dylannobelCrimson flames tied through my ears

Rollin’ high and mighty traps

Pounced with fire on flaming roads

Using ideas as my maps

“We’ll meet on edges, soon,” said I

Proud ‘neath heated brow

Ah, but I was so much older then

I’m younger than that now.

 Those final two lines are my favorite Bob Dylan lyrics and they are from the song My Back Pages, which first appeared on the 1964 album, Another Side of Bob Dylan. Many have interpreted the song as a change from Dylan’s ‘finger-pointing’ songs of his early albums to a more mature and even commercial sound he was working towards. Robert Shelton interpreted these final two lines as “an internal dialogue between what he once accepted and now doubts.” Shelton also noted that the refrain maps a path from Blakean experience to the innocence of William Wordsworth. Nigel Williamson, in his 2006 work, The Rough Guide to Bob Dylan, wrote this refrain has also been interpreted as Dylan celebrating his “bright, new post-protest future.” Whether it was the Dylan’s break with the protest movement or some other world-weary Blakean awakening, I still find much gravitas in those words now.

One thing that did change last week was the resignation of Wells Fargo Chief Executive Officer (CEO) John Stumpf. His resignation followed on the heels of the retirement, effective immediately rather than at the end of the year, of Carrie Tolstedt, the former head of the bank’s consumer unit where the fraud had occurred. He leaves with a reported $100MM plus package so you do not have to cry too much for him. Not only that but Alistair Gray and Kara Scannell, writing in a Financial Times (FT) article, entitled “Wells Fargo caves in and dispenses with chief”, asked “The big question is whether his departure is enough to draw a line under the scandal for once and all?” because the following quote from the Wells Fargo website reads, “Integrity is not a commodity. It’s the most rare and precious of personal attributes. It is the core of a person’s — and a company’s — reputation.”

The problem would initially seem to be that Wells Fargo has not begun to answer the question of how any of the issues which led to the scandal came to pass. There has been no response to such questions as: how the incentive requirements of eight product purchases per customer was derived; why all the persons who tried to bring to management’s attention the fraud were disciplined, shunned or terminated; why the bank apparently did nothing to remediate the problems, having been made aware of it from at least 2009 and certainly after the Los Angeles Times broke the scandal publicly in 2013; why it took CEO Stumpf one year to even inform the board of the fraud; why some 5300 employees were fired but not one member of senior management was terminated, unless you consider Stumpf’s resignation a de facto termination.

Yet just as the Volkswagen (VW) emissions-testing scandal, threw a cloud over the entire German automotive industry, the Wells Fargo scandal may well negatively inform the banking industry for years to come. Ben McLannahan, also writing in a FT piece, entitled “Stumpf’s departure likely to have big consequences for US banks”, said that Stumpf’s downfall “is likely to have at least three big consequences for the rest of big US banks.” The first is the clawback issue, where Stumpf forfeited some $41MM in stock previously awarded to him, noting “In doing so, it joined a very small band of big companies to have responded to a reputational hit by requiring executives to forfeit unvested shares. Analysts at Keefe, Bruyette & Woods said the clawbacks should be enough to “quell the outrage”, as they amounted to more than 20 times the fees inappropriately charged to customers during the period that regulators examined. That they were not, may send shivers down the spines of every senior executive at a big US bank.”

The second issue is around corporate governance, because at Wells Fargo, the CEO and Chairman of the Board were the same person, John Stumpf. The bank had fiercely resisted all shareholder attempts to separate these two roles. McLannahan wrote, “Tim Sloan, the former president and chief operating officer who is stepping up to chief executive of Wells, is not taking the additional title of chairman. Stephen Sanger, the lead independent director and former chief executive of General Mills, is assuming the role — and not on an interim basis.

Wells’ separation of the Chairman of the Board position from the CEO position last week seems to be a clear admission that governance was not as good as it should have been under the old model. Among the big US banks only Citigroup splits the roles.” McLannahan wrote that other banks “such as JPMorgan Chase and Bank of America, are likely to find that the question of the optimal governance structure returns with a vengeance during next year’s annual meeting season.”

Finally, and for banks most ominously, is the spectre of government mandated breakups. If there is one thing that has been clear from the myriad of banking scandals, it is that banks have grown too large to manage. McLannahan cited to “Maxine Waters, the top Democrat on the House financial services committee, wasted little time on Wednesday evening in applauding Mr Stumpf’s departure.” Moreover, “she added that she still felt the bank was too big and “reiterated a pledge that she would work with members of the committee — including Jeb Hensarling, its Republican chairman — to cut it down to size.”

At the end of the day, that may be Wells Fargo lasting legacy. Something as simple as a consumer financial product and an aggressive sales incentive program could lead to such massive changes. Dylan was right, “I was so much older then, I’m younger than that now.”


This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2016