Financial news outlets tonight gave prominent play to the fact that Wells Fargo CEO John Stump is giving up $41 million in compensation, and the former head of community banking, Carrie Tolstedt, who ran the unit that perpetrated the creation of over 2 million in fake accounts, will sacrifice roughly $19 million in pay. Even though the board was trying to assert that it was taking responsible action in the face of the widening crisis, it didn’t help that the Labor Department had just announced it has opened a “top-to-bottom review” of how Wells treated workers tasked to meet unrealistic sales targets. In addition to covering these developments, we’ll also discuss how an influential commentator went wide of the mark on this story, and why that matters.
Wells’ board, awfully late in this drama, has hired Sherman & Sterling to conduct an investigation, which in effect calls into question the adequacy and completeness of an internal probe performed earlier, on behalf of the bank and not the board, by Skadden Arps and Accemture, which provided much of the information on which the Consumer Financial Protection Bureau, the Office of the Comptroller of the Currency, and the Los Angeles City Attorney based their joint $185 million settlement.
While the Bloomberg takes up the face saving line that Stumpf took in a letter to employees, that “that he offered to give up $41 million in unvested stock, which reflected his performance back to 2013, and the board accepted,” Andrew Ross Sorkin of the New York Times reports that the board did in fact claw back Stumpf’s and Tolstedt’s pay, relying on the bank’s clawback policies:
The action represented one of the first times since the 2008 financial crisis that a chief executive has been forced to give up compensation. Many large companies have adopted clawback provisions at the urging of regulators and shareholder advocates, but boards have been hesitant to invoke them….
Only a relatively small portion of the compensation of Wells Fargo’s executives can be clawed back. The bank’s clawback provisions are specific about the circumstances in which it can recoup money from executives — most hinge on misconduct that forces the company to significantly revise its financial results or pay that was received based on inaccurate financial information. Neither is the case here.
But it took advantage of a clause that allows the company to retract performance-based stock awards if an executive causes significant “reputational harm” to the company….
The $41 million Mr. Stumpf is forfeiting represents all of his unvested equity awards, but he already held nearly 5.5 million shares of stock owned outright or vesting imminently as of March, when Wells Fargo filed an annual disclosure of his holdings.
Based on Tuesday’s closing share price of $45.09, those 5.5 million shares would be worth nearly $247 million.
Ms. Tolstedt stepped down this year in what the company said was a retirement — a move that left her eligible for as much as $125 million in stock and options.
The Financial Times noted: “Ms Tolstedt…agreed to not cash in any outstanding options during the review. Ms Tolstedt will not be paid severance, and neither she nor Mr Stumpf will receive a bonus for this year.”
The board’s action appears to reflect Stumpf’s claim that he didn’t find out about the fake accounts until 2013, which as more than one Senator pointed out in the Senate Banking Committee hearing last week, looks an awful lot like Stumpf is owning up to knowing about the abuses just as the Office of the Comptroller of the Currency and the Los Angeles Times started sniffing around. In fact, as the Wall Street Journal reported, a senior manager told Stumpf by e-mail in February 2011 that the sales targets were producing at best churn rather than growth:
Former branch manager Rasheeda Kamar says her Wells Fargo office in New Milford, N.J., had a goal of selling about 15 new products or services a day. If the branch didn’t hit the goal, the shortfall would be added to the next day’s goal, she says.
Ms. Kamar says laggards were threatened with termination and sometimes criticized in conference calls. In February 2011, she wrote to Mr. Stumpf in an email: “For the most part funds are moved to new accounts to ‘show’ growth when in actuality there is no net gain to the company’s deposit base.” She says she got no reply.
After working for Wells Fargo and its predecessor banks for 22 years, she was let go in 2011 for failing to meet sales targets, she says.
Elizabeth Warren also pointed out that Stumpf’s then larger share holdings had appreciated over $200 million from 2011 to 2015, and the bank is investigating whether the abuses started earlier. So there’s a case to be made that the clawback needs to start earlier than 2011.
The Department of Labor’s announcement yesterday morning of its probe makes it easy to think that this development pushed the board to act. However, the clawback decision required consultation with the board’s counsel, and that doesn’t happen overnight. So this move was almost certainly in play before the bank got word of the Department of Labor’s investigation. But it gives the House Financial Services Committee more grounds for going after Stumpf and the bank. From the Los Angeles Times account:
A working group that includes officials from five Labor Department enforcement divisions has been established to conduct a “thorough and expedient review” of complaints against Wells Fargo in recent years alleging failure to pay overtime and other possible infractions, Labor Secretary Tom Perez said….
And the agency has set up a special website for current and former Wells Fargo employees to instruct them how to file complaints about labor law violations. Workers with questions also can call the department’s toll-free hotline ( 4USADOL) or send an email to firstname.lastname@example.org….
The department’s Occupational Safety and Health Administration whistleblower program “has received a number of complaints from Wells Fargo employees” over the past five years, Perez said. The majority of cases have been concluded “through settlement or other actions” and some were determined to have no merit, he said.
