Wells Fargo shareholders disrupt meeting as fate of board members awaited

By Dan Freed and Ross Kerber

PONTE VEDRA BEACH, Fla. (Reuters) - Wells Fargo & Co's annual meeting was repeatedly interrupted on Tuesday by angry shareholders seeking answers about the bank's sales practices scandal ahead of a vote that could oust the majority of its board.

The meeting went into a brief recess after a shareholder made what Chairman Stephen Sanger called a "physical approach" toward a board member and was removed. Others were escorted out and the meeting was interrupted several times as investors demanded answers related to the bank having created as many as 2.1 million accounts in customers' names without their permission.

 

"You're saying we're out of order. Wells Fargo has been out of order for years!" said the first shareholder, Bruce Marks, chief executive of Neighborhood Assistance Corporation of America, before being ejected.

Sanger and CEO Tim Sloan repeatedly asked Marks to sit down because he was out of order, and then called a recess, only to have other shareholders stand and shout.

A dozen of Wells Fargo's 15 directors on the ballot face negative recommendations from Institutional Shareholder Services (ISS). The influential proxy adviser argued that the group, including Sanger, failed in their oversight duties.

Wells Fargo's guidelines require that directors offer to resign if they fail to receive a majority of votes cast. But in practice, directors who win with less than 80 percent support should consider exiting the board, said Charles Elson, a University of Delaware expert on corporate governance.

"If they're below 80 (percent) I'd say they have a lot of soul-searching to do," he said.

Sanger noted that six of Wells Fargo's directors are expected to leave over the next four years. A retirement policy in the bank's corporate governance guidelines indicates they will do so.

Wells Fargo's board and management have said that steps taken to fix problems and punish employees responsible for abuses show there is now strong oversight, and that directors nominated deserve to be elected. But the public firestorm that hammered its shares last year and led to the resignation of then-Chairman and Chief Executive John Stumpf was not forgotten.

Their messages were repeated on Tuesday.

"We are deeply sorry for letting you, our shareholders, down and letting down our customers, our team members and the communities that we do business in," said Sloan. "You expect and deserve much more from us."

Sanger tried to show patience as he was repeatedly interrupted, though he struggled at times as speakers ignored his pleas to follow the usual order of proceedings. "When I say I'm sorry ... I think that speaks for all of the board," he said at one point.

Management also faced questions and demands from activist investors on topics ranging from Wells Fargo's funding of a controversial oil pipeline to whether it should break itself up.

After investors got time to speak, Sloan and Sanger opened the floor to a general audience Q&A. As the meeting approached the 2-1/2 hour mark, two borrowers gave emotional recountings of their ordeal with Wells Fargo's mortgage operation, both breaking into tears. Management apologized and promised to personally look into their issues.

It is unclear how the vote will turn out, and Wells Fargo may not disclose the full results at the meeting.

The bank's top investor, Warren Buffett's Berkshire Hathaway Inc had already cast votes in favor of the board nominees, but other major investors either declined to comment on their plans or gave differing opinions.

California's two largest public pension funds, for instance, have said they oppose only nine Wells Fargo directors.

"We do want a core of directors left able to reconstitute the board," said Anne Simpson, Calpers' investment director of sustainability. "Simply declaring 'off with their heads' is not reasonable."

At most S&P 500 companies, director support averages around 95 percent of votes cast, according to pay consulting firm Semler Brossy. Typically a recommendation from ISS that investors vote "against" a director will reduce the support they receive by an average of 17 to 18 percentage points.

Should Wells Fargo directors win narrow majorities, between 50 to 80 percent of votes cast, the board would have to decide whether to accept any individual director's resignation.

Even if that happens, analysts and corporate governance experts said they expect few immediate changes.

It would be impractical to get rid of a nearly full slate of directors, said Vining Sparks analyst Marty Mosby. But low vote totals concentrated on certain directors would likely force them to step down soon, he added.

"The only thing they haven't really changed substantially is the board," he said. "That last step would have completed the whole process and made this vote much easier on them."

(Reporting by Ross Kerber in Boston and Dan Freed; Editing by Lauren Tara LaCapra and Meredith Mazzilli)