Wells Fargo & Co. (WFC:US), the most valuable U.S. bank, paid a board member’s son about $1.4 million last year for his work in a unit responsible for investing deposits.
Scott P. Quigley, 44, received the compensation as a manager in the principal investments group, according to the San Francisco-based lender’s most recent proxy filing. His father, Philip J. Quigley, a Wells Fargo director since 1994, is retiring from the board in April. Scott Quigley declined to comment, and his father didn’t respond to messages seeking comment. The bank declined to make them available.
“It compromises both the executive and the director,” said Nell Minow, a corporate-governance consultant at GMI Ratings who co-founded the Corporate Library, based in Portland, Maine. “If it were me advising the company, I would tell them not to do it under any circumstance.”
The principal investments group, which buys bonds with the bank’s own money and excess customer deposits, has been among Wells Fargo’s most profitable units, said three former employees who requested anonymity because they weren’t authorized to speak on the lender’s behalf. Jobs there are among the most sought-after by personnel seeking transfers, one of the people said.
Wells Fargo said in the proxy that Quigley is one of more than 10,000 employees in the wholesale banking group and that before he joined the firm, in 2006, his father didn’t know he had applied for a job. The bank had 269,200 workers on Dec. 31.
“The company was unaware of the family relationship with Mr. Quigley until after the job offer had been made,” Wells Fargo said in the proxy filing.
Quigley, based in Santa Monica, California, has worked under the same manager throughout his career at Wells Fargo, and in 2009 his team moved to a group that was folded into principal investments a year later, said Alan Elias, a company spokesman.
The unit, with about 100 people, has delivered some of the bank’s highest profitability metrics (WFC:US), including return on assets and return on equity, according to a former employee, citing internal presentations.
Wells Fargo fell 0.9 percent to close at $36.98 in New York. The shares climbed 8.2 percent this year, trailing the 9.8 percent advance for the 24-company KBW Bank Index. (BKX)
Philip Quigley is deemed an independent director by the board, led by Wells Fargo Chairman and Chief Executive Officer John Stumpf, 59, according to the the March 14 proxy. For a director to be independent, the board must determine the person has no material relationship with the company, according to guidelines for firms listed on the New York Stock Exchange.
Material ties may include “familial relationships,” according to the NYSE guidelines. “The board should consider the issue not merely from the standpoint of the director, but also from that of persons or organizations with which the director has an affiliation.”
Such relationships make it harder for a director to oversee management, said Charles Elson, director of the University of Delaware’s John L. Weinberg Center for Corporate Governance.
“It raises independence issues for the father,” Elson said. “For the son, it might make it harder to work there.”
In 2010, the board (WFC:US) adopted a policy based on a recommendation of the governance committee to “strongly discourage” the hiring of additional immediate family members of directors, according to the proxy. Philip Quigley was the committee’s chairman at the time.
Scott Quigley, who asked that questions be directed to public relations staff, “was hired solely for his experience and talent,” Elias said in an e-mail. “His employment has been publicly disclosed on an annual basis for the past six years. The company has a vetting process to identify any potential conflicts or matters to be disclosed involving board members and we remain confident in that process.”
Philip Quigley, the former chairman and CEO of Pacific Telesis Group, a telecommunications firm that split from AT&T Corp. in 1984, received $285,557 in cash, stock and options for his work at Wells Fargo for 2012, according to the proxy.
Scott Quigley’s unit invests in corporate loans on behalf of the company, according to the proxy. It’s part of a business in which the bank purchases high-grade and high-yield corporate debt, municipal securities and other credit-sensitive investments for its balance sheet (WFC:US). The group, which doesn’t deal directly with clients, managed more than $40 billion as recently as last year, according to a former employee.
It’s difficult to evaluate whether a conflict exists without knowing whether the son received favorable treatment, said Jay Lorsch, a Harvard Business School professor who has studied corporate boards and management for 25 years.
“Why would the son of a director being an employee automatically be a conflict?” Lorsch said. “I don’t know. It may be, but you could make the argument on both sides.”
Wells Fargo also employs James Hardin, the brother of director Cynthia Milligan, as a wealth-management adviser and paid him about $227,000 last year, including commissions, the proxy shows. Milligan, who’s also a member of the governance committee, was unaware of her brother’s job discussions with the company and the firm didn’t know they were siblings until after he accepted the position, Wells Fargo said in the filing. Milligan and Hardin didn’t reply to requests for comment.
“These relationships are problematic,” proxy adviser Glass Lewis & Co. said last year in a report. “Key committees of the board should consist solely of independent directors.”
Scott Quigley’s compensation in 2012 included a cash salary and bonus of $983,000, about $294,000 in deferred cash and $126,000 in restricted stock, the proxy shows. In 2011, he got $798,000, including incentive compensation, as well as restricted shares issued in February of that year, according to a separate proxy filing. The restricted stock would have been valued at more than $154,000 at the end of that month.
The bonuses were based on his success boosting revenue at the principal investments group, according to the filings.
Even so, employees at the unit aren’t compensated on a “pay-for-performance” standard, John Shrewsberry, head of the bank’s securities group, which includes principal investments, said in an interview. The range of possible compensation “outcomes for people who take risk is relatively narrow.”
Quigley started at Wells Fargo in February 2006 as a senior research analyst, receiving less than $120,000 that year in a part of the bank that did asset-based lending, according to a separate proxy. During the next four years, his annual pay climbed as high as $829,405 and he also received about 22,000 stock options (WFC:US) in that span, other filings show.
Before joining Wells Fargo, Scott Quigley was a senior vice president at Miller Tabak Roberts Securities LLC in high-yield and distressed-debt sales and trading, his profile on LinkedIn Corp.’s website shows. He was a certified public accountant at Deloitte & Touche LLP and an investment-banking associate covering the telecommunications industry at Bear Stearns Cos.
He received an accounting degree in 1991 from the University of California, Los Angeles, and a master’s of business administration from the University of Michigan in 1995, the profile shows.
Philip Quigley was Wells Fargo’s lead director from 2009 through 2011. He’s on the governance, audit and credit committees and is stepping down at the annual meeting set for April 23 in Salt Lake City.
To contact the reporter on this story: Dakin Campbell in San Francisco at firstname.lastname@example.org
To contact the editor responsible for this story: David Scheer at email@example.com