But OSHA still is investigating “at least a handful of complaints” from current or former Wells Fargo employees, Perez said. He is asking OSHA to review all open and closed cases against Wells Fargo since 2010.
This review is the result of a letter from Elizabeth Warren and seven other Senators. And perhaps more important, the board must have finally gotten the big message: the Federal government is in the process of bringing its full enforcement weight down on the bank.
Some analysts complained that the bank’s board had been too slow to act and the response looked to be to try to appease the House Financial Services Committee, which will interrogate Stumpf on Thursday. While that may be the case, it appears more likely that influential board members (and in groups like this, some typically have more sway) were blindsided by revelations in the media, or worse, saw information that contradicted what Stumpf, other C-level execs, or the Skadden Arps report had told them (if the Skadden report was inaccurate or incomplete, it would likely be the result of management withholding information or deliberately circumscribing the scope of the inquiry so as to keep dirty laundry hidden). In other words, it seems improbable that Elizabeth Warren’s blistering lectures to Stumpf would galvanize the board to act. It seems more likely that the history of his interactions with the board has led them to lose trust in him.
As we said earlier, far and away the most damning new information that has come out in the last week is the CNN report that former employees reported that they were fired for using internal ethics hot lines and other whistleblower channels to report on the scam accounts, and that a former HR official stated that the department worked with business units to trump up charges so as to create a paper trail that the employee was being fired for a performance failing, and not outing misconduct. As we wrote:
The fact that a former HR staffer confirmed that the bank set out to fire whistleblowers is deadly. It means that the internal ethics line and other channels that John Stumpf piously cited to claim that nothing was wrong with Wells Fargo’s culture were in fact cynical shams designed to get rid of troublemakers who’d question shoddy practices. The fact that Bado was canned a mere eight days after sending an e-mail to human resources also supports the charge of the anonymous HR source that Wells Fargo had established procedures for firing whistleblowers. There is no way any serious investigation would take place in only eight days.
Punishing whistleblowers, particularly on a systematic basis, is flagrant misconduct. This implicates a large number of executives, including the general counsel, the head of HR, and potentially outside counsel and board members, as well as Stumpf and Wells Fargo’s president and COO, Timothy Sloan. How could anyone have signed off on this arrangement?
As we discussed, and the CNN article confirmed, punishing whistleblowers violates numerous laws. And far ore important from the board’s perspective, this implicates Stumpf directly.
With the fake accounts scandal alone, Stumpf can claim and it might even be true, that he really didn’t know, that Wells (as we’ve stated) had bad controls. Carrie Tolstedt should have stopped it but didn’t. He still can throw her under the bus and possibly save his hide, but as we said, his odds of riding this out would have been much higher if he’d made her the scapegoat before or at the very latest at the Senate hearings.
But there is no way to pin blame on making legally-mandated whistleblower processes into a sham any lower than the C-level. While many companies nevertheless do punish whistleblowers, most of the time some sort of investigation takes place, and whether or not that’s adequately dressed up, the number of whistleblowers improperly terminated is not that large (although the dollar amounts often are). And perhaps most relevant, they don’t have CNN saying former senior staffers reporting that the bank’s normal practice was to fire whistleblowers. If I were a board member, I’d want Stumpf’s head.
I’m also of two minds in broaching another issue. I’m reluctant to call out the work of other writers who are solidly on the case of reform, although I’ve done that in the past, most prominently with Matt Taibbi. And I’m even more reluctant in the case of one I’ve worked with personally and that NC readers know and respect.
Nevertheless, yesterday before Links went live, I was surprised, and not in a good way, to read an article by Dave Dayen titled Why Wells Fargo’s Executives Will Keep Their Bonuses, Even After Fake Accounts Scandal. I wrote several close contacts about it immediately, and as I expected, Dayen’s call turned out to be wrong: The Wall Street Journal reported later that morning that Wells Fargo’s Board Is Considering Whether to Claw Back Pay From CEO After Sales-Tactics Scandal.
The reason I was disturbed wasn’t only that Dayen was out over his skis (it was obvious that Carrie Tolstedt was going to have her pay clawed back) but that he was selling resignation, selling the premise that the board would not act despite the unprecedented outrage and drumbeat of continuing media revelations of more sordid details from Wells. I’ve watched post-crisis hearings on bank misconduct. Attendance by committee members is usually spotty and the room is often empty save the panelists. By contrast, every Senator was there for Stump’s testimony and nearly all were loaded for bear. As Senator Jon Tester put it, Wells had managed the seemingly impossible feat of unifying the Senate Banking Committee, “and not in a good way”.
Dayen’s misleading call matters because he’s seen as an authority in progressive circles and has clout among Congressional staffers. I have to confess to being disturbed by his story because it was anti-reform, contrary to his normal position. I hope this was just a bad day for Dayen, because his stance here was troublingly reminiscent of the posture of ProPublica’s Jesse Eisenger, who has broken many important financial services industry exposés, such as the secret recordings of New York Fed whistleblower Carmine Segarra, yet has disturbingly also maintained that it was just too hard to punish financial services industry executives for crisis-related misconduct.
