High-stakes vote on Wells Fargo board also tests proxy adviser ISS

Fri Apr 21, 2017 5:09am EDT
 
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By Ross Kerber and Dan Freed

BOSTON (Reuters) - A high-stakes shareholder vote at Wells Fargo & Co (WFC.N: Quote) next week will determine whether the bank has done enough to retain investor confidence after its phony-account scandal, and whether a leading proxy adviser wields enough clout to help oust most of its board.

In one of its toughest shareholder notes, Institutional Shareholder Services (ISS) recommended earlier this month that investors vote against 12 of the 15 directors on Wells Fargo's ballot at the company's annual meeting on April 25, including independent chairman Stephen Sanger. ISS argued they had all failed in their oversight duties.

The recommendation was another blow to the country's third-largest bank, which has been struggling for months to move past revelations that thousands of employees created as many as 2 million accounts in customers' names without permission to hit lofty sales targets. ISS's recommendation followed one by Glass Lewis, its closest competitor, which recommended votes against six directors for similar reasons. The ball is now in the shareholders' court. A sampling of investors who spoke to Reuters were split on how to vote.

It would be extremely unusual for most directors at a company the size of Wells Fargo to turn over suddenly, without pressure from an activist investor, but ISS's scathing review was also rare.

According to Proxy Insight, among the 2,780 meetings held by S&P 500 companies since 2012, ISS has recommended votes against 80 percent or more of directors in just seven cases besides Wells Fargo. Each involved a special circumstance, like only a few directors being up for re-election.

ISS's Wells Fargo recommendation was "among the harshest that I can recall," said Bruce Goldfarb, president of proxy solicitation firm Okapi Partners.

An ISS spokesman declined to comment. Wells Fargo representatives cited an April 7 statement calling the ISS recommendation "extreme and unprecedented."

ISS is the largest proxy adviser, with about 1,700 clients versus Glass Lewis's 1,200, and has faced concerns it wields undue influence over corporate elections. On average, directors who ISS recommends "against" receive 17 percent to 18 percent less support, according to consulting firm Semler Brossy.   Continued...

 
A Wells Fargo logo is seen in New York City, U.S. January 10, 2017. REUTERS/Stephanie Keith