Tuesday, September 27, 2016

By Taking Back Money, Wells Fargo’s Board Seems to Recall Its Role

Fair Game
By GRETCHEN MORGENSON

John G. Stumpf, Wells Fargo’s chief, testifying before a Senate panel last week. He is scheduled to face House members on Thursday. Gabriella Demczuk for The New York Times
As John G. Stumpf, the chief executive of Wells Fargo, prepares to face a congressional tribunal on Thursday for the second time in two weeks, questions are intensifying about the bank’s sham accounts scandal and its lethargic response to it.
And late Tuesday, with the focus of the criticism spreading from the bank’s chief executive to its board, the company’s directors took action. Announcing an investigation into the bank’s sales practices, the board said Mr. Stumpf would forfeit approximately $41 million worth of stock awards, forgo his salary during the inquiry and receive no bonus for 2016.
The Wells Fargo board also announced the immediate retirement of Carrie L. Tolstedt, the former senior executive vice president of community banking, who ran the unit where the fake accounts were created. She will forfeit $19 million in stock grants, will receive neither a bonus for this year nor a severance, and will be denied certain enhancements in retirement pay, the board said.
These actions by the Wells Fargo board, while welcome, were slow in coming.
A corporate board has many duties, but three of the most crucial are at the center of the Wells Fargo mess. One is to assess the risks inherent in the company’s business and handle them before they develop into a crisis. Another is to dispense compensation that does not encourage bad behavior. And finally, a board must monitor a company’s culture, from top to bottom.
The Wells Fargo board has disappointed in all three.
“Unfortunately, it appears that the bank’s response was to view the problem as employee misconduct and to fire people as opposed to looking at the supervisory chain and culture,” said Sheila C. Bair, the former chairwoman of the Federal Deposit Insurance Corporation who is now president of Washington College in Chestertown, Md. “Culture and tone at the top are exactly what the board should be looking at.”
I asked Mary Eshet, a Wells Fargo spokeswoman, to respond to Ms. Bair’s criticism. She declined and said the company had no comment on the board’s discussions.
The Wells Fargo culture is under attack for good reason. For years, the bank pressed its employees to open as many different types of accounts as possible, whether or not their customers needed them, rewarding workers who complied with promotions and bonuses and punishing those who did not. The push for these accounts was so intense and relentless that some bank employees forged customers’ signatures on new accounts to make sales quotas.
Mr. Stumpf acknowledged in testimony before the Senate last week that Wells Fargo officials knew about the practice far longer than they had initially stated.
Elizabeth Duke, a Wells Fargo director and ex-Fed member. Tami Chappell/Reuters
It is troubling, given the nature of the scandal and the bank’s failure to correct it, that two Wells Fargo directors are former financial regulators with extensive experience in consumer banking. One is Elizabeth A. Duke, a member of the Federal Reserve Board from 2008 to 2013. She served as chairwoman of the Fed’s committee on consumer and community affairs and also sat on its bank supervision and regulation committee. Ms. Duke joined Wells Fargo’s board in 2015 and is a member of the bank’s credit, finance and risk committees.
In its proxy filing, Wells Fargo cited Ms. Duke’s “insight and a unique understanding of risks and opportunities that contribute important risk management experience to the board.”
Cynthia H. Milligan is the other former bank regulator on the Wells Fargo board. A member since 1992, Ms. Milligan was director of banking and finance for the State of Nebraska from 1987 until 1991, responsible for supervising several hundred banks and other financial institutions, the bank said.
Neither director would speak to me for this article.
From the outside looking in, the composition of the Wells Fargo board seems to check all the right boxes. Its 15 members include top corporate executives, former high-ranking United States government officials, an accounting expert and an academic. All are paid well for their work. Last year, directors earned from $279,000 to $402,000.
Wells Fargo is especially proud of its board’s diversity. Ten of the directors are either female, Asian, African-American or Hispanic, the company’s proxy said. Women make up 40 percent of its board, twice that of the typical Standard & Poor’s 500 company.
CNBC By CNBC 1:55
Warren Calls Out Wells Fargo C.E.O.

Warren Calls Out Wells Fargo C.E.O.

“You should resign, you should give back the money,” said Senator Elizabeth Warren. “And you should be criminally investigated.”
By CNBC on September 20, 2016. Photo by Michael Reynolds/European Pressphoto Agency. Watch in Times Video »
As is the case at many large companies, Wells Fargo’s chief executive, Mr. Stumpf, is also its board chairman. In that role, he made recommendations on pay to the human resources committee charged with setting compensation for his top lieutenants.
During the last three years, Ms. Tolstedt received compensation worth over $27 million, according to Wells Fargo’s proxy statement. She stepped down in July and was scheduled to retire at the end of the year. That process was accelerated on Tuesday.