Although I am sure it was not his intent, Dayen was effectively telling staffers on the House Financial Services Committee that they shouldn’t expect their bosses’ ire to go very far. That in turn could have the effect of deterring them in taking the sort of aggressive follow up that Senator Warren and other members of the Senate Banking Committee are taking, of pressing Stumpf and Wells for responses to questions where the answers weren’t adequate. This isn’t just a matter of prurient interest. If Stumpf or Wells gave too clever by half information to investors or regulators, it could pave the way for private suits or even lead the regulators to reopen their settlements if they deem Wells provided inaccurate or materially incomplete information.
Dayen seems to have fallen short here in not recognizing the limits of his expertise: While he’s deeply steeped in the Beltway’s inside baseball, corporate governance isn’t one of his beats. And on this piece, he didn’t compensate for that by contacting a corporate governance or corporate crisis management expert, or apparently even consulting guides on the web from top law firms on recommended board conduct when a CEO is implicated in a major scandal.
Early on, I said Stumpf wasn’t likely to survive this scandal, but that the timing of the House hearings had the perverse effect of delaying the board taking a final decision, since they’d want him still in Wells’ employ when he made his testimony. Perhaps Stumpf will promise more contrite actions by Wells on Thursday, but it’s hard to see that concessions made under such duress will be taken as a bona fide desire to turn a new leaf.
More broadly, the elites increasingly recognize that the popularity of Sanders and Trump shows that they are in the midst of a legitimacy crisis. They need to start policing their own much more effectively to regain any semblance of public trust. Stumpf is a fine place to start.
I made this point during the debate live blog, and I will make it again.
Progressives, Leftists, whatever you consider yourself … read the tea leaves. See this galvanizing moment for what it is. As Yves pointed out, the Elites are ‘feeling’ the rug shifting under their feet and they are starting to make panicked moves to save their scalps. Connecting another link from Lambert, many people were taken by surprise with the speed of the demise of the USSR.
(Most of) The people running our country don’t deserve our respect, they deserve scorn and ridicule until they came back to us, hat in hand, admitting they have done wrong. Anything less is a victory for corruption, including those stupid and intelligence insulting “settlements without admission of guilt.”
This is not the time to take your eyes off the ball, or your foot off the gas. Pardon the Friedman-esque mixed metaphor.
I like that thought, but I keep thinking about Al Capone who was a kindergartener compared to the WASP banksters…. He got nailed for income taxes and if we restored the Eisenhower tax rates, then that would ameliorate the GREED factor of the 1% greed addicts. I would love to see a graph comparing the CEO compensation annual increases compared to the marginal rates over the last 60 years….
Please. Let’s not make criminality a matter of ancestry and religion. If you go that route, well, Dimon, Blankfein, etc. Not WASPs. It’s not ancestry – unless you believe that ancestry is destiny.
Other than that rather large item, I agree with your comment. GREED isn’t confined to a particular subset of humanity.
“Legitimacy crisis.” Yay!
If this keeps up maybe the banks will no longer “own this place” (Congress).
Encouraging. But let’s see whether this outside investigation of itself that Wells has ordered is any less of a white wash than the outside investigation of itself, led by Evan Bayh, that the CIA ordered in the torture report hacking case.
Well said! Stumpf is indeed a fine place to start. Yet my feeling is that it will take more than a few strategically placed heads on spikes to keep the rabble from storming the Bastille.
Here, in the Empire State, throwing old Shelly Silver in jail fooled absolutely nobody that corruption in Albany was really being addressed. The elites will continue to play the game of trying to fixate attention on a few individual “bad apples:” Martin Shkreli, Alain Kaloyeros, perhaps now John Stumpf. People won’t, and shouldn’t, buy it. The whole apple barrel of hyper-financialized 21st century global capitalism is rotten, and most people understand that.
What, then, is to be done? I think we need, in the short term, to be prepared for a massive ramping up of state violence against us malcontents. So far, people of color have borne the brunt of police violence here in the U.S., but none of us are safe. We must continue to pressure the corrupt elites with massive civil disobedience. I fervently hope that they decide that the high costs of police-state suppression are unsustainable, and that they begin to see the wisdom of concession and compromise.
The massive civil disobedience should start with something as simple as a debtors’ strike. Or a Move Your Money day.
Or how about a day when we put the plastic down and pay cash. Just cash. Banks make a lot of money from credit cards. Let’s show them how fast that gravy train can stop.
Use cash instead of credit — yes. Debtors’ strike — no. A debtors’ strike would hurt the debtors more than it would hurt the banks. People’s credit would be damaged, and if they stopped paying for their mortgages and auto loans, they could lose their home or car.
Absolutely. Those little white “Square” card readers on iphones charge a blanket .50 per transaction, paid by the merchant. Figure the wholesale cost of a pack of gum, add the “Square” charge, or, 5 to 6% or minimum to the merchant credit card transaction fee to that and you have the point at which they only start to make any profit.
