Allen Parker.

Wells Fargo & Co. general counsel Allen Parker had just arrived at his office and was taking off his jacket when he received an urgent cellphone call from CEO Tim Sloan. A big class action lawsuit over Wells Fargo's phony account scandal was about to settle, Sloan told him, and Parker needed to get a grasp of the case immediately. The GC, who joined the bank in March, had only been on the job a few days. He barely knew what Sloan was talking about.
“I did not get much of a period to break in,” Parker recalls. “I had to learn very quickly the general lay of the land.”

And for Parker the pace has only quickened. From that moment on he says he has been juggling the day-to-day workload— “what you would expect a general counsel to do in a complex financial institution”—along with the legal havoc that comes in the aftermath of major corporate wrongdoing. That means enduring state and federal investigations, fighting class action lawsuits, and negotiating settlements all while rebuilding a damaged legal department and shoring up a riddled risk-and-compliance system.

In an exclusive interview with Corporate Counsel, Parker talked about why he took on the Wells Fargo challenge and how he is approaching it. The former presiding partner at Cravath, Swaine & Moore knows he has put his reputation for integrity and leadership on the line at a bank that has exhibited a dearth of both qualities lately.

Parker says he has known and respected Sloan, the CEO, for several years. As Parker was stepping down from running his New York-based law firm last December, Sloan called to ask if he had any interest in the general counsel job at the San Francisco-based bank. “Do you want to be part of the process of restoring one of the world's finest brands?” Parker recalls Sloan asking him.

Parker did his due diligence on the bank, and his respect for Sloan only grew. “When you think of everything I had been trained to do,” Parker said, alluding to his experience as a Big Law partner and leader of his firm, “I could not imagine a greater challenge. I thought: This is something that will be the capstone of my career.”

A Rich Legacy

Wells Fargo & Co. is rich in history and tradition. In 1852 Henry Wells and William Fargo, the two founders of American Express Co., formed a financial services company to provide banking and “express” services to California and the Old West. The express services eventually included the Pony Express and overland stage lines. The red and gold stagecoach became the corporate symbol, and small ones still sit on bank executives' desks today.

The banking and express services split in 1905. Through years of mergers and acquisitions, Wells Fargo grew into the third-largest bank by assets in the United States. In 2013 and 2014 it was named the world's most valuable bank brand in publications like The Banker. Forbes magazine for 2015 ranked Wells Fargo as the 22nd most admired company in the world, and the seventh most respected company in the world.

But suddenly, in September 2016, this company steeped in old-fashioned values found itself awash in misconduct. And it soon was in dire need of a new CEO, a new general counsel and a new chief compliance officer.

A Flood of Scandals

The dam broke on Sept. 8, 2016. That's when Wells Fargo announced it was paying $185 million in penalties to federal regulators and the City of Los Angeles over sales practices and incentives that led bank employees to open 3.5 million fake accounts using customer information. The customers were unknowingly signed up for credit cards, online bill pay, overdraft protection and other fee-generating services.

The misconduct drew a flurry of lawsuits. And, according to the bank's latest quarterly filing with the U.S. Securities and Exchange Commission, that agency, as well as the U.S. Department of Justice, the U.S. Department of Labor and several state attorneys general, continue their investigations into the wrongdoing. Congressional committees have also probed the bank.

In April of this year Wells Fargo agreed to settle the first-filed consumer class action over its practices for $142 million, and more if needed, for remediation, attorney fees and claims administration. This was the suit that Sloan called Parker about during Parker's first days as GC. The settlement awaits a final approval hearing scheduled for early 2018.

The bank's misconduct also led to other suits. Shareholders are pursuing a securities fraud class action in federal court in U.S. District Court for the Northern District of California. Shareholders also have filed derivative suits alleging breach of fiduciary duty against the company and past and present officers and directors in both California and Delaware. And a slew of current and former employees have sued over a range of allegations, including wage-and-hour violations and whistleblower retaliation complaints.

The fallout has taken a toll on the bank's bottom line. Its profits are down, its stock price has fallen, and its litigation costs have soared. On June 30, the bank estimated its potential losses due to legal actions at about $3.3 billion.

The scandal also took a toll on bank management. Sloan replaced former CEO John Stumpf in October 2016. Other managers more directly involved with the sales practices were ousted. Parker took over the general counsel role after James Strother, who had been with the company for 30 years, retired under pressure. And in October the bank brought in a new chief compliance officer, Michael Roemer, who helped reform Barclays bank after the LIBOR scandal. Roemer reports to the Wells Fargo's chief risk officer, not to Parker.

Still, the rushing floodwaters keep coming. Since July, among other actions, the bank has said it will:

• Pay $108 million to settle a whistleblower suit over alleged illegal fees on veterans' loans.
Refund millions of dollars in fees that were wrongly assessed to mortgage borrowers for rate-lock extensions when the company caused the delays that required the extensions.

• Return about $80 million to some 570,000 car loan customers who were charged for insurance they did not need.

