With annual meeting season just a few months away, many investors and industry observers are wondering whether banks will feel pressured to follow Wells Fargo's example and separate the chairman and CEO roles.
John Stumpf, Wells' former chairman and CEO, resigned a few weeks after the fake-accounts scandal broke last September. His successor, Tim Sloan, who had previously served as president and chief operating officer, was relegated to a narrower role when the bank amended its bylaws in late November to require that the chairman of the board and CEO roles be filled by separate individuals.
Already the activist investor Gerald Armstrong, who has long advocated splitting up the CEO and chairman, said he is aware of a regional bank that plans to split up the roles once its CEO retires in a couple of years.
"I think some of the rest of the dominoes are going to begin falling now," Armstrong said.
Such an action would be noteworthy because it is so uncommon. Wells has joined Citigroup as the only banks among the nation's 10 largest by assets that segregate the positions. The CEOs of the other eight institutions, including JPMorgan Chase and Bank of America, all hold the dual title of chairman.
"Shareholders at all the banks are going to press for changes," Richard Clayton, the research director of CtW Investment Group, told Bloomberg last month. The situation at Wells "is going to be one element in their thinking." Clayton's firm represents investment funds managing more than $200 billion.
But some corporate governance experts say that the Wells situation is unique and will not put pressure on other banks to split the roles.
Robert McCormick, chief policy officer at the proxy advisory firm Glass Lewis, points out that, on average, shareholder support for such proposals has actually trended downward over the past few years, from about 35% of total votes to only about 29%. "Generally, the pressure to separate the roles is much, much stronger when the company is in trouble," McCormick said. "Absent any problems at the company, it's a much tougher sell."
Wells had problems in abundance. In September, the megabank was required to pay $185 million in fines—of which $100 million represented the largest penalty ever issued by the Consumer Financial Protection Bureau—when it was discovered that some 5,300 salespeople had set up hundreds of thousands of unauthorized customer accounts. The scandal could ultimately hit the bank's bottom line; since it broke, Wells has reported a steep decline in the number of accounts opened.
Jaret Seiberg, a policy analyst at Cowen Washington Research Group, is even more skeptical than McCormick about the Wells fiasco influencing other banks' governance. He describes the bank's reaction to the crisis as a politically astute move that not only forestalled a showdown with shareholders later this year but also helped to defuse the attacks of critics in Congress.
While Wells may remain in the hot seat for much of 2017, said Seiberg, the results of the presidential election may allow other banks to breathe a sigh of relief.
"I think you have an administration coming into office that is going to be a lot friendlier to most of the banking industry than what we've seen for most of the least eight years," he said. "It likely won't be creating an environment where most banks feel compelled to separate the chairman and CEO position."
Seiberg pointed out that even a major scandal isn't enough to upset the established order.
"If that didn't trigger change at JPMorgan," he said, "then I think it's difficult to expect that problems at Wells Fargo would spark changes at JPMorgan or any other publicly traded bank."
Experts say that stripping an active CEO of the chairman title results in a loss of face, and may even look to shareholders like a vote of no confidence in that executive. That makes such a step unpalatable even to many board members and shareholders who otherwise believe that splitting up the roles is sound corporate governance. Appointing a new CEO, as Wells did, provides a better opportunity to change the status quo.
Board members' evident reluctance to act, even in the face of scandal, is the reason why Armstrong, a longtime Wells shareholder, says he would like to see fundamental change in the bank's boardroom.
Stephen Sanger, a former chairman of General Mills, became the bank's new chairman after Stumpf resigned. Elizabeth Duke, a fellow Wells board member and a former member of the Federal Reserve Board of Governors, was named vice chairman.
Although Armstrong describes himself as "very pleased" with the choice of Duke as Wells' vice chairman, and Duke herself as "one of the most qualified directors they have," he notes that only one former board member, other than Stumpf, has resigned since the scandal.
"The lap dogs have to go," Armstrong said. "We need growling Dobermans."
Meanwhile, Armstrong will continue to push for change at other banks at which he is a shareholder. So far, he has put the independent chairman requirement on the agendas for the 2017 annual meetings of UMB Financial in Kansas City, Mo., Westamerica Bancorp in San Rafael, Calif., U.S. Bancorp in Minneapolis, CoBiz Financial in Denver, KeyCorp in Cleveland and Zions Bancorp. in Salt Lake City.