Wells Fargo’s John Stumpf Is the Latest Victim of ‘CEO of the Year’ Curse
Regulators and consumer watchdogs had been calling for heads to roll since the bank admitted last month that thousands of its employees opened sham accounts in the names of unwitting customers. But flash back to just nine months ago, and Stumpf’s legacy looked quite different. Indeed, the Wells Fargo (WFC) chief appeared to be at the top of his career, so much so that in January, investment research firm Morningstar (MORN) awarded Stumpf its annual CEO of the Year title for 2015, honoring him over the two runners-up, Amazon (AMZN) CEO Jeff Bezos and Jeff Immelt, chief of GE (GE).
Morningstar’s awards criteria factor in both long-term performance—leadership, shareholder returns and putting a “stamp on an industry”—as well as events of the past year. But the Jeffs now may want to thank Morningstar for passing them over. That’s because Stumpf is Morningstar’s second winner in a row to resign his post relatively soon after getting the nod. In all, four out of the past five Morningstar CEO of the Year honorees have stepped down within about a year of receiving the award.
Before Stumpf, John Martin, then-CEO of Gilead (GILD), took the honor of 2014 CEO of the Year after presiding over a 100-fold increase in the biotech company’s stock price. But Martin resigned this January, just over a year after receiving the award (and three days after Stumpf was crowned the new winner). Shareholders had been frustrated by Gilead’s lagging stock price and reluctance to make acquisitions amid the industry’s M&A spree. Between the time Martin won the award and the time he resigned, Gilead’s stock fell nearly 18%.
Of the past five Morningstar CEOs of the Year, only the winner for 2013, Canadian Pacific (CP) CEO E. Hunter Harrison, still has his job. Former National Oilwell Varco (NOV) CEO Merrill “Pete” Miller Jr. won for 2012, then stepped down about 11 months later. Former Costco (COST) chief James Sinegal, is a bit of an outlier: When he was named Morningstar’s 2011 winner in January of 2012, he had already announced his resignation. (The winner before him was Alan Mulally of Ford (F), who kept his CEO job another three-and-a-half years before stepping down in 2014.)
Morningstar, for its part, says the trend is more coincidence than curse. “We do not give any formal preference to CEOs that are expected to depart soon,” a spokesperson says. “The voters are simply instructed to vote for the candidate they think is most worthy of the award.”
When judging worthiness, of course, hindsight has a way of changing how candidates stack up. Consider how Morningstar justified naming Stumpf its latest winner: Praising Wells Fargo stock’s 70% gain over the previous decade along with its generous dividend and “conservative balance sheet,” Morningstar also noted Stumpf’s reputation as the good-guy banker. “He guided the bank through a difficult period in the industry and shunned activities that put profits ahead of customers,” Morningstar wrote in a statement at the time.
Though Morningstar specifically pointed out that Wells Fargo’s ethics set it apart and gave it an advantage over other banks and the “potential to generate excess returns for some time,” it now appears that Wells Fargo wasn’t so different after all—even if it didn’t have as big a hand in contributing to the 2008 financial crisis.
Stumpf’s admissions and resignation have not caused Morningstar to reconsider its award. “We didn’t revoke his title,” the spokesperson says.
In the end, the resignation pattern may simply be due to a preference of CEOs to go out on top, after they’ve they’ve reached a pinnacle in their career—which could be reflected in Morningstar’s recognition of their success. The right analogy might be to institutions like the NFL Hall of Fame or the Rock & Roll Hall of Fame, which generally induct their honorees only after their careers are over or they’ve already passed their prime.