• Pay investors $3.4 million for selling them a product “highly likely” to lose them money over time, after telling them it was a good way to protect their portfolios.

• Take a $1 billion charge for litigation costs in the third quarter, related to its subprime mortgage activity years ago.

A Roadmap for Reform

In the middle of all the chaos, Wells Fargo has been able to find some direction forward. About 10 days after Parker arrived on the job, he says management received a report that examined the bank's problems and laid out a path for change. The board of directors had hired an independent law firm, Shearman & Sterling, to conduct an internal investigation into the phony accounts scandal and to write the report.

“We had to go through it and understand what it said, and then try to chart a course that was responsive to it,” Parker says. “That turned out to be one of the primary things I've been doing.”

The report was made public on April 10. It spread the blame across various groups—management, audit, risk, human resources. And it excoriated the former CEO, the former general counsel and several other executives as well as the in-house legal department.

It partly blamed Strother for blindsiding the bank's risk committee on the depth of the problems with fraudulent sales practices. And it blamed other leaders in the 500-lawyer department for failing to see and report a pattern of fraud visible in whistleblower complaints and in employee firings.

Wells Fargo had quietly taken a growing number of complaints to nonpublic arbitration. But the report stated “there continued to be a lack of recognition within the law department (as in other parts of Wells Fargo) about the significance of the number of sales integrity terminations, and the potential reputational consequences associated with that number.”

The in-house lawyers simply dealt with individual cases. But they didn't connect the dots, Parker says. As the report put it, “The law department did not appreciate that sales integrity issues reflected a systemic breakdown in Wells Fargo's culture and values.”

In all fairness, the bank's regulators didn't connect the dots either. Last April the federal Office of the Comptroller of the Currency released an internal evaluation that said regulators were “untimely and ineffective” in supervising Wells Fargo and had missed signs of trouble dating back to 2005.

The Path Forward

The report made it clear: Parker would have his hands full.

He would have to help rebuild not only a badly damaged financial institution, but also a badly demoralized legal department. The GC acknowledges the report's points, but calls it “bruising” to employees.

“It is very difficult for people to read something like the board report, especially people who come in and do the best they can every day,” he says. “The overwhelming majority of people [in all departments] had no insight into sales practices. We are trying to encourage them to understand that they are doing a great job and to rebuild everybody's morale. At times, it's been challenging.”

Parker has taken several positive steps. First was to make clear the role of an in-house lawyer. “The expectation in today's world is you go beyond the analysis of what is legal, but also of what is right,” he says. “Go beyond legal matters, to risk and ethics. Everyone has to understand it is incumbent to deal with the implication of legal matters on what the bank is doing in a larger sense.”

He also changed some legal department structures. Parker created a new legal group to focus on consumer and community banking issues, based in Des Moines. And he hired Bank of America Corp.'s Tom Trujillo as chief operating officer of the legal department. Among other duties, Trujillo collects and analyzes data for the legal team.

The bank itself has taken numerous steps towards reform. It shook up its board of directors—replacing some old-timers, dividing its chairman and CEO roles, and requiring the board chairman and vice chairman to be independent directors. The bank also eliminated sales goals in its retail banking operations, and made a number of other changes in management. It centralized its risk reporting operations and created an Office of Ethics, Oversight and Integrity to centralize the handling of its global ethics and integrity program, internal investigations, complaints and sales practices oversight.

With Parker sitting behind him, Sloan laid out some of the bank's reforms for a U.S. Senate panel at an Oct. 3 hearing.

After apologizing for the bank's wrongdoings, Sloan said, “The past year has been humbling and challenging. We are resolving past problems even as we make changes to ensure nothing like this happens again at Wells Fargo. We are doing this by strengthening our culture, holding leaders accountable, and improving our business practices and risk management … I pledge to you that we will not stop until we restore our reputation and our customers' trust, and make Wells Fargo the finest and most ethical company it can be.”

But it was too little too late for some critics, who went so far as to call for the bank's charter to be revoked. Several government leaders, including Sen. Elizabeth Warren, a noted consumer advocate, called for Sloan to be fired.

“Mr. Sloan, you say you've been making changes at Wells Fargo for 30 years, but you enabled this fake account scam, you got rich off it, and then you tried to cover it up,” Warren said at the hearing. “At best, you are incompetent. At worst, you are complicit. Either way, you should be fired.”

Parker strongly disagrees. “Let me say that I think that [removing Sloan] is wrongheaded,” the GC says. “I think Tim Sloan is exactly the right person to be leading this company now. He absolutely has a grip on what needs to be done, and the complete dedication to do it.”

Parker says he knows Sloan to be a person of exceptional character. “As much as anything else,” the GC adds, “he has the absolute loyalty and admiration of the 270,000 people who work here.”

The general counsel says after six months on the job he still has no doubt about his decision to join Wells Fargo in its time of crisis. He stresses that the work is far from over.

“We will get through the issues and will be back better than ever,” Parker says. “I wouldn't wish this on anybody, but we will emerge stronger.”