Wells Fargo Shareholders Get Chance to Mete Out Punishment

(Bloomberg) -- Wells Fargo & Co. leaders have been chastened by protesters, regulators and both chambers of Congress. Now shareholders will have their say.

On Tuesday, investors will decide whether to gut the board, object to executive payouts or demand more changes after authorities found employees opened legions of unauthorized accounts for customers. Or, investors may trust new Chief Executive Officer Tim Sloan and Chairman Stephen Sanger that problems are being handled.

It’s high stakes for an unusual scandal. While damages to clients were relatively small -- once calculated at roughly $3 million in fees on unauthorized accounts -- the look inside branches struck nerves. Stories of tellers struggling to hit untenable goals to keep jobs, clients finding mystery dings on credit reports and bosses ignoring -- or even encouraging -- abuses over a decade prompted hearings in Capitol Hill, a leadership shakeup and executive pay cuts.

The bank has spent at least $445 million on fines, remediation, consultants and civil litigation. In one bright spot Monday, it won regulatory approval of a revised living will, outlining how the firm can be dismantled in an emergency.

The San Francisco-based company holds its annual shareholder meeting at 10 a.m. in Ponte Vedra Beach, Florida. Investors will hear about efforts to clean up the mess, and decide whether it’s enough. Here are five things to watch:

Board’s Survival

Proxy advisers and California Treasurer John Chiang have urged shareholders to reject as many as 12 of the firm’s 15 directors, a move Sloan has said would be “crazy.” Critics argue misconduct went unchecked as the board failed to bolster internal controls for years. The panel has said it’s in the midst of fixing problems. And in a 113-page report this month, a group of independent directors found senior executives failed to alert the board to misconduct for years.

On Sunday, early balloting was said to show that some board members are at risk of failing to draw majority support. Even if they survive the final vote, approval below 70 or 80 percent sends a message and may hasten changes.

Big Investors

While the bank’s top shareholder, Warren Buffett’s Berkshire Hathaway Inc., voted to support Wells Fargo leaders, others investors aren’t satisfied. They may make their views heard at the meeting.

Already, Parnassus Investments said it voted against Sanger and four other directors. The California State Teachers’ Retirement System and California Public Employees’ Retirement System said they voted against nine. They “bear responsibility for the failure of oversight,” CalSTRS said Monday. The pair also backed a shareholder request for another review of what happened, and withheld support from auditor KPMG, with CalSTRS calling it an “opportune time for a fresh perspective.”

Executive Compensation

Will shareholders be satisfied with the roughly $180 million in pay eliminated or clawed back from executives so far? Most of it was withheld from ex-CEO John Stumpf, who resigned in October, and former community bank head Carrie Tolstedt. But even Sloan, who was largely exonerated in the board’s review, had his pay cut for 2016.

Altogether, the money that executives forfeited is almost equal to the $185 million in fines Wells Fargo agreed to pay in September to settle account probes.

Wells Fargo shares are down 2.7 percent this year, compared with a 1.7 percent gain for the S&P 500 Financials Index.

Pivot to Growth

The scandal threatens to undermine business for years after staining the bank’s reputation and forcing the retail division to find new ways to encourage sales. Investors may use the meeting to press for more information on how Wells Fargo will make up for that. What other businesses, such as corporate or investment banking, might it lean on more?

Analysts repeatedly asked executives on a conference call April 13 about growth projections, internal investments and making the firm more efficient. Sloan and Chief Financial Officer John Shrewsberry punted, saying more than a dozen times they will address such topics at Investor Day on May 11.

Dakota Access

Wells Fargo has been targeted by protesters over its financing for the Dakota Access oil pipeline. The bank and 13 others provided $120 million each in lending commitments, while three additional firms provided even more, according to data compiled by Bloomberg. The project has drawn opposition from Native American-rights activists.

Shareholders will vote on a proposal asking Wells Fargo to adopt policies protecting the rights of indigenous groups.

Investor advisers Glass Lewis & Co and Institutional Shareholder Services Inc. recommended investors back it. CalPERS, CalSTRS and the New York City Pension Funds said they did.

Advocates for the Standing Rock Sioux, a tribe affected by the pipeline, plan to show up at Wells Fargo’s meeting to lobby for the measure, according to a statement Monday.