Reprimands of Big Banks Highlight Importance of Effective Oversight by Boards, Board Chairs and Lead Directors
The Ticker has previously cited Wells Fargo’s unauthorized accounts scandal as highlighting the importance of ethics oversight at the board level. Now, in addition to imposing strong sanctions on Wells Fargo, the Federal Reserve Board has publicly posted letters of reprimand issued to the bank’s former CEO/board chair (in his capacity as chair), former independent lead director and current board, criticizing their ineffective oversight.
The Fed’s message to the Wells Fargo leadership is instructive for all companies, regardless of industry. Writing in the Star Tribune on February 24, John Stout, co-chair of Fredrikson & Byron’s Corporate Governance Group, states: “At its core, the Wells Fargo matter is about corporate integrity.” Stout’s article examines how boards can assure the integrity of their companies. “First, boards have to own their responsibility for integrity, and reflect that ownership in their published values and governance documents. Then boards must actually seek information that would enable them to assess and address integrity issues.”
Also on February 24, the Star Tribune covered U.S. Bancorp’s agreement to pay $613 million to settle charges that it failed to maintain adequate safeguards to prevent money laundering. Stout is also quoted in this article, offering a similar takeaway as his piece on the Wells Fargo matter: “The message to boards is…ultimately, you are responsible for the company’s integrity. It’s your job to see that systems and processes are in place and functioning to provide effective risk management and oversight…funded and staffed at a level required by the size and complexity of the company.”