Little merchants keep 100% of the profits when paid in cash.
A merchant that makes a 5% profit margin makes nothing on a credit card sale. Then there’s the 29% interest charge to the cardholder, should they be a day late, or a penny short on their payment, plus the yearly fees, if you are sucker enough to still pay them. Call and demand they drop the yearly fee–they always do.
I’ll go you one better Slim, how about an overall “Buy nothing month”? Say in October. Every discretionary purchase you make before the election is a vote for the “recovery” meme. Once Hillary started blabbing about how great things were getting in the debate, I realized that the metrics of spending really are important to the ‘powers. Credit card transactions are instantly tallied and reported, especially Bank of America’s. The massaging and heralding of the sales numbers show how important they are.
Cash sales are not reported until income tax time, if at all.
I’ll go you one further still. How about a “give back day”? Hold a big garage sale and sell all your unwanted things. What you can’t sell, donate to a good local charity or resell through your local small merchant. Yes, people will buy used things along with the new.
I’ve noticed an interesting trend. There are lots of “Little Free Library” boxes around our area. People are starting to leave unwanted items nearby. They don’t last long. People pick up what they need and drop off things they don’t want. I’ve seen small filing cabinets, children’s toys, even a raised planting bed made of redwood with gopher wire nailed to the bottom of it. It used to be that you’d see sofas and chairs with “free” signs on them. Now it looks like people are getting rid of smaller and smaller items. Maybe they are moving in together and need the space? Something is definitely happening on the American Street.
The IRS figures that waiters get 8% of what they sell in tips and withhold accordingly. Any tip over 8% should be in cash no matter how the bill is paid.
Just follow the rules folks :-)
I think direct confrontation is not the way to go. Non-participation is. New leadership will arise from this work, as is inevitable. Leaders are born from the task at hand. The work needed to convince fellow citizens to not support the status quo is immense- but a beginning point. This is happening with greater speed and acceptance. Just by boycotting products and services strikes fear into our corporate masters.
Civil disobedience begins with non participation. Even slaves developed ways to slow down their productivity without being beaten to death. Throwing off the shackles of consumerism is a start.
Globalism and the unipolar world are over. It will be over due to choice and growing political awareness, or it will be forced upon all humanity by natural resource limits.
Another important aspect is not to let the elite feel comfortable living in a world of gross inequality. They get away with this injustice daily- why? Stop worshiping personal wealth is a start. Personal wealth is not a virtue in and of itself, but our current society has been conditioned to make it so. This must be rejected and demonstrated by not offering deference to displays of wealth.
There will always be an elite and a leadership class. The important aspect is what that elite represent and where their power stems from. A system that derives its power from the people must be reestablished. That is the hope for humanity. A reformulation of social values and incentives is underway. It is choosing sides and finding the strength and means to stick with it.
Very reasonable comment! My only concern with advocating “non-participation” as a substitute for confrontation is that it may result in even less pressure on the oligarchs to mend their ways.
For example, even if 100% of the people likely to vote for Jill Stein this November never again use anything but electric cars, shop anywhere but Farmer’s markets and worker-owned cooperatives, etc., would Wall St. care? Highly unlikely, since they are already making money off of the people wealthy enough to sustain such a correct “lifestyle”– through mortgages on their homes, college loans, sales of Roku players, high-end kayaks, etc.
I’m afraid human history suggests that real change probably won’t happen– without some direct confrontation between the oppressed, and the enforcers of their oppression.
The key is obtaining economic sovereignty. The imperative is trying to create economic space from which to construct a more stable and rewarding society. The depth of the existential crisis we face is almost unfathomable. The left is better served through acts of creation than acts of violence.
I see your point, and agree with the very possibility of that outcome, but recent history also points out that without economic justice secured first, all other social gains are transitory and ripe for cooption. Pointing out the failures of liberalism is like shooting fish in a barrel and the lifestyle they espouse is full of hypocrisy.
The lifestyle changes I am contemplating are more radical. Easier to talk about that actually create, but must be started somehow. Being forced into them will be too late. Somehow, the confrontations to come will be more defensive in nature and any offensive action will take the form of guerrilla or insurgent action. The days of having ones cake and eating it too are numbered.
As a society we have been conditioned to fear poverty. A nonviolent movement dedicated to redefining the meaning of poverty seems in order. If this definition is left to wall street, the means and character will be completely different than if defined by the participants themselves. Can there be a poverty with agency?
Focus on what I want to create–yes. That is the most important thing I can do.
I’m increasingly taking actions that support my values, including creating new systems if the existing one is at odds with my values. Starting with the most personal and local aspects is how I’m approaching developing a foundation that is practical, cooperative and resilient.
When I spend money, I ask myself what values I’m energizing. If I’m not happy with the answer I’m gradually making changes.
