Wells Fargo’s directors are not the first to learn this lesson. Every bank director in America ought to read detailed analyses of bank failures and big losses like the London Whale. What they would see is that TGTBT performance is a factor common to failure and losses.
Directors would also see repeated patterns where banks justified extraordinary performance because “this time is different” and “we’re just smarter than other banks.” Neither prove true over time.
Second, Wells Fargo is a case study in a systemic problem plaguing US banks: Few directors have the hands-on experience and detailed knowledge needed to govern a bank. History shows that bank directors struggle to identify TGTBT performance. Or when identified, the directors too often lack the detailed knowledge of banking to challenge management’s perspective on performance.
Only one of Wells Fargo’s 14 nonexecutive directors had experience in commercial banking prior to being appointed to the board. By the way, the person with the banking experience did not join the board until 2015. In contrast, the other 13 directors had an average time on the board of 11 years.
Wells’ board is not alone among banks suffering from a lack of industry expertise.