lightning rods for the popular angst and frustration following a financial crisis and recession for which banks shouldered much of the blame.
Their workloads have increased sharply. The tasks, challenging enough on their own, are all the more so when viewed collectively: setting institutional risk appetites; establishing a cultural tone at the top; hiring, firing and paying senior management; and plotting strategies capable of turning a profit in an environment teeming with fintech disruptors and cybercrooks.
At the $28 billion-asset Iberiabank in Lafayette, La., the monthly board packet is typically 1,200 to 1,500 pages long. "I worry about directors not reading the whole packet. That's pretty much impossible," said nonexecutive Chairman William Fenstermaker. "We're trying to cull some of that down, but there are so many requirements and only so much time."
Fear of falling prey to a cyber breach is endemic among directors. So is an attack by an activist investor, a bad rating from the proxy advisers or a Bank Secrecy Act-related violation.
It's a part-time gig with full-time work, lots of pressure and few of the old perks. By one count, the average bank director logs more than 20 hours a month, and often it's more than that.
Bank board members endure greater scrutiny and risk than independent directors in other industries, and get paid less. Some smaller banks don't pay their board members at all, and others even demand investments from them.
According to the search firm Spencer Stuart, average compensation for directors of banks in the S&P 500 was lower than all industries except utilities and consumer goods. A survey commissioned by the American Association of Bank Directors found that average pay for a board member of a publicly traded bank with less than $1 billion in assets is about $25,000.
Even worse, there's the threat of personal liability. About 35% of bank failures result in directors being sued by the Federal Deposit Insurance Corp., according to David Baris, president of the bank directors' association.
While insurance often covers those costs, Baris said he knows of directors who have paid "substantially" out of their own pockets in confidential settlements.
"When the bank isn't doing well, you have directors wondering if they should get off the board to avoid liability. And when things are going well, you hear complaints about the enormous amount of information they have to digest," said Thomas Vartanian, a partner at Dechert LLP, a Washington law firm. "It's not an easy job."
As a recent headline in the op-ed section of The Wall Street Journal asked, "Why Would Anyone Sane Be a Bank Director?"
It's a fair question — one with potentially important implications for the industry, which needs sharp leadership to compete.
There are certainly personal, career and financial benefits to being a bank director. CEOs-in-training often are offered up for bank board positions to enhance their understanding of finance and build connections — a signal they've arrived.
While director pay itself often isn't great, people who serve on bank boards are more likely to get promotions and raises in their day jobs, said Steven Boivie, an associate business professor at Texas A&M University who co-wrote a recent study on board service.
"It sends an important signal to the market that other really smart people think you have potential," he said.
Many people who serve as bank directors cite the intellectual and emotional rewards of learning about an important industry in a time of change, the networking opportunities and sense of doing something good for the community.
In many communities, being director of the local bank remains a source of pride. Elsewhere, it's simply a passion-driven avocation.
"You have to love the bank," Iberiabank's Fenstermaker said. "Our directors love the bank."
Terry Lehman, a retired accountant who worked with banks for 30 years, is on the boards of two community banks, and relishes the opportunity to attend industry conferences and touch base with old friends.
"People think I'm crazy," said Lehman, whose boards include Citizens & Northern Corp., a $1.3 billion-asset public company in Wellsboro, Pa., and the $200 million-asset MidCoast Community Bank in Wilmington, Del. "But I have a huge affinity for the industry, and felt like I could be a real help for any board I joined.
"It keeps me in the game," he added.
Porteous feels such a strong bond with Huntington that he regularly hosts employee forums in various markets to gather feedback. "Those visits provide an almost magical opportunity for people in the organization to ask questions of the board," said Porteous, who had a September meeting with Huntington staff in Cincinnati.
"I enjoy them even more" than employees do, he added.
Such sentiments are common among people already on boards, but the rigors of the job, combined with the industry's image problems, can make it difficult to recruit good new directors.
Quote"I have a company to run, and you're asking me to run another company where I have no expertise. Why would I do that?"
— Paul Simoff, recounting what one prospective director told a bank client of his
About one-quarter of board members in a recent survey by the bank directors' association reported having someone either quit the board or turn down an offer.
"The job just isn't as attractive as it used to be," Baris said.
"It's the fear of liability and the time commitment. If you don't have enough time, you can't do the job right," he added. "That's making it more difficult to recruit qualified people to be directors."