Great question! I think the example of St. Francis of Assisi answers it with a resounding yes. Yet the itinerant Brother was confrontational in the extreme, as were many of his Spiritual Franciscan followers. Many of his followers, in the generations after his death, were cast out of the Church for their rebellious ways, and denounced as heretics.
St. Francis certainly chose not to participate in the dominant socio-economic order, but he also devoted his life to challenging that order and denouncing its injustice at every opportunity.
St. Francis didn’t have kids.
Do they care? At the individual company level they sure do. Millions are spent on ad campaigns to raise sales by a tiny percentage and build customer loyalty. How do you think customer loyalty and brand reputation are going for Monsanto? How much do you think the value of the company has been discounted by Bayer because of that? Probably in the hundreds of millions less than before the boycotts.
Thank you for this excellent reporting, in particular your willingness to publish honest criticism of a valued colleague and spell out why their misdirection is particularly harmful through having the possible impact to shape future Committee actions inappropriately.
I hope that wasn’t Dayen’s intention, and that it was a lapse in recognition of where his expertise ends. In any case the heads-up is invaluable. For non-experts it can be quite difficult to spot, let alone to evaluate.
Also–it’s fascinating to know about the existence of online ethics guides for Boards in dealing with executive malfeasance. They should be recommended reading for lots of Board members who read NC. Does anyone reading here have a specific one they would recommend?
I was just going to leave a comment saying the same thing and now I can just say, what TheCatSaid. I’ll add in Jesse Eisenger’s name also and echo the sentiment on calling out respected allies.
Why was the Board deaf, dumb and blind up until this date?
That’s what they were paid to be.
Well, for starters, guess who was both CEO and chairman of that board? Now merely assigning such roles to separate persons– as is the norm in the UK, IIRC– isn’t a panacea. But I have to think that it might in most cases help the board to exercise effective independent oversight if one 500 kg gorilla didn’t occupy both seats.
Yes, for UK corporate governance, if the CEO and Chairman of the Board are one and the same (i.e. the same person takes both roles) this is 1) highly unusual in FTSE100 companies (93 out of the 100 separate the roles) and 2) if the role is filled by the same person, it’s regarded as a bit of a red flag.
Put it this way, no UK TBTF bank has ever in my living memory combined the Chairman and CEO roles into one person.
It is more commonplace in the US to do this but you have to ask why, if it is done, the CEO can’t or won’t work with another individual in the Chairman position. It’s not like for the kind of mega corporation we’re talking about here they can’t afford a few extra million to pay the comp for a different person to be Chairman or there’d not be plenty of applicants for this kind of passport to squillionaire-dom.
Now they need to clawback his bonuses from earlier years. If his bonuses are the result of fraud, he should not be able to keep them. If you buy a stolen car, you don’t get to keep it once that is discovered, even if you didn’t steal it. Of course in this case it’s kind of like he said “I’ll pay $10k cash for a Jaguar XKE, no questions asked.” He then expresses surprise that the car was stolen.
Dayen did have this interesting quote in The Intercept, 9.26.16 about our regulatory regime:
So Mr Stumfph and his coconspirator are using the tried and true defense of whocouldaknowed.
Really these guys used wire and mail fraud to pump up the stock price. This is an open door for the feds should they choose to use it.
Oh wait a minute we made a deal not to prosecute any TBTF bank back in ’08. And they sort of promised not to blow up the economy.
Perhaps a different avenue is to ask/demand the mutual funds most of us own through our IRAs and 401Ks to limit compensation in all forms to 20 mill or less. The mutual funds can do this by voting their shares. We don’t have to wait on the feds.
And this will increase shareholder value too.
I recently viewed a video clip on YouTube documenting an arborist removing a massive fallen oak tree off a clients home. What made the job challenging for this experienced arborist was the fact that the trees limbs had been extensively cabled together in order to prolong its life and appearance. When a weak limb finally failed, the interlocking cabling dragged down, and damaged most of the remaining tree. The expertise needed to clean up this mess was impressive and the arborist’s running commentary on the cause and futility of efforts to save the tree were fascinating and informative. The tree was indeed old enough to document the changing craftsmanship deployed in the ironwork cabling through generations, progressing from fine craftsmanship to contemporary shoddy. It was a story of vain attempts to save and preserve something ancient and majestic. There was also the motives of appreciating natures beauty connected with the desire to preserve property value and all the contradictions that result.
In the end, the professional arborist, working with scores of others, secured the owners home form further damage, but was unable to convince the owner to remove the entire tree. A postscript to the video informs the viewers that a further 5 years of decay and decline were needed before the homeowner was compelled to removed what remained of the failing tree.
This story serves as an allegory to our contemporary political situation. There are many competent professionals warning of dangers and stresses building up in the rube goldberg contraption our political elites are constructing. This unstable edifice uses the false appearance of stability by all the interlinking parts, but in reality only makes the whole more vulnerable. That is the legitimacy the elite are beginning to loose. The confidence in the citizenry that they know what the hell they are doing and the realization when the contraption comes down, it comes down quickly and violently.
