Winston-Salem is bracing yet again following another top executive change for a major financial institution with a significant local workforce.
For the second time in 21/2 years, Wells Fargo & Co. has had its chief executive retire in both an abrupt, yet expected, manner related to its continuing fraudulent customer-account scandal that surfaced in September 2016.
Timothy Sloan’s retirement was effective immediately Thursday. Allen Parker, the bank’s general counsel, was named interim chief executive, but apparently is not a candidate for the full-time post.
Sloan had experienced significant advocate and political pressure, particularly from Democratic congressional representatives, since he took over from a retiring John Stumpf in October 2016.
Wells Fargo confirmed in August 2017 the potential for at least 3.53 million accounts being affected by its fraudulent customer-accounts scandal, up from the 2.1 million initially announced.
Although most of the victims were in Arizona and California, the bank has said it cannot rule out that at least 38,722 unauthorized customer accounts were established in North Carolina and 23,327 in South Carolina.
The scrutiny increased following Wells Fargo’s March 13 disclosure that Sloan received $18.43 million in total compensation for fiscal 2018, including getting $2 million in incentive pay for the first time in at least three years.
Sloan said in a statement that “it has become apparent to me that our ability to successfully move Wells Fargo forward from here will benefit from a new CEO and fresh perspectives.”
“For this reason, I have decided it is best for the company that I step aside and devote my efforts to supporting an effective transition.”
Betty Duke, Wells Fargo’s chairwoman, said the board of directors has determined “that seeking someone from the outside is the most effective way to complete the transformation at Wells Fargo.”
There were media reports earlier in March, most notably from The New York Post, that Wells Fargo was considering replacing Sloan with former Goldman Sachs executives. Duke denied those reports at the time.
For the third time since 2001, a shadow of uncertainty has been cast over the bank’s local workforce, which numbered about 4,300 prior to the September 2001 sale to First Union Corp.
First Union committed to having 3,000 Wachovia employees here as a way of putting salve on the wound of Winston-Salem’s losing the Wachovia headquarters. Wells Fargo has about 2,900 local employees, and 3,600 in its 32-county Triad West region.
There have been local concerns before about Wells Fargo — foremost, that the Winston-Salem operations, particularly the trust and wealth-management hub, would be gobbled up within Wells Fargo’s national footprint, which includes its San Francisco headquarters, Minneapolis corporate roots, and Charlotte and Arizona operational hubs.
The reality of an outsider running Wells Fargo for the first time in 12 years matters locally, as well as in Charlotte. An outside chief executive is more likely to not have any ties or loyalties to existing Wells Fargo operations.
Counting Sloan, four of the previous five chief executives since the mid-1960s all worked up through the Wells Fargo ranks.
Richard Kovacevich became Wells Fargo’s chief executive in 1998 as part of Norwest’s purchase of Wells Fargo, but chose to keep the Wells Fargo name because of it being a national brand.
Kovacevich was chairman and chief executive of Norwest prior to the merger. He became Wells Fargo chairman in 2001, where he remained until being replaced by Stumpf as chief executive in 2007 and as chairman in 2010.
Goldman Sachs analyst Richard Ramsden said Friday the Wells Fargo board “is committed to keeping the CEO and chairman roles separate upon the new CEO taking over.”
“The company noted that they have not yet met with anyone external to Wells Fargo regarding hiring the new CEO.”
Ramsden said Sloan has indicated his retirement is not due to any new sales or regulatory issues that have not been previously disclosed.”
What to expect?
An outside chief executive is likely to “want to exercise diligence and ensure any changes implemented at this point — including any geographic relocation of areas of the bank — specifically address the issues of corporate culture and poor decision making that have taken them to this point,” said Roger Beahm, executive director of the Center for Retail Innovation at the Wake Forest University School of Business.
“Wells Fargo can’t afford to simply make cosmetic changes now, and a relocation of a major area of the bank in the short run could certainly be perceived that way.”
Beahm said that “it’s understandable that another change at the helm of a major corporation with significant ties to Winston-Salem sets people on edge.”
“Recent history has not been particularly kind to Winston-Salem and the Triad whenever changes have occurred in top management of corporations with major ties to the area. Some of these changes have led to relocation announcements and subsequent layoffs.
“There’s certainly no guarantee that won’t happen here,” Beahm said. “But those kind of changes can also occur without a change in management. It doesn’t take a change at the helm to result in geographic relocation.”
Leadership in values’
Both Stumpf and Sloan cited their familiarity with Winston-Salem coming foremost from the respect they each had for Wachovia Corp., particularly legendary executive John Medlin.
Wells Fargo spent $15 billion for a collapsing Wachovia in October 2008, gaining a prominent East Coast and Southeast presence as a result.
Will the next Wells Fargo chief executive have that kind of institutional knowledge is a key local question.