Paul Simoff, a senior consultant with ProBank Austin, a Louisville, Ky., compliance firm, tells of a bank client that thought it had lined up a good director candidate.
When the chairman showed the prospect the monthly board packet, he said, "Thanks but no thanks. I have a company to run, and you're asking me to run another company where I have no expertise. Why would I do that?" Simoff recalled.
The recruiting challenges come at a time when bank boards, for reasons both practical and political, are keen on making their ranks more tech-savvy and diverse.
Risk, cyber and technology specialists who can help plot strategy in a rapidly changing world are in high demand. So are former bankers. "Ideally, you want several people who have operational banking experience and understand the nuances of the business," Porteous said.
Boards are placing a special emphasis on adding gender, racial and age diversity to their ranks. "You want your board to be reflective of the communities you serve," said Patricia Husic, president and chief executive of the $500 million-asset Centric Financial in Harrisburg, Pa.
Attracting the right people takes diligence and creativity. Husic spent nearly two years looking for a qualified female director before recently landing Nicole Kaylor, a 38-year-old lawyer. "You have to be very specific and intentional in your search," Husic said.
Quote"We're competing with other industries to get the right people, and compensation matters."
— William Fenstermaker, Iberiabank's nonexecutive chairman on increasing fees and stock awards for the board
Boards and managements also are doing what they can to make the position more appealing. Company-supplied iPads and portals with names like BoardPacks and Director Access help keep all of the documentation in order. Executive summaries and CEO letters that direct attention to important matters help focus discussions. Many boards have added committees simply to spread the workload around.
It also doesn't hurt to sweeten the pay. Todd Leone, a Minneapolis-based partner at McLagan Aon Hewitt, a compensation consultant, said director pay has increased by 4% to 6% in each of the past two years. "It's tied to the workloads," he said.
In 2016, each of Iberiabank's directors received $131,000 in fees and stock awards. "We had to raise it," said Fenstermaker, who is recruiting new candidates for his board and said pay is an issue. "We're competing with other industries to get the right people, and compensation matters."
The biggest recruitment boost might come from, of all places, the Federal Reserve System. In August, after a three-year review, the agency proposed scaling back some of the daily minutiae for the bank and holding company boards it supervises.
The agency would rescind most of the 170 supervisory expectations that have been directed at boards in recent years.
Among the notable changes: Removing boards from the mailing list on time-consuming Matters Requiring Attention (MRA) notices. Addressing the notices to management and the board, a recent addition, has left directors feeling they must intercede in what was traditionally a management responsibility.
"The lines between management and board responsibility have gotten blurred," said Alejandro Johnston, a partner in the financial risk practice at the consulting firm PwC. Directors "feel like they're doing things management should be doing."
Quote"People think I'm crazy."
— Terry Lehman, a retired accountant who enjoys serving on the boards of two community banks and attending industry conferences
If the proposed guidance changes are adopted, boards would see their efforts refocused on their "effectiveness" in big-picture areas such as governance, strategy and management oversight, as opposed to more routine regulatory matters.
"We do not intend that these reforms will lower the bar for boards or lighten the loads of directors," Fed Gov. Jerome Powell cautioned at an August director conference. "The intent is to enable directors to spend less board time on routine matters and more on core board responsibilities.
"A strong and effective board provides strategic leadership and oversight, which is much more challenging and important than checking off lists of assigned tasks," Powell added.
The changes would be especially beneficial to systemically important banks with more than $50 billion in assets, where the workloads (but also the pay and resources) are greatest. But all boards would likely feel the effects.
Robert Voth, head of the commercial and consumer financial services practice at Russell Reynolds, a search firm, said reducing the board's compliance load will not only make board service more attractive, but also broaden the pool of potential candidates.
"When we look back to the high-water mark of regulation, it's going to be the Federal Reserve itself recognizing the need to eliminate all these redundancies," Voth said. "We're entering a period where bank boards can do a whole-scale refreshment of how they're constructed, ushered in by the Fed."
At Wells, the board's composition is already changing. In August, shortly after Sen. Elizabeth Warren, D-Mass., called on the Federal Reserve to replace the company's board members (yes, it can do that), Sanger and two other directors announced they would resign from the board at the end of this year.
In Sanger's place, former Fed Vice Chairman Elizabeth Duke, who joined the board in 2015, will become the first woman to serve as nonexecutive chairman of a major banking company.