By Eleanor Bloxham
April 23, 2012

FORTUNE — Last month, Wells Fargo celebrated its 160th birthday. Despite its illustrious past, the company now finds itself at a crossroads. It’s likely we’ll see a showdown at the bank’s annual meeting on April 24, and this meeting could prove to be as significant a milestone for big bank shareholder relations as the pay rebuke Citigroup suffered last week.

Wells Fargo (WFC) is the United States’ largest mortgage servicer, and the ongoing foreclosure nightmare has only heightened tensions in the run up to its annual meeting. Reverend Seamus Finn, director of responsible investment at Missionary Oblates, told me he is concerned with the magnitude of foreclosure issues that remain to be solved, even after the recently announced mortgage settlement. His group has tried to use “leverage as shareholders to negotiate with people at a local level,” but so far he hasn’t been impressed with the “parades of new initiatives” that lack “the scale required.”

Earlier this month, the National Fair Housing Alliance filed a complaint with the federal Department of Housing and Urban Development against Wells Fargo, alleging that the bank used discriminatory practices in the handling of foreclosed properties. Wells Fargo declined to offer comment for this article.

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Due to an SEC rule change last year, shareholders have the ability this year to propose by-law changes that would give them  the opportunity in future years to nominate director candidates who would be included on the company’s official proxy. Proxy access has been a battleground between shareholders and companies for decades, and while the SEC gave several firms including Goldman Sachs (gs) and Bank of America (bac) permission to exclude this kind of proposal in 2012 on technical grounds, Wells Fargo did not get such a waiver.

The Wells Fargo vote will be the first proposal on proxy access to come before shareholders this year, according to Ted Allen, governance counsel at proxy advisor Institutional Shareholder Services (ISS), and it will be worth watching how it plays out. Both ISS and Glass Lewis have recommended in favor of the shareholder proposal at Wells.

Both proxy advisory firms have also recommended in favor of a shareholder proposal that would require Wells Fargo to elect an independent board chair. While it is common sense that the head of the board should be independent, and different from the person hired by the board to manage the company, some large firms have not yet made the switch. The Wells Fargo board is recommending against the independent chair proposal, although CEO John Stumpf has not always held both roles. Wells Fargo faced similar proposals in 2008, 2009, 2010, and 2011.  (News Corp’s Rupert Murdoch will be facing a similar proposal from Christian Brothers Investments this year.)

In weighing the board’s leadership structure, shareholders should consider the complexity of running a board of the size and scope of Wells Fargo’s, which has 15 members and seven committees. An independent chair could help the board conduct an objective review of the board’s structure and composition.

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Shareholders will also vote on executive compensation. The Wells Fargo board awarded the bank’s top five executives $43.7 million in discretionary bonuses this year, so–called “performance based” pay. But the definition of performance seems narrowly defined. Foreclosure issues have scorched the bank’s reputation, but the justifications in the proxy for the CEO’s pay don’t reflect that. And Wells Fargo’s now retired senior executive of home and consumer finance Mark Oman earned $16.4 million in 2011, the proxy shows.

In last year’s proxy, the bank acknowledged the issues in Oman’s unit: “WFHM’s successes were muted by foreclosure process disruptions and related reputational issues.” This year, Oman’s bonus was apparently due in part to his “efforts to assist homeowners in modifying mortgage loans and prevent foreclosures, and implementing new servicing processes to comply with new regulations and regulatory orders,” according to the proxy.  But according to a 2011 American Banker/Reputation Institute survey, while Wells Fargo’s reputation rose very slightly from the previous year, its reputation fell compared to its peers, with only four banks yielding lower respect from consumers in 2011.

To address some of the issues irking consumers, a shareholder proposal this year requests that the “audit Committee conduct an independent review of the Company’s internal controls related to residential mortgage loan modifications, foreclosures and securitizations, and report to shareholders.” Last year, prior to many of the recent revelations and the large settlement with regulators, Wells argued against a similar proposal (which was defeated), saying its existing review process was enough. The bank is making similar arguments again this year. Missionary Oblates’ Seamus Finn supports this shareholder proposal along with a similar proposal at Bank of America.

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Wells Fargo’s board may also face questions on the bank’s tax and high interest loan practices at its upcoming annual meeting. Last week marked the beginning of a tax trial between Bank of New York (bk) and the IRS involving a controversial scheme called STARS. Wells Fargo is among a handful of banks that also participated in STARS. And Citizens for Tax Justice recently highlighted Wells for its very large tax subsidies.

Shareholders may also raise questions over the very high interest rates the bank charges to financially strapped customers who resort to so-called payday loans, which are in the sights of state attorneys general. “This product is a debt trap. That’s it. It’s designed for profit and we see the pain that it offers,” Darryl Dahlheimer, program director at Lutheran Social Service Financial Counseling, told Minnesota Public Radio last week. Wells Fargo’s annual meeting is important to watch, no matter how the votes land or what discussions ensue: will shareholders come out swinging like they did at Citi, or simply retreat?

Eleanor Bloxham is CEO of The Value Alliance and Corporate Governance Alliance (, a board advisory firm.


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