The citizenry will not stand for more failure, and delivering relief to only the top elite is wearing very thin. In a stormy troubled world, that will not stand. All the elites can’t be that clueless.
Very good and thoughtful comment and excellent analogy.
PS Please post the url on the utube story as I would like to see.
Hope you find the link as interesting Is I did. I Read some of the comments the second time around and the arborist sounds like a good guy. 42 years in the profession and wanting to give back to the community by sharing his knowledge and experience.
A small tree died in my backyard, so I was searching out information to determine if it is advisable to do the job myself, or hire a professional crew. It is a small tree, and removal is quite expensive from what people tell me. As in all things You Tube, you get the entire range of human experience from dedicated professionals sharing knowledge to the insane compilations illustrating the depths of human depravity and idiocy.
I also watched a 1940’s news reel espousing the harvesting and milling of the east coast redwood forests. Reading some of the comments made me want to weep. How the triumphant nature of the film can hold up over time only points to the work that needs to be done on the human psyche- if only time will permit. Some commentators for that video stated 95% of the forests cut.
It seems we are trapped in the misuse of technology and professionalism.
We had a 90 year old magnificent elm in the front of our house that was hit by lightening. No noticeable damage until a week later the landscaper noticed some bark that dropped off. We had a good arborist who came out the next day who looked at the situation and stated ” do you want me to take it down now?” My heart sank, I said there must be something we can do and he said we can attempt to treat it but you are also lucky as the same lightening strike went horizontally and hit my white oak 40 yards away and you could have lost that one as well. We treated it and it lasted approximately a year.
Nobody like to loose such a specimen but it appears in you film that they built the house way to close to the tree.
In Louisiana you see those magnificent oaks but they always are distanced properly.
Most of them are that clueless.
Look at your example, even with the house stove in, it to the owner another five years to realize the reality of the ongoing risk.
Our elite is so insulated, their cushion so great, they’re hardly even noticing the bumps. And Trump now normalizing as a standard issue Republican is just another cheap cable thrown over an adjacent limb to create the illusion the tree is not about to collapse of its own rotted weight.
I sense you are right. Some folks still genuinely believe in the system, and are decent people, so what happens when they don’t buy it anymore? I am reminded also of the moment in “The Wizard of Oz,” when the curtain gets pulled back, and then everything changes.
Yves – In light of your professional relationship with Dave, I expected to read that you had spoken with him about this. Have you done so either before or after you wrote this post, and if not, do you intend to? I would be very interested in his response to your criticism, as I have always had a great deal of respect for him and this doesn’t seem to fit with his usual careful analysis.
Thanks in advance for your response.
So, is there any chance we’re going to see the obvious criminal charges of grand larceny and fraud?
That’s what I’m pining for.
“Where it all ends I can’t fathom, my friends
If I knew, I might toss out my anchor
So I’ll cruise along always searchin’ for songs
Not a lawyer, a thief or a banker”
Jimmy (no relation to Warren) Buffett
Yves, Dayen’s article refers to this Fortune article:
Your article says:
There’s a lot that I don’t understand about this, but superficially, it seems that Dayen is partly correct, since Tolstedt will only be losing $19 million instead of $45 million.
If you read Dayen’s article, he stated that no execs will lose any of their bonuses and the headline says, “Why Wells Fargo’s Executives Will Keep Their Bonuses, Even After Fake Accounts Scandal” and the article rejects the idea that the board would claw back pay, which is exactly what they’ve done:. Dayen wrote: ” Pulling the trigger on clawbacks would force them to turn on the system that made them rich.” That in fact is precisely what happened with Stumpf and Tolstedt: the board used the clawback provisions. The balance for Tolstedt is apparently deferred compensation which is due on her retirement. Hoever, she has been told not to exercise any of her unexercised stock options. Note the $125 million includes stock options. That means the board is looking into cancelling her options.
What you and Dayen fail to appreciate is that these agreements are contracts. Contracts are broken all the time. That is precisely what reform advocates argued for in 2009 when AIG officers in the very unit responsible for AIG’s collapse were paid bonuses. And this argument is even stronger in the case of Stumpf and Toldstedt. For instance, Stumpf as we mentioned, and probably Tolstedt, are implicated in systematic whistleblower retaliation. That’s a very serious abuse under Sarbanes Oxley, which provides for criminal prosecution. The DoJ has launched a criminal investigation into Wells.
Specifically, one of the assumptions undergriding contract law is good faith and fair dealing. Employment law is one of the areas where claims of violation of good faith and fair dealing are upheld by courts (I’ve actually been one of the few to use that argument successfully outside employment law). The board could use violations of good faith and fair dealing to go after more of Stumpf’s and Tolstedt’s pay were they so inclined, and the board’s counsel could come up with better theories. One thing that is to their advantage is the old cliche that possession is 90% of the law. It is much easier to withhold pay (and note that Tolstedt has not yet received her >$100 million payment left after the clawback) than get a court to force someone to disgorge it.