Anatomy of the Wells Fargo Scandal

Over the last several weeks, interviews with employees, congressional hearings and inquiries outline the sales pressure and unrealistic quotas that led to problematic practices at Wells Fargo.

  • The Scandal Breaks

    In early September, the Wells Fargo scandal is brought to light after the bank is fined $185 million for creating more than 1.5 million bank accounts and 565,000 credit card accounts that regulators say were sham accounts.

  • Employees Describe the Sales Pressure

    In interviews with The Times, several Wells Fargo employees openly describe the intense sales pressure that was nurtured and honed over decades. “I was always getting written up for failing to bump my solutions numbers up,” said one employee.

  • C.E.O. on the Hot Seat

    John Stumpf, who grew up on a dairy and poultry farm as one of 11 children, had cultivated his image as a community banker and that of his bank as the antithesis of a giant global lender. Now, he finds himself at the center of a controversy over broad failures of oversight inside the bank.

  • A Political Grilling

    At a closely watched Senate hearing, Mr. Stumpf tries to make amends for the bank's scandal but faces withering criticism. Senator Elizabeth Warren calls for his resignation adding, “and you should be criminally investigated.”

  • Echoes of Past Abuses

    In a Fair Game column, Gretchen Morgenson writes that the latest Wells Fargo issue is not the first time that the bank has been in the spotlight for its culture. “There were enough problematic foreclosure cases involving Wells Fargo moving through the courts that the bank’s dubious practices seemed as pervasive then as the questionable account-opening scheme does now,” she writes.

  • Accountability Under the Law

    The Justice Department has the perfect opportunity to seek accountability as various jurisdictions investigate, James B. Stewart writes in a Common Sense column. Too often, high-level officials haven't been prosecuted for financial crimes, but the Wells case “may prove the exception,” he writes.

  • Workers Claim Retaliation

    Former Wells Fargo workers file lawsuits saying they were penalized or terminated for refusing to set up accounts without customers' knowledge in order to meet sales targets. Some Wells Fargo employees say they tried to sound the alarm about the sham accounts but were met with retaliation.
But in his Senate testimony last week, Mr. Stumpf seemed to back away from a role in determining compensation. He also balked when asked if the bank would claw back some of Ms. Tolstedt’s compensation.
Claiming that he was not an expert in compensation, he said the Wells Fargo board and its human resources committee would make that decision independently. “I’m not part of that process,” he said. “I want to make sure that’s a very independent process and nothing that I would say would prejudice their deliberative process.”
But Brian T. Foley, a compensation consultant in White Plains, pointed out that Wells Fargo’s proxy filings clearly state Mr. Stumpf’s direct role in the committee’s incentive pay decisions. Last year’s filing stated that for four top executives at the bank, including Ms. Tolstedt, the committee considered “the recommendations of Mr. Stumpf based on his assessment of their respective 2015 performance,” among other things.
Asked about this discrepancy, Ms. Eshet, the Wells Fargo spokeswoman, said in a statement: “The current situation involving the board’s consideration of potential recovery of compensation is different, and Mr. Stumpf did not want to bias that process. He believes it is appropriate for the human resources committee and the board to first consider that issue independently. If the board asks his view during their process, he will of course share it.”
Still, by punting the decision to the committee, Mr. Foley said, Mr. Stumpf showed zero leadership. “Stumpf is saying, ‘I have no involvement in assessing the situation,’ but he’s been doing it year in, year out,” Mr. Foley said in an interview. “I would have expected him to have not only apologized but to have said, ‘I’m not taking a bonus this year, and I’m going to urge the board to be very careful about paying bonuses to any executive officer who knew about the activities or should have known.’”
Some of that happened on Tuesday.
Since the financial crisis of 2008, it has become clear that a bank’s compensation practices can pose enormous risks if they reward improper behavior. Wells Fargo’s proxy says as much. It noted that the human resources committee meets each year with the company’s chief risk officer “to review and assess any risks posed by our enterprise incentive compensation programs,” the company said.
Still, this meeting did not appear to pick up the risks associated with the unauthorized account openings at Wells Fargo.
Ms. Bair said one reason for this lapse may have been a communication breakdown between the risk committee of the Wells Fargo board and its human resources committee. “Compensation drives behavior, but was the risk committee ever briefed on compensation?” Ms. Bair asked. “For any risk committee to do their job, they really have to understand compensation issues.”
In recent years, some shareholders have tried to force Wells Fargo to hire an independent board chairman, contending that the dual role held by Mr. Stumpf assigns too much power to him.
Companies whose chief executives also preside over their boards argue that having a lead independent director achieves the necessary balance of power. Wells Fargo made just such a pitch to shareholders at its annual meeting in April when they voted on a proposal requiring the company to engage an independent chairman. The bank’s lead independent director is Stephen W. Sanger, a former chairman and chief executive of General Mills.
Contending that its governance structure “is working effectively” and citing Mr. Sanger’s role, Wells Fargo urged shareholders to vote against the proposal. The company was persuasive — the proposal garnered support of only 17.2 percent of votes cast.
Depending upon how the board handles the current difficulties, though, such a vote could have a different outcome next year.
It’s doubtful that anyone on the Wells Fargo board welcomes the spotlight that is now trained on it. After all, corporate boards rarely have to answer for their actions or inaction. Clearly, the Wells Fargo board has some ’splaining to do. And the sooner it realizes that, the better.
A version of this article appears in print on September 28, 2016, on page B2 of the New York edition with the headline: Wells Fargo Board, Suddenly in Spotlight, Seems to Recall Its Role. Order Reprints| Today's Paper|Subscribe

