• April 21 2017, 2:19pm EDT
  • American Banker

We will be in Jacksonville, Fla., at the Wells Fargo annual meeting on Tuesday to present our resolution to fellow shareholders requesting a “Review and Report on the Business Standards,” including a full accounting of the systemic failures that allowed the bank’s unethical practices to flourish.

While many shareholders are by now largely immune to the transgressions of the U.S. banking sector, Wells Fargo’s recent phony account scandal has given even the most hardened cynics pause, likely due to the incredible breadth of the bank’s fraud. But it is important to note the historical context here as Wells Fargo has repeatedly had to settle with federal regulators over how it has treated customers. This indicates to us a more persistent and systemic problem with the company’s culture.

Wells Fargo has paid out hundreds of millions of dollars during the past decade for discriminatory and predatory lending practices that disadvantaged homeowners, members of the armed services and student loan borrowers. And this is not the first time investors have asked for this type of business standards review. We have been sounding the alarm about Wells Fargo’s business conduct for close to a decade.

Beyond the cost of regulatory settlements which has soared to well over a billion dollars in the past seven years, Wells Fargo has seen the steepest drop in the history of the Harris poll on corporate reputation.

The iconic Wells Fargo stagecoach is meant to symbolize service, stability and innovation. But right now, the Wells Fargo coach is deep in a ditch in need of some serious repairs. Beyond the cost of regulatory settlements which has soared to well over a billion dollars in the past seven years, Wells Fargo has seen the steepest drop in the history of the Harris poll on corporate reputation, surpassing even Volkswagen by falling over 20 points to 99th place — just above bottom-ranked Takata airbags. We hope the company’s board, management and shareholders finally see that the only way to right this company and restore the trust of its customers and the broader public is to make some extensive and long-needed repairs. We believe this resolution, and the serious introspection it calls for, are an important first step.

The need for an external assessment has been underscored by the bank’s response as the scandal broke. Instead of immediately coming clean about what is now understood to be a pervasive and long-term cultural problem fostered by top management and permitted to flourish through board negligence, the bank’s first response was to fire thousands of low-level employees and to narrowly characterize the scandal as a retail-sales division issue. The facts belie this spin: Last month, citing the “extensive and pervasive pattern and practice of discriminatory and illegal credit practices across multiple lines of business within the bank,” the Office of the Comptroller of the Currency awarded the bank a rare “Needs to Improve” Community Reinvestment Act rating.

While the bank recently released a report about the accounts scandal, we are concerned that it is restricted to a discussion of the retail sales division and, further, that it places all the blame on a handful of executives — who have since been sacked — largely absolving the directors who were in place while the fraudulent activity was happening. The report also has left dozens of questions unanswered, including the extent of the sales practices associated with the scandal and why they weren’t uncovered sooner. Even more critically, after reading the report investors still don’t have a clear picture of how the bank intends to prevent a reoccurrence. What risk management and board oversight protocols will be developed to guard against future ethical failures? How will incentive systems be modified and what employee training will be implemented to ensure customer suitability is properly vetted for all products? How will a commitment to a culture of service, stability and innovation be operationalized and nurtured by top management and the board going forward?

Our resolution calls for a rigorous review and a detailed plan to address these concerns. It’s noteworthy that Institutional Shareholder Services (ISS) recommended a “yes” vote on this resolution. If you’re an investor in Wells Fargo, we will be encouraging you to vote in favor of Resolution #5 this Tuesday. Wells Fargo faces enormous challenges if it genuinely wishes to learn from its mistakes and work to rebuild the trust of its customers, employees, shareholders and regulators. It will require the efforts of all these stakeholders to repair the damage and set the company on the right course for the future as a corporation that will help, not harm, its customers.

Nora Nash

Sister Nora Nash is the director of Corporate Responsibility for the Sisters of St. Francis of Philadelphia and a member of the Interfaith Center on Corporate Responsibility, a shareholder coalition engaging the top U.S. banks on risk management and responsible lending.

Paulina Gonzalez

Paulina Gonzalez is the executive director of the California Reinvestment Coalition.