Warren Buffett, the chairman of Berkshire Hathaway Inc (BRKa.N), on Saturday criticized Wells Fargo & Co (WFC.N) for failing to stop employees from signing up customers for bogus accounts even after learning it was happening, causing a scandal.
Wells Fargo, whose largest shareholder is Berkshire with a 10 percent stake worth roughly $27 billion, gave employees too much autonomy to engage in “cross-selling” multiple products to meet sales goals, Buffett said.
This “incentivized the wrong type of behavior,” and former Chief Executive John Stumpf, who lost his job over the scandal, was too slow to fix the problem, Buffett said.
Wells Fargo was among many topics discussed at Berkshire’s annual meeting in Omaha, where Buffett, 86, and Vice Chairman Charlie Munger, 93, fielded dozens of questions from shareholders, journalists and analysts.
“If there’s a major problem, the CEO will get wind of it. At that moment, that’s the key to everything. The CEO has to act,” Buffett said. “The main problem was they didn’t act when they learned about it.”
Still, Buffett’s support of current management and board was key to ensuring the re-election of the entire board last month.
Wells Fargo spokesman Mark Folk said “we agree” with Buffett’s comments, and have taken “decisive actions” to fix the problems and “make things right for customers.”
Buffett likened the situation to Salomon Brothers Inc, where in 1991 he was installed as chairman to clean up a mess after the former chief executive failed to tell regulators a trader was submitting fake bids at Treasury auctions.
Asked whether Berkshire’s decentralized structure could lead to a similar scandal, Buffett said “as we sit here, somebody is doing something wrong at Berkshire,” whose units employ 367,000 people. But he said Berkshire has an internal “hotline” to flag possible misbehavior, which gets 4,000 calls a year.
The meeting also included discussions about Berkshire’s succession plans, its controversial partnership with Brazilian firm 3G Capital, and whether it will start paying dividends or make a monster acquisition.
Buffett has said Berkshire could have a new chief executive within 24 hours if he died or could not continue, and that nothing had changed just because he praised fewer managers than usual in his February shareholder letter.