"Wells Fargo board gets black eye in shareholder vote," was the glaring headline from Reuters following the financial giant's annual meeting earlier this year.
The contentious meeting included an investor shouting at directors about whether they were complicit in the fraud or just incompetent, and a largely anemic shareholder vote of support for the 15-member board.
"Wells Fargo stockholders today have sent the entire board a clear message of dissatisfaction," said Stephen Sanger, Wells Fargo's Board Chairman in a statement after the vote. "Let me assure you that the board has heard that message, and we recognize there is still a great deal of work to do to rebuild the trust of stockholders, customers and employees."
The Wells Fargo scandal, which including thousands of employees creating fake customer bank accounts, led to a $142 million government settlement, congressional hearings and the ouster of the firm's CEO and Chairman John Stumpf.
A report by Wells Fargo meant to explain the fiasco found: "The root cause of sales practice failures was the distortion of the community bank's sales culture and performance management system, which, when combined with aggressive sales management, created pressure on employees to sell unwanted or unneeded products to customers and, in some cases, to open unauthorized accounts."
As for bank's directors, the report stated that "the board was regularly engaged on the issue; however, management reports did not accurately convey the scope of the problem."
Indeed, much of the responsibility fell on management, says Clifford Rossi, finance professor at the University of Marylands' Robert H. Smith School of Business.
"A lot stopped at the senior management level, and didn't bubble up to the board," he explains. "That said, fundamentally the buck stops with board. The board has to keep pressing, asking a lot of questions like, 'Are there any issues you have identified that could come back to bite us?'"
These days most of bank risk isn't coming from the financial risk, he notes. "It's coming more from the operational risk, people, process and technology."
"The board's duty is oversight," says Robert Zafft, an attorney with Greensfelder, Hemker & Gale in St. Louis, Mo. who writes the "Ethics Talk" column for American City Business Journals. The rules increasingly are more specific about financial controls and risk management, he adds. "Where was the spot-checking and the big data audits that should have caught...