The most influential shareholder advisory firm recommended Friday that investors vote against 12 of Wells Fargo's (WFC) - Get Report 15 director nominees, arguing that members of two board subcommittees "failed over a number of years" to provide sufficient risk oversight at the scandal-plagued lender.
The report from Institutional Shareholder Services followed a critical assessment earlier this week from proxy-adviser Glass Lewis. Both referenced the disclosure last September that Wells Fargo employees working to meet ambitious sales targets created more than 2 million unauthorized credit card and savings accounts over a five-year period.
Not only did the San Francisco bank pay $185 million to settle claims by the U.S. Consumer Financial Protection Bureau and state regulators over the bogus accounts, it faced a backlash from Congress, clients and employees. CEO John Stumpf stepped down last fall after brutal hearings in the House and Senate, and the company expects to share the findings of an internal investigation led by independent board members before its annual meeting April 25.
ISS and Glass Lewis each carry significant weight with institutional investors, and their tough messages boost the likelihood of Wells Fargo shaking up its board.
The company failed to implement an "effective risk management oversight process in a timely way and that could have mitigated the harm to its customers, employees and the bank's brand and reputation," ISS said in its report Friday, a copy of which was obtained by TheStreet.
ISS specifically targeted directors on Wells Fargo's audit, risk and human resources subcommittees. Governance-focused academics have also taken issue with some Wells Fargo board members, and Glass Lewis recommended in its April 3 report that shareholders vote against six of them.
Four of those didn't live up to their duties on a corporate responsibility subcommittee, Glass Lewis said, and two are CEOs who also have board posts outside both Wells Fargo and their own companies.
According to relationship mapping service BoardEx, a division of TheStreet, John Chen is the chairman and CEO of Blackberry (BBRY) and a director at Walt Disney (DIS) - Get Report in addition to his Wells Fargo directorship. He is also a technical advisory board member at WI Harper Group.
"The time commitment required by this number of board memberships, in conjunction with executive duties, may preclude the nominees from dedicating the time necessary to fulfill the responsibilities required of directors," Glass Lewis said.
The advisers' recommendations are likely to boost the efforts of the Change to Win labor group, which has engaged with Wells Fargo in the wake of the scandal. The organization counsels union pensions.
In a separate statement, Wells Fargo referred to the ISS recommendations as "extreme" and said the adviser failed to recognize that the company has taken substantial actions to address its issues.
"The board and management are working tirelessly to rebuild the trust of customers, employees and investors, and are making substantial progress in strengthening Wells Fargo," the lender said.
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The company also noted that both the Glass Lewis and ISS recommendations were issued in advance of the forthcoming report on the board's independent probe.
Still, ISS's recommendations may drive at least a large minority of shares to vote against the twelve incumbent directors. The vote isn't binding and Wells Fargo isn't obligated to remove the directors even if a majority of shares oppose them. A sufficiently large "no" vote might be embarrassing enough to prompt the bank to make changes on its own, however.