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Monday, September 26, 2016

For Rosetta, a Landing and an Ending on a Comet

By KENNETH CHANG
This false-color image, taken by the Rosetta spacecraft at a distance of 45 miles, shows the smooth region that connects the two lobes of Comet 67P/Churyumov-Gerasimenko. European Space Agency
For two years, the Rosetta spacecraft has been playing around with a comet shaped like a rubber ducky.
When the spacecraft makes a gentle belly flop onto the comet on Friday, it will bring to an end to the most ambitious mission ever for the European Space Agency. Since its arrival in August 2014 at Comet 67P/Churyumov–Gerasimenko, Rosetta has been sending reams of data and exquisite photographs of the comet, providing insights and surprises about one of the fragments left over from the formation of the solar system four and a half billion years ago.
On impact, Rosetta will switch off its radio transmitter, leaving silence at the end of its 12-year journey.
“As soon as we lose contact with the spacecraft, that’s the end of Rosetta,” said Matt Taylor, the mission’s project scientist. “It’s a nice appropriate line to be drawn, I think.”
Back in November 2014, Rosetta dispatched a small lander, Philae, to the surface of Comet 67P.
Soon after arriving at Comet 67P, Rosetta took a “selfie” that captures the side of the spacecraft, one of its solar panels and the comet in the background, about 10 miles away.European Space Agency
And as the comet has been moving away from the sun, Rosetta’s solar panels were becoming less and less able to generate enough energy to power the spacecraft, and the amount of data the spacecraft could send back has been dropping.
While it was possible to shift Rosetta into a hibernating phase, mission managers calculated that the odds were slim that Rosetta could revive when Comet 67P approached the sun again, about four years from now.
Instead, they decided to undertake some truly close-up observations as Rosetta began falling into the comet.
After Rosetta lands, with no more data coming back, mission controllers will never know the craft’s exact fate.
 
SCIENCE By NATALIA V. OSIPOVA 1:22
Rosetta on the Way to Crash Into a Comet

Rosetta on the Way to Crash Into a Comet

As the European Space Agency prepares to bring its most ambitious mission to an end, data gathered by the spacecraft will help scientists understand how Earth and other planets formed.
 By NATALIA V. OSIPOVA on September 26, 2016. Photo by NASA/Jpl. Watch in Times Video »
Shutting off the transmitter avoids any possibility of Rosetta’s interfering with the deep space communications of other spacecraft. And even if the transmitter were kept on, the antenna would almost certainly be jostled away from Earth by the impact of the landing.
“We will not be able to communicate in any case,” said Patrick Martin, the mission manager.
Then everyone working on the mission will have some time to relax. “I’m going to put my feet up,” Dr. Taylor said. “We have free time, as it were.”
There is still much work to do. Archiving all of the data will take three years, Dr. Martin said. “Not as intense as missions operations,” he said.
The scientists will also finally have time to analyze what they have collected. “We’ve only touched the tip of the iceberg in terms of digging through the data,” said Joel Parker, a scientist at the Southwest Research Institute in Boulder, Colo., and deputy principal investigator for an ultraviolet spectrograph on Rosetta. “It’s been so busy doing operations that a lot of us haven’t even had a chance to dig into our own instrument data as much as we would like.”
Here is some of what has already come out of Rosetta.
An image of Comet 67P/C-G from March 2016, about 200 miles away. European Space Agency/Rosetta

Comets Can Stick Together

The first surprise from the initial images of Comet 67P was that it was not round — it looked more like a rubber ducky. That immediately raised the question whether the strange shape was the result of erosion or whether it was originally two comets that bumped into each other and stuck.
Exposed plateaus on the surface provide an important clue that Comet 67P was originally two comets. “It’s akin to looking at the skin of an onion,” Dr. Taylor said. “Looking at the orientation of these layers, it’s clear this has to be two objects that have collided.”
That in turn has additional implications on how the interior is packed together and how much it could have heated.
Rosetta’s cameras have also captured what scientists called “goose bumps,” objects about a yard wide that are the building blocks of the comet. “This is one of the major things that came out of Rosetta, this aspect of how the comet was put together,” Dr. Taylor said. “It means comets are much more puzzling that we expected.”
A short-lived outburst from Comet 67P was captured by Rosetta in July 2015. The jet, estimated to be moving at least 20 miles an hour, originated from a location on the comet’s neck. European Space Agency

