BOSTON/PONTE VEDRA BEACH, Fla. (Reuters) - Wells Fargo & Co’s (WFC.N) directors face an unusual and difficult task after shareholders rebuffed most of them: reformulating the board in a way that satisfies investors without causing more chaos.
Chairman Stephen Sanger said no directors will step down immediately, even after a dozen fell short of a traditional threshold of shareholder confidence at the bank’s dramatic annual meeting on Tuesday. But sources said some directors nearing a mandatory retirement age may speed up plans to leave, as the board begins a gradual turnover.
The results were uniformly described as devastating: only three directors received solid support and four, including Sanger, squeaked by with just 53 to 57 percent of votes cast, according to the bank’s preliminary tally.
Some investors who voted against directors told Reuters their intention was not to get them ousted immediately, but to signal dissatisfaction with the bank’s response to a scandal involving thousands of employees creating as many as 2.1 million unauthorised customer accounts.
Even so, several shareholder elections experts called the vote tally unprecedented, especially at a company the size of Wells Fargo, and predicted it would spur change.
“These numbers are more than not good, they’re reflective of an overwhelming rejection of the directors,” said Columbia Law School professor Robert Jackson, who studies corporate governance.
Jackson expects at least a few directors step down in a month or two, much like two directors left JPMorgan Chase & Co (JPM.N) after winning narrow majorities in 2013. He expects Sanger to be replaced by a colleague who garnered more support.
“When 44 percent of investors don’t like your work, then the question of whether he will step down isn’t ‘if’ but ‘when,'” Jackson said.
There are not many examples that compare to Wells Fargo’s situation.
After the 2008 financial crisis, the boards of Bank of America Corp B.ACN and Citigroup Inc (C.N) were refashioned under the eye of federal regulators who wanted more directors with banking experience. But those changes came with checks and balances from the U.S. government.
Typically, the board’s governance and nominating committee would handle director changes. But only one director on that committee received a vote of high confidence, potentially putting members in the awkward position of picking their own replacements.
Six of Wells Fargo’s directors will reach a mandatory retirement age in the next four years, including Sanger, who turns 72 next year. A person familiar with board discussions said some of those retirements are likely to happen sooner.
The three directors in good stead with shareholders all joined the board in recent months, indicating investors may welcome new additions with the right expertise.
Institutional Shareholder Services had recommended shareholders vote against the dozen who received tepid support.
Kevin McManus, vice president at Egan-Jones Proxy Services, said directors should not be caught off guard by the outcome of Tuesday’s vote.
“They might not be able to leave at once,” he said, but “hopefully they’ve already planned for this possibility.”
Reporting by Ross Kerber in Boston and Dan Freed in Ponte Vedra Beach, Florida; Editing by Lauren Tara LaCapra and Meredith Mazzilli