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Wells Fargo's corporate failure

A report from the bank's own board members described one manager as "insular and defensive, and did not like to be challenged."

Wells Fargo & Co., with more than 6,000 branches across the United States, set up all the modern management departments big corporations are supposed to brace themselves with so they don't squeeze people so hard it cuts into profits.

It wasn't enough, according to a 110-page report by the bank's own board members, released Monday.

Wells Fargo was exposed last year, in government settlements and congressional hearings, as a place of perverse incentives, where firing 1,000 branch workers in a year for setting up phony accounts in desperate efforts to meet company growth targets was just a cost of doing business.

CEO John Stumpf was forced to resign. The bank's former industry-leading growth has faltered; reforms have not yet brought back its old pace.

The board's report describes a long bureaucratic meltdown. Wells Fargo risk managers couldn't get branch banking executives to tell them what the risks were. Its Law Department focused on lawsuits, not patterns of corruption. Auditors checked numbers, but avoided critical conclusions. Human resources didn't connect high turnover — up to 42 percent a year, more like a retail chain than a financial institution — to relentless goals that went unmet.

For all its bureaucracy, Wells Fargo bosses hoped to stay fast and flexible by relying on a "decentralized corporate structure" kept honest by a "Visions and Values" statement. That "failed dramatically," the board admitted.

Branch banking chief Carrie Tolstedt was "insular and defensive, and did not like to be challenged or hear negative information," and browbeat critics to silence while holding up bad managers in California as models.

Stumpf backed her up: She delivered sales and profits, and that's what the CEO cared about — his real "Visions and Values."

Told of the 1,000 firings a year for "cheating," Stumpf exulted that this was only 1 percent of total staff. He saw no red flag, he said; if the rest of Wells Fargo workers were honest, all was well.

It took "a newspaper article" — actually a string of articles in the Los Angeles Times — to show top Wells Fargo managers, including current CEO Tim Sloan, the actual problems at their own bank, according to the board report.

Stumpf and Tolstedt (who also left last year), plus the heads of the risk, law, HR and audit departments and other watchdogs who didn't bark enough, have had their pay reduced by more than $100 million in what's being called one of the biggest clawbacks in U.S. corporate history.

Stumpf will lose an additional $28 million in compensation on top of the $41 million the board has already taken. Tolstedt loses $47.3 million in stock options on top of the $19 million the board previously took away.

The board says the bank learned its lesson and now has stronger controls in place. Which only means Sloan is in a tough corner: He's supposed to speed growth while managing a bureaucracy with new central powers — and keep it from getting in the way.

Beating as one

Shares of BioTelemetry, the Conshohocken-based heart-monitor developer, topped $30 Monday for the first time since 2008 after president and CEO Joseph Capper said the company would pay $257 million for smaller Switzerland-based rival LifeWatch.

The deal would join two competitors with "very similar products," Capper told investors in a conference call.  The sale will enable the competitors to cut costs and boost profits, he added.

It's "too early" to say whether staff and back-office cuts would mostly happen in Conshohocken or at LifeWatch's main sites in Zug, Switzerland, or Rosemont, Ill., Capper said. "We'll pull the best from both organizations" after combining staff and products. BioTelemetry employs about 1,000; LifeWatch, about 600.

It's not a done deal: "Other parties may jump in now," LifeWatch CEO Stephan Rietiker told Bloomberg LP after Capper announced the proposed union.