What can you do when you have a bad board? It’s a serious question. One major purpose of a board of directors is to provide effective oversight. That might mean ensuring that corporate leadership makes good choices, and it always means ensuring the corporation is in compliance with the law.
When a board fails to provide effective oversight of corporate activities, it can affect profitability or result in regulatory action. In some cases, it can lead to criminal penalties against the company. Yet it often seems that the penalties regulators and prosecutors are able to impose aren’t enough to change corporate behavior.
When that happens, it may be time for a change in leadership. Voting shareholders — or more likely, their proxies — have a chance to vote some or all of the board out. Proxies are individuals or groups who seek out owners of voting stock and ask for the chance to vote their stock for a specific purpose. This is often referred to as a “proxy fight.”
That appears to be happening just now at Wells Fargo & Co. in the wake of revelations last year that bank management pressured employees to meet quotas so high that it encouraged fraud. Indeed, some two million fraudulent accounts were opened on behalf of existing customers without their knowledge or permission, often resulting in costly fees against innocent customers. In September, the banking giant settled with regulators for $185 million.
Proxy advisor Institutional Shareholder Services has issued recommendations that all shareholders, either directly or by proxy, vote to replace at least 12 of 15 Wells Fargo directors, including chairman Stephen Sanger. According to an ISS spokesperson, Wells Fargo’s board committees have for years failed “to provide a timely and sufficient risk oversight process.”
However, ISS recommended supporting CEO Timothy Sloan, who took over leadership in October.
Wells Fargo responded by calling the recommendations “extreme and unprecedented,” although it’s fair to say Wells Fargo’s wrongdoing was equally so.
“The Board has already taken numerous actions and supported management’s steps to promote accountability, strengthen oversight, and hold to account those responsible for improper sales practices,” the bank said in a statement.
Wells Fargo’s annual board meeting when the vote will take place is on April 25.