CalSTRS Upends Wells Fargo Stagecoach with Votes Against Long-Tenured Board Members

Statement Michelle Mussuto

WEST SACRAMENTO, Calif. – CalSTRS voted its 11.6 million shares against long-tenured board members John D. Baker II, John S. Chen, Lloyd H. Dean, Enrique Hernandez, Jr., Donald M. James, Cynthia H. Milligan, Federico F. Peña, Stephen W. Sanger, and Susan G. Swenson. These board members failed in their duty to shareholders to identify the weaknesses in the company’s risk and oversight mechanisms. They bear responsibility for the failure of oversight of sales practices at Wells Fargo, which the Sales Practices Investigation Report indicated had been growing since 2007 and which peaked in 2013.

Notably, in previous years, CalSTRS voted against board members John S. Chen and Susan G. Swenson, as well as former CEO and Chairman John G. Stumpf, because they violated CalSTRS’ principle on director time commitments. All three were serving as CEOs while also serving on more than one outside board.  

CalSTRS views the CEO position as more than a full-time job that has only become more demanding over time.  CalSTRS wants a CEO to be focused on their day job.

Furthermore, with six directors scheduled to retire in the next four years, CalSTRS believes Wells Fargo should expedite the board refreshment process and reach out to their shareholder base for feedback during this process. The board would also benefit from adding directors with greater banking and financial institution experience.

CalSTRS applauds the company’s decision to separate the CEO and chairman roles and amend the company’s by-laws to require an independent chairman.  CalSTRS had campaigned and supported for the permanent separation of the CEO and chairman positions at Wells Fargo for a number of years, because we believe a combined CEO and chair presents an inherent conflict of interest.

In addition to our director votes, we also voted on executive compensation, external auditor and six shareholder proposals.

  • In light of the turnover in the executive management ranks and the board’s decision to clawback compensation from John Stumpf and Carrie Tolstedt, we supported the company’s executive compensation this year.
  • CalSTRS is withholding support for Wells Fargo’s external auditor KPMG, who has served as the company’s external auditor for 86 years. CalSTRS believes it is an opportune time for a fresh perspective from a new external auditor.
  • Shareholder Proposal #5 (Report on Business Standards): FOR – CalSTRS views the request as reasonable and not fully addressed by the company’s recently released Sales Practices Investigation.  It will also help ensure that Wells Fargo continues to report on this topic in the future to its shareholders.
  • Shareholder Proposal #6 (Cumulative Voting): AGAINST – Wells Fargo already has majority voting standard and proxy access provisions in place.
  • Shareholder Proposal #7 (Divesting in Non-Core Businesses): AGAINST – CalSTRS believes the board is in the best position to examine company strategy, which includes business divestitures. In addition, we do not think the proponent has made a compelling case on the merits of this proposal.
  • Shareholder Proposal #8 (Gender Pay Gap Disclosure): FOR – CalSTRS believes this request is reasonable. Companies already collect similar information for other reporting purposes that can be used to fulfill this request.  Wells Fargo currently does a good job reporting, however CalSTRS believes additional disclosure is beneficial.
  • Shareholder Proposal #9 (Lobbying Disclosure): AGAINST – Wells Fargo appears to adequately address political contributions and trade association disclosures and has a policy in place.
  • Shareholder Proposal #10 (Indigenous People Policy): FOR – Shareholders would benefit from additional information Wells Fargo can provide on its policies, processes and oversight  around impacts to indigenous peoples’ rights that result from their current lending practices.

About CalSTRS

The California State Teachers’ Retirement System, with a portfolio valued at $202.8 billion as of March 31, 2017, is the largest educator-only pension fund in the world. CalSTRS administers a hybrid retirement system, consisting of traditional defined benefit, cash balance and voluntary defined contribution plans. CalSTRS also provides disability and survivor benefits. CalSTRS serves California’s more than 914,000 public school educators and their families from the state’s 1,700 school districts, county offices of education and community college districts.

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