Blinded by the Comet

In Rosetta’s early observations, Rosetta scientists were puzzled by the lack of much ice on the comet’s surface. After all, comets have long been known as “dirty ice balls.”
Comet 67P is not a particularly bright comet. Even when it reached its closest proximity to the sun, in August last year, it was not visible to the naked eye by people on Earth. But as expected, the comet became much more active. As the comet spun around once every 12 hours, frost formed and disappeared on parts of the comet. Periodically, jets of gas and dust erupted.
Dr. Taylor said that it appeared that dust on the surface acted as insulation, holding onto the heat during the day that warms ice below, producing gases that rise to the cold surface, freezing again as frost.
The jets appear to be the consequence of cliff walls crumbling, exposing ice that then quickly vaporized.
The bursts released so much dust that Rosetta’s star trackers, cameras that keep track of the spacecraft’s position by looking at the background of stars, were confused. After that, the mission managers moved Rosetta farther away from the comet. “We had to change the way we ran the mission,” Dr. Martin said. “This was my main challenge.”
Dr. Parker said that not all dust from Comet 67P was the same. Some particles are fluffy and fragile, and others are more solid pieces. “These different kinds of dust seem to come from different processes,” he said. The fluffy dust comes from all over the comet, he said, while the consolidated particles seem to come from specific regions.
With the comet now much quieter, Rosetta has moved closer, within 1.2 miles of the surface.
“Everything is going well in this final phase of Rosetta,” Dr. Martin said. “The spacecraft hardware is in rather good condition.”
Two exposures of water ice were identified by one of Rosetta’s instruments in the Imhotep region of Comet 67P between September and November 2014. The two insets show oblique views of the icy exposures.European Space Agency

Water Not Like the Oceans

Where did the water in Earth’s oceans came from? No one knows.
But scientists now know for sure that it did not come from comets like Comet 67P. Rosetta measured the fraction of deuterium — a heavy form of hydrogen — in the stream of water molecules coming off, and it was much higher than that found in Earth’s water.
The current six-and-a-half-year orbit of Comet 67P takes it as far out as Jupiter and even at its closest approach to the sun, it is still outside Earth’s orbit. Planetary scientists are sure Comet 67P originated much farther away, beyond Neptune’s orbit, in what is known as the Kuiper belt, and was nudged into the inner solar system, probably by a collision or close gravitational interaction with another object.
The presence of molecular oxygen, for example, suggests that the comet formed in a very cold region. “It was fully unexpected,” Dr. Taylor said. “We don’t expect to get oxygen because it likes to do stuff with other things. It’s a very friendly molecule, and it likes to jump and become something else.”
The water finding suggests that Kuiper belt comets are not the source of Earth’s water.
Rosetta’s lander Philae in images taken on Sept. 2. European Space Agency/Rosetta

We Found the Lander!

The Philae lander, which bounded to the comet’s surface in November 2014, was a resounding success and a failure. Mission managers celebrated when the lander touched the surface, but were then puzzled when it appeared to still be rotating.
Two systems designed to keep Philae pressed to the surface — harpoons and a thruster — failed, and the lander bounced high before coming back down. The lander operated for a couple of days before its battery drained. Philae briefly revived a couple of times as the comet neared the sun, then was never heard from again.
No one was quite sure where Philae ended up until this month, on the very last opportunity, Rosetta finally managed to capture a photograph of Philae on the surface.
With the exact location, scientists will be able to refine the results of an experiment that sent radio transmissions through the comet. “That will really nail their results,” Dr. Taylor said.
Rosetta’s “crash” on Sept. 30 will be aimed to the spot just to the right of the center of the image, next to a large pit called Deir el-Medina. The pit is about 425 feet wide, and the side walls contain “goose bumps” — structures about a yard wide. The final descent will provide extremely close up views of the goose bumps, thought to be the building blocks for the comet. European Space Agency

The End

In the final days, Rosetta is being moved into orbits that are more elliptical. One final maneuver will put it on a collision course with Comet 67P, the minuscule gravity pulling the spacecraft for a final embrace.
The landing site is on the head portion of the comet, near some intriguing pits. The aim is not to land in one of the pits, just to pass over them, but it is possible that Rosetta will end up in one of them.
Dr. Martin said he was ambivalent as Rosetta approached its end. “I’ll be very sad, of course,” he said. “We will celebrate the achievement of such an exciting mission.”
Dr. Parker said the scientists got what they came for. “We had high hopes, and it went even higher than that,” he said. “It’s been a wild ride.”

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