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Jamie Dimon on Wells Fargo: This is ‘not the way to run the railroad’

Posted at 6:18 AM, Jul 09, 2019
and last updated 2019-07-09 08:18:59-04

Wells Fargo, like a rudderless ship lost at sea, must navigate one of the most difficult periods in its 167-year history without a clearly defined leader.

For the past two months, Wells Fargo’s board of directors has been searching for an outsider to replace former CEO Tim Sloan. The three-decade Wells Fargo veteran stepped down suddenly, leaving the bank without a permanent boss.

At least one of Wells Fargo’s rivals is stunned by the power vacuum at the bank.

“It’s not responsible for a company — this is my own view — to have a CEO leave with no plan in place,” JPMorgan Chase CEO Jamie Dimon said on Tuesday at an industry conference. “I don’t personally understand that. And I’d be surprised if regulators wanted that to happen, because it’s irresponsible.”

Wells Fargo declined to comment on the criticism from Dimon, who said he believed Sloan “was doing a good job.”

Sloan announced on March 28 that he decided to step aside effective immediately — a decision that came after he tried, and largely failed, for two-and-a-half years to restore confidence and trust in the scandal-tarred bank.

“I don’t know if it was a board-level decision, I don’t know if they felt pressure from whatever,” Dimon said at the Deutsche Bank Global Financial Services Conference in New York. “But it’s not the way to run the railroad.”

‘No good options’

As Wells Fargo’s board scours the business community for a permanent CEO, it has temporarily handed the keys to C. Allen Parker, previously the company’s general counsel. Before joining Wells Fargo, Parker helped run the prestigious law firm Cravath, Swaine & Moore, where his clients included JPMorgan and Citigroup.

That means one of America’s largest lenders is now being run by a lawyer who has Wall Street credentials but no previous operating experience at a bank.

Corporate governance experts agreed with Dimon: Wells Fargo’s board fumbled the crucial CEO transition.

“What’s irresponsible is not to have a succession plan in the first place,” said Michelle Lowry, a professor at Drexel University. “Firms have all of these excuses. Some think, ‘We’re so big, we’ll get somebody.’ But things happen — and then you’re left with no good options.”

Although Wells Fargo was left little choice other than to move on from Sloan, it would have been prudent for the bank to have recruited an outsider to replace him long before he decided to suddenly leave, according to William Klepper, a management professor at Columbia University.

“Sloan wasn’t doing the job. It was obvious that he lost credibility as the leader of the bank,” said Klepper. “The board needed to get tough with its CEO. If you don’t have the kind of talent you need inside, you’ve got to look outside.”

Recruiting a new CEO won’t be easy

Wells Fargo has insisted the bank won’t skip a beat while Parker serves as its temporary CEO.

“We do not expect this interim period to be a pause in our efforts,” Wells Fargo Chairwoman Elizabeth Duke told shareholders at last month’s rowdy annual shareholder meeting.

Duke praised Parker as a “proven leader who has earned the respect and full confidence of the board.”

But Lowry said that it’s very difficult for companies to make profound changes without a new leader in place. Interim CEOs can make decisions — but those moves don’t carry the same force or certainty.

“It’s a critical juncture for Wells Fargo. And one of the most damaging things for any business is uncertainty,” said Lowry.

Dimon’s criticism underlines why it’s crucial for the board to put in place a succession plan. Waiting until a crisis hits can make it almost impossible to find a new CEO. Some potential replacements to Sloan may not want to hitch their ride to Wells Fargo.

“Once things start to spiral downward, it becomes harder. People are hesitant to step up to the helm of a company that is really struggling,” said Lowry.

Grooming a successor

Wells Fargo’s rivals pride themselves on grooming internal candidates who, if needed, could fill the CEO’s shoes.

Goldman Sachs had an unofficial competition inside the bank to replace longtime CEO Lloyd Blankfein. The battle pitted CFO Harvey Schwartz against company president David Solomon, who ultimately prevailed.

Dimon in particular has frequently talked about the importance of succession planning.

To prepare for life after Dimon, JPMorgan rotates senior executives around different parts of the bank to give them broad experience.

“You’re building up intellectual capital within your organization,” said Lowry.

JPMorgan has groomed potential successors to Dimon so well that numerous heirs apparent have left to help lead other large companies. That list includes Barclays boss Jes Staley, First Data CEO Frank Bisignano and Cerberus Capital Management president Matt Zames.

It’s only fitting that one candidate often mentioned as a potential Wells Fargo CEO is a Dimon lieutenant: Marianne Lake, JPMorgan’s chief financial officer.