Elizabeth Warren hates big banks. But none more so than Wells Fargo (NYSE:WFC).
Her displeasure with the California-based bank is understandable given that Wells Fargo spent the last decade and a half opening fake accounts for customers in order to artificially inflate its performance and thereby maximize its executives' annual bonuses.
The latest example of Warren's ire was on display Monday, when she sent a letter to Federal Reserve Chairwoman Janet Yellen calling for the removal of 12 members of Wells Fargo's board of directors -- for the record, that'd leave only three.
"The fake accounts scandal cost Wells Fargo customers millions of dollars in unauthorized fees and damaged many of their credit scores," the senator wrote, according to CNBC, which first reported on the letter. "The scandal also revealed severe problems with the bank's risk management practices -- problems that justify the Federal Reserve's removal of all responsible Board members."
Wells Fargo's executives deserve the blame and vitriol that have been heaped on them since the Consumer Financial Protection Bureau disclosed the scam last year. While they make millions of dollars a year, the customers they preyed on were among the most vulnerable citizens in the country -- retirees living on fixed incomes and recent immigrants. To make matters worse, the company then retaliated against employees who sought to blow the whistle on the scam.
Under the watch of Wells Fargo's executives and the board's oversight, the 160-year-old bank's once-sterling reputation has been deeply sullied.
Given this, it's hard to disagree with Warren's assessment of Wells Fargo. The board was ultimately responsible for policing these types of risks and behaviors. The fact that they didn't, and that the scam was in many ways an indispensable element of Wells Fargo's business model, is prima facie evidence that they bear culpability for it.
At the same time, one might find it worth acknowledging that Wells Fargo's directors were deceived in a sense, too. Prior to the fallout, the board's principal liaison with the bank's operating committee was John Stumpf, who at the time, though no longer, was both its chairman and CEO.
As the company wrote in its 2015 proxy statement:
Mr. Stumpf, with over 33 years of experience at Wells Fargo, has the knowledge, expertise, and experience to understand and clearly articulate to the Board the opportunities and risks facing the Company, as well as the leadership and management skills to promote and execute the Company's vision, values and strategy. The Board believes that Mr. Stumpf, rather than an outside director, is in the best position, as Chairman and CEO, to lead Board discussions regarding the Company's business and strategy and to help the Board respond quickly and effectively to the many business, market, and regulatory reform issues affecting the Company and the rapidly changing financial services industry.
This description is laughable in hindsight, but Stumpf and his predecessor Dick Kovacevich had purposefully cultivated such a pristine image by then that few people would have questioned them.
There's also value to keeping some of these directors around. They made an enormous and egregious mistake, but one can hope that they learned a lesson in their failure to perform their oversight duties. And that lesson, if it indeed has been learned, could very well make Wells Fargo a stronger organization.
That may or may not be a fair assessment, but assuming that it is, there's value to their continued presence on the board. It's like the story of Thomas Watson, the founder of IBM, who learned of an employee's mistake that cost the company $1 million. Watson not only refused to fire the employee, but he even rejected the employee's letter of resignation.
"Fire you?" Watson responded. "I've just invested one million dollars in your education."