Activists urge Wells Fargo not to name Scharf chairman

• Expert quote: “What matters most … is that both CEOs and board chairs must remain in service to others, especially shareholders and stakeholders,” said former Army secretary and current Wharton School instructor Patrick Murphy. “Scharf has already demonstrated that kind of servant leadership in spades.”
• What’s at stake: A corporate activist group has submitted a proposal urging Wells Fargo to abandon its plan to name CEO Charlie Scharf chairman as a reward for overseeing the company’s burgeoning recovery from the disastrous 2016 fraudulent accounts scandal.
• Key insight: Wells Fargo plans to create a lead independent director role to help ensure independent board oversight.

An activist shareholder group is pressing Wells Fargo to reverse course and keep its chairman and CEO roles separate.

The $2 trillion-asset bank announced plans in July to give the chairman role to CEO Charlie Scharf. The appointment would undo a nine-year-old corporate bylaw requiring that an independent director serve as chairman.

Earlier this week, The Accountability Board, a three-year-old organization that focuses on corporate governance issues, delivered a proposal to Wells urging the company to maintain its 2016 policy.

“We think an independent chair is almost always an important guardrail for a company to have in place,” Matt Prescott, The Accountability Board’s president and chief operating officer, said Wednesday in an email to American Banker. “That’s especially so for companies that have faced major governance lapses in their recent history like Wells.”

A Wells Fargo spokesperson declined to comment on the proposal.

In the July press release announcing Scharf’s intended new position, Wells pledged to create a lead independent director role to help ensure continued independent oversight. The bank has not set a timetable for the board reshuffle. Its website lists Steven Black, who has served as chairman since August 2021, as continuing to fill that role.

By elevating Scharf, Wells Fargo said it sought to reward the CEO for his work managing the company’s recovery from the massive 2016 fraudulent accounts scandal, which involved bank employees creating unauthorized card and deposit accounts for customers in an effort to meet aggressive in-house sales goals. The scandal led to the federal government imposing an unprecedented $1.95 trillion asset cap on the bank in 2018, as well as a $3 billion monetary settlement two years later.

In the press release announcing Scharf’s elevation to the chairman post, Wells Fargo said that its CEO “has built an outstanding management team, significantly strengthened the company’s risk and control infrastructure, improved its reputation, achieved critical regulatory milestones, and delivered a strong financial performance, while making strategic investments in driving growth of our core businesses.”

Also in July, Wells Fargo rewarded Scharf with a one-time special equity grant totaling $30 million.

Banking regulators lifted Wells’ seven-year-old asset cap in June. A month later, the company reported second-quarter net income totaling $5.5 billion, beating analysts’ expectations.

Across the banking industry, proposals requiring separation between the CEO and board chair roles have garnered shareholder support. Views are far from unanimous, though.

Patrick Murphy, an entrepreneur, investor and Wharton School lecturer who served as secretary of the Army from 2015 to 2017, told American Banker on Wednesday that giving Scharf the chairman title “is neither uncommon nor ill-advised.”

“What matters most … is that both CEOs and board chairs must remain in service to others, especially shareholders and stakeholders,” Murphy said. “Scharf has already demonstrated that kind of servant leadership in spades. I don’t believe his dual role will diminish the board’s ability to provide independent oversight.”

Prescott, however, views Scharf’s elevation as an instance of Wells Fargo breaking faith with shareholders.

“We found it particularly troubling how the company extensively touted its independent chair as a crucial part of its recovery but then abandoned that policy entirely and decided to revert to the very structure under which its problems began,” Prescott said.

The Accountability Board’s founders, including Prescott, have backgrounds in animal rights activism. At the same time, Prescott stated that corporate governance “has indeed been a longstanding interest, especially with regard to board accountability and shareholder rights.”