Whistleblower protection from section 107 of Sarb-Ox:
“Whoever knowingly, with the intent to retaliate, takes any action harmful to any person, including interference with the lawful employment or livelihood of any person, for providing to a law enforcement officer any truthful information relating to the commission or possible commission of any federal offense, shall be fined under this title, imprisoned not more than 10 years, or both”
Does this apply only if the whistleblower actually reports the offense to the enforcement authority? What if an employee is fired for simply reporting improper/illegal activity to higher ups inside the company?
That’s for outside whistleblowing, as in reporting to the SEC or DoJ. That’s not the provision that is applicable here. This is the one (in layperson language, from Whistleblowers.org, I checked it against law firm analyses and this is actually quite good):
Setting up a sham internal reporting procedure where internal whistleblower complaints didn’t go to an independent committee, but instead were reported to the person’s boss and led to firings is a clear cut violation of that provision.
For effective oversight and prosecution of violations insight from business people skilled in analyzing business models is needed.
As Mr. Comey of the FBI stated in the Clinton investigation there must be criminal intent as one of the elements. I can assure you that an analysis of “The cross-selling Business Model” at Wells Fargo (or where ever) can be spotted and identified by skilled business people. It is not rocket science—-just common sense.
Ditto for the GSE Business Model that hijacked the mortgage industry.
Putting financial fraudsters in with Madoff is the appropriate remedy.
Wells Fargo plans to eliminate sales goals sooner than planned [Reuters]
The fact that this hadn’t already been done, but was to take effect only next year,
is revealing of how insulated the CEO class is.
There is always too a strong possibility that, absent regulatory intervention (for which the potentially increasing desire for this to actually happen in political circles is an interesting development) the same old targets will simply get dressed up in a new language but amount to the same thing for the company employees at the sharp end of the stick.
Relabeling “sell customers X number of products” as “meet customers’ needs by ‘informing’ them about X number of products” is an old favorite tactic for a TBTF which has staked its ability to convince investors that it can create value by simply hawking more and more product and, having become a one-trick-pony, can’t think of any new tricks to turn.
Stumpf’s biggest mistake imo is that he let it be revealed during election season. Can’t say I feel sorry for him as something resembling 247 million is already in his bank account. Losing 41 mil still keeps him over 200 million and I can only hope that this will be enough to keep his personal finances in order…
“Wells’ board, awfully late in this drama, has hired Sherman & Sterling to conduct an investigation, which in effect calls into question the adequacy and completeness of an internal probe performed earlier, on behalf of the bank and not the board, by Skadden Arps and Accemture, which provided much of the information on which the Consumer Financial Protection Bureau, the Office of the Comptroller of the Currency, and the Los Angeles City Attorney based their joint $185 million settlement.
This opens up multiple questions re: the board v. the C-suite, the board v. the regulators, etc.
As far as Dayan and Taibbi’s take on reform: I guess when you’ve watched a criminogenic environment wriggle out of any accountability for 20 years you get the idea that things don’t ever change. Except, at some point, things do start to change. Change, to use an in-apt metaphor, is a relay race, not a sprint.
Adding: Using unexpensed stock options for CEO pay incentivizes this bad behavior. It sure doesn’t align CEO interests with the legal requirements, the customers requirements, or the company’s long term survival.
Great post. Thanks.
adding: using stock options for c-suite pay incentivizes bad behavior in the c-suites. imo.
Now when does Sarbanes-Oxley ever comes into play here? They knew the numbers were bad.
Can NC readers recommend any of the online ethics guides for Boards that Yves referred to?
It looks to me as if Wells Fargo may be viewed by the insiders as Not Too Big to Fail…?
They seems to offer up a sacrificial lamb every so often to keep the really TBTF’s safe from actual actions against them.
Here’s what I’m having a problem with: it appears the general populace is more outraged over 1.2 fake credit card accounts than 14+ million people being rendered homeless due to forged documents. Can someone explain this, because I am at a loss….
I think one reason that people are so outraged about this is because it’s not high finance. It doesn’t involve subprime mortgages (although WF did that too), credit default swaps or other criminal activity that only a person steeped in financial expertise could explain. The victims of the fake credit card accounts are ordinary people just trying to do their regular banking stuff, and they get stiffed and ripped off.
I wonder what Stumpf, when he said, “I take full responsibility for this” would have done on his own, without being forced to endure clawback and lose some of his ill-gotten gains. Probably nothing – how magnanimous that he apologized!! It’s all good now.
The ONLY way to stop the banks from continuing their criminal activities is to jail them – otherwise it will continue. Thank you, Yves for great reporting.
I’ve wondered why this scandel, as bad as it is, is having tangible consequenses for WF exec.s, but the countless abuses and frauds of the subprime crisis did not. Perhaps it is because WF was caught out alone on this one. In this case all the other banksters can sit back and watch Strumpf take his much deserved punishment without worry that the public anger will spill over onto them.
