Over the past year, Wells Fargo (NYSE:WFC) has done its best to contain the fallout from recent scandals that have cast the once-revered bank in a disturbingly menacing light. Its moves up until now, however, have been inadequate, as the damage to its reputation continues to pile up.
But it seems as though the leadership at Wells Fargo may be starting to appreciate the magnitude of the damage done to its brand. Rumors began circulating this week that the bank will soon replace the newly appointed chairman of its board of directors, a guy by the name of Stephen Sanger, who led General Mills, a packaged-food producer and distributor, from 1995 until 2008.
A changing of the guards?
Sanger became chairman last year after its former chairman and CEO, John Stumpf, retired under pressure following revelations by the Consumer Financial Protection Bureau that the bank had opened as many as 2 million accounts for customers without the customers' approval and often knowledge to do so.
However, not unlike other things Wells Fargo has done of late, there's more to Sanger's potential retirement than meets the eye. Namely, Sanger has to relinquish the chairmanship next year anyhow, because that's when he'll reach the bank's mandatory retirement age for members of the board. It's an empty gesture, in other words. In law, it's akin to a contract without consideration.
To be fair, Sanger will allegedly step down before actually reaching the mandatory retirement age. But if Wells Fargo thinks cutting its chairman's tenure short by a few months will assuage regulators and show sufficient repentance for the bank's growing pattern of malfeasance, one would be excused for questioning its leaders' strategy and judgment.
A brand built on trust
Ever since Wells Fargo came into being during the California Gold Rush in the 1850s, its name has been associated with trust. Gold miners trusted it to transport and store their gold. Later, after transitioning away from stagecoaches and into banking, millions of people trusted it to act as an honest and secure steward of their savings.
The California-based bank more than earned this trust over a century and a half by giving its customers a safe port through the many financial storms that have struck along the way. This dates all the way back to the Panic of 1855, just a few years after the bank was founded. The panic was set off by a drought that made it impossible to placer mine for gold. And it ended in the failure of every other major stagecoach line, but Wells Fargo.
More recently, its prudent approach to risk management enabled it to not only survive the financial crisis of 2008, but also to thrive through it, ultimately more than doubling its size by purchasing the ailing Wachovia.
Water under the bridge
Sadly, all of this is now water under the bridge. Wells Fargo's reputation for being a trustworthy steward of its customers' money began to suffer after the CFPB's revelation last year. And it has gotten worse since then, as other units of the bank have been caught doing similar things.
The latest revelations come from the bank itself. They involve illicit sales of collateral protection insurance, or CPI. In short, if you get a car loan from Wells Fargo, you have to maintain insurance on the car. If you don't, Wells Fargo will purchase insurance on your behalf and charge you for it. This is done, understandably, to protect the car's collateral value.
But the problem was that Wells Fargo charged 490,000 customers for CPI even though they carried adequate insurance. And "for approximately 20,000 customers, the additional costs of the CPI could have contributed to a default that resulted in the repossession of their vehicle," according to the bank.
To make matters worse, the bank didn't discontinue the program until last September -- the same month its fake-account scandal came to light. It seems fair to presume that Wells Fargo may not have discontinued the illicit practice had the bank not been caught with its hand in another cookie jar.
Through this whole time, moreover, when millions of fake accounts were being created for customers and hundreds of thousands of other customers were being charged for services that they shouldn't have been, Sanger sat on Wells Fargo's board of directors. In fact, he was its lead independent director.
Making genuine amends
At some point, the bank needs to make genuine amends. And cutting a few months off its chairman's otherwise expiring tenure doesn't seem to get the job done -- particularly when Sanger observed all of this from the boardroom equivalence of the on-deck circle.
The need for a more genuine gesture is not just for Wells Fargo's customers; it's also for the bank's employees and shareholders. They deserve to be led and represented by ethical leaders who are committed in both words and deeds to ethical behavior. After all, as the men and women who ran Wells Fargo years ago proved through more than a century and a half, its single most important competitive advantage has always been its stakeholders' trust.