Business Litigation Alert: "Lesson Learned from Wells Fargo - What Your Board of Directors Needs to Know"
According to recent news reports, Wells Fargo management created an aggressive sales culture that encouraged employees to create thousands of fake accounts. News reports also suggest that the Board took no action regarding the fake accounts, even after the Los Angeles Times reported in 2013 that phony accounts were being created to meet the unrealistic sales goals.
While Wells Fargo’s CEO has been replaced and there has been a shakeup with the Board of Directors, many have asked whether that is enough. To these critics, the Board should take more responsibility as it is their job to manage (and monitor) the bank’s officers and, ultimately, protect the bank’s shareholders and customers.
So, what can your Board learn from Wells Fargo?
- Evaluate Board Structure. Take a regular and careful look at the structure of your Board. What changes can you make today that will create greater oversight? Wells Fargo has recently announced steps to restructure its Board such as splitting the role of Chairman and CEO. It is also important to look at tenure of directors.
- Evaluate Reporting. It is the job of the Board to oversee management; however, they cannot govern responsibly without complete information. There should be a clear chain to elevate any credible reports of fraud or wrongdoing to the Board so that an investigation can be started immediately.
- Take All Reports Seriously. When a Board does learn of credible allegations of wrongdoing, those reports must be taken seriously. A plan should be firmly in place so that the Board can act quickly when there is a report of wrongdoing and an investigation can be launched immediately.
There is sure to be more fallout as the investigation continues and the bank continues to respond with structural and organizational changes. It is important for companies to look at this situation as a cautionary tale, evaluate the structure of their Board, and fully understand the important role that the Board plays in governing the organization.