Medlin worked at Wachovia for 41 years, serving as chief executive for 17 years until retiring on Jan. 1, 1994. He retired after 10 years as chairman in 1998. He died in June 2012.
Medlin earned a reputation as a conservative, no-nonsense businessman who turned a large Winston-Salem community bank into a blue-chip powerhouse in the Southeast. During his time as CEO, Wachovia’s total assets rose tenfold to $32.9 billion, putting it among the 25 largest U.S. banks.
Stumpf made a point of praising Medlin’s leadership and innovation in his first official visit to Winston-Salem, an employee town hall meeting in November 2008. The comments came as Stumpf lauded the heritage and work ethic of Wachovia.
Stumpf said that Wachovia “could out-local the national banks and out-national the local banks.”
“It was about people, vision and leadership in values,” Stumpf said. “And no matter what your (banking) genealogy is, you should be very proud of what you’ve built.”
Close to customers
Sloan said he has made at least five trips to Winston-Salem, one of which he used to talk with Medlin about what Wells Fargo was inheriting in its pivotal acquisition. Another trip came a few weeks before Sloan replaced Stumpf.
“John Medlin talked about the values of Wachovia, and we noticed how similar they are to the vision and values of Wells Fargo,” Sloan said.
Sloan provided assurances in an interview with the Winston-Salem Journal of the value Wells Fargo puts on the Winston-Salem operations, workforce and community outreach.
“We knew there was a big concern post-acquisition that we were going to empty out Charlotte, Winston-Salem, and centralize all our locations,” he said.
“We didn’t do that for a few reasons. One, when you look at our company, we have been decentralized. We are big believers in having our team members as close to the customers as possible.
“Two, we believe our team members are our competitive advantage. It really makes sense to get the best and the brightest and a diverse work force, and we can do that in North Carolina.”
That’s why legacy Wells Fargo officials “were excited about the quality of the workforce we were gaining from Wachovia,” Sloan said.
Winston-Salem Mayor Allen Joines has become all too familiar with having to arrange an appointment with a new bank chief executive after a deal or change in management.
That includes Ken Thompson at First Union/Wachovia in 2001, Thompson’s replacement Ken Steel at Wachovia in 2008, Stumpf in 2008 and Sloan in 2016.
Each time, Joines pointed out a reciprocal relationship between the city, the bank and its local workforce.
“I knew Mayor Joines would want to talk with me about bringing more jobs to Winston-Salem and additional community investments,” Sloan said in March 2018.
“We certainly have plans to expand our community involvement from our team-member base and our philanthropy, such as affordable housing, which I know is important to him.”
Joines said he “expressed appreciation for Wells Fargo honoring their commitment to maintaining job levels here. I commented specifically about the recent growth of Trust division jobs.”
“Obviously, I would welcome additional jobs,” Joines said. “I also told him how about how Wells Fargo executives and other employees impact the community by their service on local organizations’ boards.”
On Friday, Joines said that Sloan “was very supportive of Wells Fargo operations in Winston Salem.”
“I am hopeful his successor will continue that support. I look forward to talking with that person at the appropriate time.”
Mark Owens, president and chief executive of Winston-Salem Chamber of Commerce, said that Wells Fargo and employees “are part of the fabric and history of Winston Salem.”
“As we have before anytime there are leadership changes, we will reach out to the new CEO as a community to welcome him or her. Our local Wells Fargo leaders are committed to this community, and we communicate regularly about their plans and goals.”
The odds are long — at least in the short term — that Winston-Salem or Charlotte will receive a major operational shakeup from Wells Fargo pursuing an outsider chief executive, said Tony Plath, retired finance professor at UNC Charlotte.
“I don’t see a downside for Winston-Salem or Charlotte in any of this,” Plath said Friday.
“At long last, the bank finally figured out that Tim was part of the problem rather than part of its solution, and they took the sort of action they should have taken a year or so ago.”
Plath said he believed Sloan’s departure “has always been a necessary condition for the Fed, and the Senate Banking Committee, to finally let the bank escape from prudential purgatory and start to redeem itself in the eyes of its customers, regulators, employees and the market.”
The scandal and the bank’s overall sales practices also have been investigated by the U.S. Consumer Bureau of Financial Protection, U.S. Justice Department, U.S. Securities and Exchanges Commission, U.S. Labor Department, various state attorneys general and Congress.
“Regardless of whomever assumes the CEO’s job, they’re just not going to want to stir the pot and create any additional market, regulatory or customer enmity for the company,” Plath said.
“That’s exactly what would happen if they start cutting jobs in the East Coast headquarters here in Charlotte or the operations center up there in Winston-Salem.
“There’s just no real compelling need right now for the bank to capture greater operating efficiency by announcing a new round of job cuts, so for the time being, anyway, I think corporate jobs at Wells are quite safe.”