Wells Fargo & Co.'s move to permanently separate the chairman and CEO roles came only after the filing of a new shareholder proposal seeking the change by a group of asset owners.
Clearly, Wells Fargo wasn't about to act without shareholder pressure.
The asset owners deserve praise for their effort, and other institutional investors should learn a lesson that corporations often need shareholders to push for improved corporate governance.
Separate settlements in September totaling $190 million over allegations of retail banking sales practice abuses with the U.S. Consumer Financial Protection Bureau, the city attorney of Los Angeles and the Office of the Comptroller of the Currency were not enough to cause Wells Fargo to change its leadership structure.
Nor was the company's announcement in October that John G. Stumpf was stepping down immediately as chairman and CEO. At the same time, the board named Stephen W. Sanger, who was lead director, as chairman and Timothy J. Sloan as CEO. Mr. Sloan, who had been president and chief operating officer, was immediately appointed as a director on the board upon becoming CEO, but the company did not make that leadership structure permanent.
The Wells Fargo board separated the positions only after the Connecticut Retirement Plans & Trust Funds and four other institutional investors jointly filed a shareholder proposal on Oct. 26 calling for the company to adopt such a board leadership structure.
The bad publicity and reputation risk from the sales abuses and the renewed push from some institutional investors instigated the change.
At Wells Fargo's annual meeting on April 26, a shareholder proposal calling for such a separation was defeated by an 82.8% vote. BlackRock and Vanguard Group — which respectively owned 5.6% and 5.4% of Wells Fargo shares and were the company's biggest shareholders after the 9.9% owned by Berkshire Hathaway, both voted against the proposal, according to the investment managers' proxy-voting disclosures. T. Rowe Price, among other big mutual fund companies, also opposed the proposal.
Asset owners need to put pressure on these investment management companies, which manage money for retirement funds, to do more than check the box to oppose such a proposal. Independent oversight through an independent chair is vital for success at Wells Fargo and other companies.
