Wells Fargo's Stumpf Takes One for the Team With a Long Way to Go

(Bloomberg Gadfly) -- Sometimes you get the right fall guy.

Whether voluntary or not, John Stumpf is stepping down as chief executive officer and chairman of Wells Fargo. Now it's no secret that corporate press releases announcing the departure of a top executive often use the word "retire" as a euphemism, and this one was no different. The fact that Wells Fargo announced a sweeping management reorganization just days before the bank will have to face analysts after it reports third-quarter earnings lends some intrigue to the development, but it had the air of inevitability.

It's all too obvious that the backlash against the fake-account scandal at the bank could not be contained with Stumpf at the top, so a change was clearly the only way to demonstrate a legitimate and concerted effort to hold management responsible at the highest levels.  

It's not just the right thing, but probably the only thing Wells Fargo could do at this point. It's hard to imagine any CEO being capable of stopping the bleeding from a scandal that has led to multiple investigations and lawsuits, a bipartisan assault on the bank in Congress and the cancellation of business relationships from states as big as California and Illinois. 

Deeper in the press release was another significant change that could be the first rumbling of a tectonic shift for big banks. Wells Fargo is splitting the titles of chief executive officer and chairman. Tim Sloan, the president and chief operating officer, will take over as CEO, and Stephen Sanger, former chairman and CEO of General Mills, will become nonexecutive chairman. The elevation to vice chair of Elizabeth Duke, a former member of the Federal Reserve's Board of Governors, also adds some gravitas. Critics of the hybrid job title thus reap by scandal what they could not by cajoling.  

The bank is lucky it had the "quiet fixer" Sloan on hand to make for a somewhat smooth transition. His background working with corporate and institutional-investor clients gives him enough distance from the troubled, but more important, retail side of the firm to potentially allow him to ascend to the top job without reeking too much from the stench of the scandal.

His job won't be easy, but the knee-jerk reaction from equity traders in after-hours trading shows at least a lukewarm approval for the regime change.

Stumpf's resignation alone won't be enough to restore the confidence of customers and investors, but it's a good start. The board of directors needs to be cognizant of the fact that its work is far from done. Last month, the independent directors announced an investigation into the scandal, and that still needs to be conducted aggressively and transparently, with full disclosure when the results are in. 

If more heads need to roll, so be it. If more pay should be clawed back, so be it. That goes for the board itself: To get past this scandal as quickly as possible, the board needs to hold itself accountable and explain why the size and scope of the scandal went undisclosed to investors for so long. Heaven knows the press and assorted investigators are far from done examining how this happened.

The lessons from that internal investigation will be of great value not just for Wells Fargo, but for any bank or other corporation with far-flung operations and sales forces. 

As Stumpf steps down, it's hard not to note the irony that a 63-year-old bank chieftan -- who survived the various tempests of the financial crisis largely unscathed -- should see his career meet an inglorious end right about the time that retirement was on the horizon anyway.

Ultimately, the best possible outcome for him will be that his flaws are shown to be simple errors in judgment: what he saw as a minor problem involving only 1 percent of branch employees was viewed by everyone else as a gigantic problem involving 5,300 fired workers and as many as 2 million-plus fake accounts.

One right call is now in the books. Wells Fargo has a lot more to make before it's clear of this mess.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story: Michael P. Regan in New York at mregan12@bloomberg.net.

To contact the editor responsible for this story: Daniel Niemi at dniemi1@bloomberg.net.