Wells Fargo and illegal sales

The article is from the Wall Street Journal.

This type of outcome in banking does not surprise me at all. Is it the fault of the executives or is it a basket of ‘bad apples’ (employees) who caused the problem? From my reading, it is both. But as long as banks continue to push product sales, there will always be trouble. Particularly as retail banking is a double edged sword: it pays very low wages to retail bankers, tellers and low level managers; but, it is also a good path for someone with no college education, where they can make a career out of it as opposed to just a job.

Carrie Tolstedt: In the Eye of the Wells Fargo Storm
Executive who oversaw lender’s retail operations was known for her dogged attention to detail; senators want to know how the allegedly illegal sales practices could have escaped her notice

By EMILY GLAZER
Updated Sept. 19, 2016 7:13 p.m. ET

Inside Wells Fargo & Co., some executives called Carrie Tolstedt “the watchmaker” for her obsessive attention to detail in running the firm’s sprawling retail-banking operation.

Now, the question is how allegedly illegal sales practices could have escaped her notice as the executive responsible for the bank’s 6,000 branches across the U.S.

On Tuesday, Wells Fargo Chief Executive John Stumpf will appear before the Senate Banking Committee to explain what happened. One big question: Who is responsible in the bank’s upper echelons for the sales-practice problems and who, if anyone, will be held accountable?

That has taken on added import given regulators disclosed that Wells Fargo over five years had fired 5,300 employees for improper behavior. Mr. Stumpf has declined to say how high up the ranks the dismissals went.

Ms. Tolstedt wasn’t asked to appear at the congressional hearing. She stepped down from her post atop the retail-banking business in July and plans to retire at the end of the year. She continues to work at the bank until then, reporting to Chief Operating Officer Tim Sloan, according to the bank.

Already some senators have raised questions about her role. Last week, a group of senators led by Massachusetts Democrat Elizabeth Warren sent a letter to Mr. Stumpf asking whether the bank will use its “clawback authority” to recover compensation it has paid to senior executives, especially to Ms. Tolstedt.

The senators noted that Ms. Tolstedt received more than $20 million in annual bonuses from 2010 to 2015, “justified by the company in certain instances because of the ‘strong cross-sell ratios’ in her division.” They added: “That is a direct reference to the extraordinary number of accounts created by her division, many of which were never authorized by customers.”

Regulators said as many as two million accounts may have been opened without customers’ consent. The bank neither admitted nor denied the allegations in the $185 million settlement.

In response to questions related to clawing back pay, Mr. Stumpf said in a CNBC interview last week that “to the extent that’s a consideration, we have a process” without elaborating further.

The bank declined to comment on Ms. Tolstedt’s behalf, and Ms. Tolstedt didn’t respond to requests for comment. In the announcement of her retirement this summer, Mr. Stumpf called her “a standard-bearer of our culture, a champion for our customers, and a role model for responsible, principled and inclusive leadership.”

Ms. Tolstedt, a 27-year veteran of the bank, has headed its retail operations since June 2007. In that role, the 56-year-old Nebraska native oversaw the bank’s branches, was responsible for its business with 40 million retail-banking customers, and led the bank’s efforts to cross-sell multiple products to individual customers.

Sales goals connected with cross-selling also fell under Ms. Tolstedt’s remit. More than three dozen current and former Wells Fargo employees have told The Wall Street Journal in interviews that those goals defined the retail bank’s culture and led many staff to engage in practices that are now under question. Wells Fargo said last week that it would do away with such goals starting in January.

Ms. Tolstedt’s attention to detail paid off in some ways. The retail-banking arm, along with the consumer-lending unit, were important drivers of revenue and profit growth for the bank, contributing about half of the total annually. Wells Fargo recorded 18 consecutive quarters of year-over-year profit growth until early 2015. And Ms. Tolstedt shared in Wells Fargo’s growth. In 2015, she received total compensation of $9.05 million, according to the bank’s proxy statement.

Although she was one of the top-earning executives at the bank, Ms. Tolstedt wasn’t known to flaunt her money. She wasn’t a high-end dresser, preferring simple suits, said people who know her. She often pulled back her hair with a rubber band.

Ms. Tolstedt was known by many executives and employees in the bank to be a tireless worker, spending nights and weekends on the job and poring over even small details. For instance, leases for branches, known as “stores” inside the bank, would sometimes sit for months on her desk on the 12th floor of the bank’s headquarters at 420 Montgomery St. in San Francisco, a current executive said. This was because Ms. Tolstedt insisted on signing every one, even though others in the bank already had run the numbers, the executive added.

Ms. Tolstedt also insisted on approving every “administrative assistant” position that would be posted to recruiting because she didn’t want nonproducing resources on the books, this person said. Her operational reviews with regional bank executives would dive into the nitty-gritty of line items, including debit cards, credit cards, online bill pay and checking accounts.

Living on the East Bay of San Francisco and commuting by BART train, she often talked with others about how much she learned from her father, according to people close to her. He was a baker and would rise early and throw himself into his work, they said.

Ms. Tolstedt would sometimes focus too much on day-to-day operations, according to current and former executives. That is part of the reason she wasn’t a candidate considered to succeed Mr. Stumpf, who is expected to retire in the next few years, a person familiar with the discussions said. In her performance appraisals, a common improvement point was to delegate more, this person added.

Around the spring, Ms. Tolstedt told Mr. Stumpf that she would like to retire later in the year, according to people familiar with the discussions. The decision was made while discussions with regulators over the cross-selling practices were under way. The bank made clear to regulators that Ms. Tolstedt would be leaving, these people said.

She told some in the industry it was “time to go back to Nebraska, time to go home,” one person said.

Write to Emily Glazer at emily.glazer@wsj.com