• Board Compliance

    John Armour, Brandon Garrett, Jeffrey Gordon, Geeyoung Min
    MSU Law Faculty Repository
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    Do corporate boards care about compliance? Surely they should, because of the potentially catastrophic consequences of ignoring it. Take the example of the recent compliance failures at Wells Fargo, the large bank, which pioneered a strategy of "cross-selling" financial products to its customers.' This turned out to be profitable, and the bank sought to maximize its rollout by setting branch staff powerful financial incentives to maximize sales of financial products to its customers. 2 Unfortunately, these incentives triggered widespread fraud on the part of the bank's employees, with customers discovering products had been charged to their names without their consent. 3 After the Wells Fargo scandal broke, regulators identified numerous weaknesses in the firm's compliance programs that had permitted the misconduct to go unchecked.4 The bank ultimately paid about $575 million in fines and settlements and fired over 5,000 employees; the CEO resigned after Congressional hearings.5 In response, the Board commissioned an outside investigation into how this compliance failure happened on its watch.6 Yet, federal regulators were deeply unsatisfied with the Board's response. In early 2018, the Federal Reserve took the unusual step of restricting the growth of the bank as four Board members departed; the Fed also sent a letter to the former Lead Director, describing his "many pervasive and serious compliance and conduct failures."7
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    3 weeks ago
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