Gillian Tan is a Bloomberg Gadfly columnist covering deals and private equity. She previously was a reporter for the Wall Street Journal. She is a qualified chartered accountant.

(Updated )

Wells Fargo shareholders should prepare to make history. 

I've written before that the bank's board of directors could use a shake-up after a retail-banking scandal that has cost the lender more than just a $110 million settlement with customers and a separate $185 million settlement with federal regulators and the Los Angeles city attorney’s office.

Proxy advisory firm Institutional Shareholder Services Inc. took that idea a step further. On Friday, it recommended that at the annual meeting on April 25, investors should vote for only three of the company's 15 directors: Two who joined in February and the new CEO, Tim Sloan.  

The average Wells Fargo director has served for a little less than eight years
Source: ISS

That recommendation took on added urgency on Monday after the bank released the results of a six-month investigation by a panel of independent directors, who deflected blame, saying that top executives including former CEO John Stumpf and Carrie Tolstedt, the former head of community banking, misled them about the extent of the issues with the bank's sales practices. On Monday, Wells Fargo's directors said that they were clawing back an additional $75 million in compensation from Stumpf and Tolstedt. (Tolstedt's attorneys told Bloomberg News that they "strongly disagreed with the report and its attempt to lay blame" with their client.) 

As expected, Wells Fargo & Co. has defended its board, describing ISS's recommendation as "extreme and unprecedented." It added that the firm isn't giving the bank credit for enhanced accountability, including forgone executive compensation and an improved corporate governance structure. One highlight of the latter was the bank's decision to split the CEO and chairman roles, which to be fair is something that investors in other major U.S. banks like Bank of America Corp. and JPMorgan Chase & Co. are still confronting.

While these moves should be applauded, starting with what's basically a clean slate would allow the company to tap new directors with original ideas on how to drive loan growth or refine overall strategy, possibly by fueling investments into various parts of its business. And if the majority of investors are prepared to shake things up, it'll be one for the record books.

Apart from instances of shareholder activism, it's rare for the majority of a board to exit. But it's happened on occasion, including once in 2008. ISS recommended that shareholders withhold votes for all nine Cooper Cos. directors because the company amended its poison pill provisions without giving shareholders a say. In the end, five didn't receive enough shareholder support. 

Still, obtaining consensus is tricky, especially if some shareholders are nonplussed. After Target Corp.'s massive data breach in 2013, ISS recommended against supporting the re-election of seven out of 10 directors, citing inadequate risk oversight. But when it came down to it, investors deemed them fit to stay on in their roles, and the board remained intact. 

Count 'Em on Two Hands
Over the past decade, just 57 directors have failed to receive majority support at annual meetings. Of those, only 30 left their posts.
Source: ISS Analytics

In fact, since 2007, out of a pool of more than 37,000 elections, just 57 directors have failed to receive majority support from shareholders, according to ISS Analytics, the data and analytics arm of ISS. What's more eyebrow-raising is of those, 27 have been able to hang onto their board seats, generally because their companies don't have majority vote standards, which allows directors to be re-elected even without overwhelming support from investors.  

Wells Fargo's retail-account scandal has weighed on its shares
Source: Bloomberg

To its credit, Wells Fargo does have majority vote standards, so if the bulk of shareholders decide not to support the re-election of one or more directors, that decision will stick. And the bank's relative underperformance to its peers over the past 12 months -- a gain of 17 percent compared with JPMorgan's 50 percent, Bank of America's 80 percent and Citigroup Inc.'s 48 percent -- may provide ample motivation for a change in direction. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

(Adds fourth paragraph on investigation by independent directors.)

  1. Glass Lewis & Co., another proxy adviser, recommended shareholders oppose the re-election of six directors.

  2. For the 30 directors that were relieved of their duties, the voting was relatively close, with an average 42.6 percent of their respective shareholders casting favorable votes.

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Gillian Tan in New York at

To contact the editor responsible for this story:
Daniel Niemi at