Geithner is a huge reason why. Geithner was highly motivated to protect the banks. By the time Jack Lew came in, most of the really big dangers to the banks (from the government side) had been put to bed. And look at how the DoJ waited until the very latest moment possible to pursue mortgage-related settlements, and then in amounts that didn’t begin to reflect the harm done.
One big one is all the biggest US banks (if you mean the foreclosure abuses) were facing massive liability. It literally would have killed them to pay out the damages. However, those of us fighting for the problems to be acknowledged and cleaned up (as in the rule of law to be respected, what a concept) and for the grotesque abuses to be used to force banks to give deep principal mods to borrowers who had adequate income. The investors would have come out ahead too. But the Administration lacked the will to take this on. They had all the leverage and refused to use it.
This is a really easy fraud to understand. Wells appears to have had most if not all of the retail bank involved. And you have Wells in many cases effectively flat out stealing, taking money from deposits to pay credit card fees on bogus credit card accounts. The idea that a bank can raid your deposit seems to be a bright line that galvanized Congresscritters on the bank regulatory committees.
Thanks for the big picture, as always. Pithy and penetrating.
Because the GFC was driven by deliberate changes in Underwriting to enable NINA and SISA loans, and was an agreement among the people at the top in DC and Wall St.
Driven by the G W Bush “ownership society” policy.
I’m on Dayan’s email list and I just received this:
The downside to writing about current events is that your instincts can fail you. I learned that this week when Wells Fargo’s board of directors clawed back unvested stock awards for two executives, CEO John Stumpf and former head of community banking Carrie Tolstedt. The total clawback is $60 million ($41 million for Stumpf and $19 million for Tolstedt); also neither of them will get a 2016 bonus and Stumpf won’t get a salary while the board has an independent firm do an investigation into the fake account scandal (this is very minor; Stumpf’s base salary last year was $2.8 million while his total compensation was over $19 million, so a 3-month delay in salary – they didn’t necessarily say anything about eliminating it, just that Stumpf would “forgo” it during the investigation – is trivial).
Here’s the press release from the board. It’s true that on Monday, I wrote at The Intercept that the committee that determines compensation matters for Wells Fargo is comprised of current and former CEOs who wouldn’t necessarily want to take away someone else’s bonus for fear that someone would someday take away theirs. That’s what made the clawback so unusual. But I got it wrong – way wrong, and I’m owning up to it. Yves Smith at Naked Capitalism blasted me for being too pessimistic and crushing hope in Congress, which is amusing coming from her, the most dour cynic I’ve ever met online (which is saying something), but I can take it. Nobody’s an oracle and we all make mistakes.
I agree with Yves that the Labor Department opening an investigation into Wells’ labor violations associated to the cross-selling scandal is a big moment, especially given the revelations that workers were retaliated against for going through proper channels and blowing the whistle on fake account generation. But the board had to have the clawback in the works before that announcement. Public relations drove this decision. They’re taking a bit away from Stumpf and Tolstedt (really a small portion of their overall compensation, and what they made off inflating Wells Fargo stock) to say that they handled the matter internally and the feds can call off the dogs. It comes days before a House hearing with Stumpf, and attempts to signal message received. But it should in no way stand in for federal investigations and criminal charges. Nor should it curtail scrutiny of an entire industry that engages in these tactics routinely. We’re well beyond the point of self-punishment and self-regulation with respect to the financial industry.
The links aren’t coming out above but you can see or sign up for DD’s newsletter here: http://tinyletter.com/DavidDayen
I would describe Yves less as a cynic and more as a frequently-disappointed idealist. Cynics by and large don’t do righteous indignation, which is a trademark of NC.
On the bright house members are scrambling tonight on their scripts for tomorrow’s hearing. They will have to come up with additional issues to assure the public that they too are “doing something” per their jobs.
It is one way for us to enjoy despite knowing it will be is all Monday morning quarterbacking.
In tomorrow’s House hearing with Mr. Stumpf, I hope one of the congress people indicate that they will suggest to Mr. Curry of the OCC that he should forgo his salary for the delay in detecting this fraud learned by reading about it in the Los Angeles Times.
No regulators are testifying tomorrow.
And Curry is actually a good guy. He’s been working hard to try to get the OCC, which has been a total stooge for banks, to act like a regulator.
Curry ——- Paaaleeeze!
California Treasurer Suspends Ties With Wells Fargo
For one year. Well boo hoo. I wonder how California will manage that? Refuse to pay wages to CA employees who bank with Wells Fargo? What would it mean if I were to “suspend my ties” with my bank “for one year”? What might this mean in practical terms–close all CA state accounts with WF for one year, then reopen then? Refuse their phone calls? Embargo bank fees? I can’t imagine anything that makes sense, and don’t expect Wells Fargo to suffer in any way. What am I missing?
CA Treasurer John Chang’s claim to be acting based on fiduciary responsibility doesn’t convince, given his CalPERS history of saying one thing for PR purposes and doing another:
This smells to me like the “Elect-Chang-for-Something” PR machine in operation.