Shareholder firms question independence of Walmart board

Discussion
May 28, 2014

Two reports released over the past week question how well Walmart’s board is handling an investigation into alleged violations of the Foreign Corrupt Practices Acts (FCPA) by company executives in Brazil, China, India and Mexico.

Institutional Shareholder Services Inc. (ISS) and Glass Lewis & Co., both companies that advise large institutional investors how to vote on corporate ballots, have questioned whether Walmart’s board is independent enough to carry out its duties. The family of Walmart founder Sam Walton currently controls more than half the company’s shares and Rob Walton is the chairman.

ISS, which opposes the re-election of Mr. Walton and former CEO Michael Duke to the Walmart board, issued a statement via Bloomberg News that the company has "failed to make progress in providing meaningful information to shareholders about any specific findings on the FCPA-related investigations and whether executives will be held accountable for related compliance failures."

Walmart spokesperson Randy Hargrove defended the company’s FCPA investigation and said it is cooperating with the Department of Justice. "We don’t have a timeline for when the investigation will be completed, but we haven’t waited to act," Mr. Hargrove told Bloomberg. "The board has authorized whatever resources are necessary to get to the bottom of the matter."

A union-backed group, Organization United for Respect at Walmart (OUR Walmart), has also asked shareholders to vote against Mr. Walton’s re-election and support an independent chairman. A letter signed by three Walmart associates points to a series of internal control and legal compliance issues over the time Mr. Walton has been chair.

"Recent breakdowns have included violations of environmental standards in California, the largest-ever complaint against the company by the National Labor Relations Board, and, most troubling, the global corruption scandal involving alleged bribery of foreign officials in violation of the U.S. Foreign Corrupt Practices Act that the company admits will cost more than $600 million by the end of the current fiscal year."

ISS has also taken issue with Walmart’s executive compensation practices. According to The Wall Street Journal, the firm, which supported the retailer’s pay practices in the past, has issues with changes it believes prop up executives’ earnings, even when performance dips. ISS said the steps taken by the company have come at a time when its "performance continues to lag peers."

Is Walmart’s board of directors any more or less independent than those of other large companies? What is your assessment of how well or badly Walmart has handled the FCPA issue and others of interest to shareholders?

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8 Comments on "Shareholder firms question independence of Walmart board"

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Paula Rosenblum
BrainTrust
Boy, which question do I answer? There seems to always be someone driving the board of large companies. I don’t know of many companies (besides IBM, although I’m sure there are others) that have been around so long they have no single majority shareholder (or shareholder group). Still, something has not been right with Walmart for some time. I would never have associated that with the Walton family, since I assumed they would have preferred to follow Sam Walton’s values, but clearly I missed something. FCPA or no FCPA, the company is sorely in need of an image and public relations makeover. These make-overs must be bigger than just words. Deeds must follow. From what I’ve seen and heard, it appears as though new management has made some incremental improvements. Even OUR Walmart has acknowledged that. I think whatever it takes to make those changes happen should get done, and soon. If it takes a new Chairman, fine. The company seems to decide it wants to be in a place (a town, a street, a country, whatever) and it does whatever it feels it has to do to make it happen, regardless of what the people who live there think… Read more »
Lewis Olishansky
Guest
Lewis Olishansky
2 years 4 months ago

It is clear that Walmart has lost its way, and the principles that Sam Walton used to create the empire have faded. Its brand is is badly tarnished. As Paula says, if it takes new leadership, then so be it. Rule by Divine Right is rarely an effective retail policy.

HY Louis
Guest
2 years 4 months ago

A company the size of Walmart will always have these petty complaints from disgruntled shareholders. Lucky for the shareholders, they have an option not to invest. No one can judge how well Walmart has handled these issues other than Walmart itself.

We elect the Board of Directors to use their best judgment. If there has been no wild sell off of the stock, then the board has done their job and the majority of shareholders approve. Shareholders will show their pleasure in the board’s actions by continuing to reelect the members.

Gene Hoffman
Guest
Gene Hoffman
2 years 4 months ago

Corporate boards are frequently selected by the company’s CEO for both business and protective reasons. That can intimidate independent thought and analysis. Walmart’s board would seem to fit into that fraternity. That fact won’t change with 51% company ownership resting in one family even with an outside Chair.

The question posed re: the WM board’s handling of the FCPA issue seems to answer itself.

Kai Clarke
BrainTrust

No. The board has internal issues with performance, pay and shareholder communication, just like all other boards have. Are there issues because we have familial fraternization which perpetuates this? Yes. Overall, the continuation of a board members within the Walmart family name is not in the best overall interest of shareholders and this is where the first changes should be made.

Craig Sundstrom
Guest

Independent of what? If the implication is that they’re beholden to the Walton clan at the expense of other shareholders, then what is that they’re doing that would benefit the former but not the latter? Maybe the leadership really are doddering old fools – I’ve no idea – but methinks the old canard of “lag[s] peers” is really denial of the fact that Walmart has reached a saturation point (in the U.S., anyway).

Tom Redd
BrainTrust

Walmart is in a mode of constant change, due to their size, reach, and customers. They are a fine retailer that is just learning how to change faster. On the FCPA issue – as long as they are properly aligned with the Justice Department, then all is well. International retail issues like this take time to analyze and act on. The important thing is that the retailer is ready when they are needed.

Give Walmart the time and space they need. They are already changing and adapting and a few years from now, many will be shocked at just how responsive Walmart is – to their shoppers needs and Wall Street as well.

Rob and team are doing a great job and keepin’ Sam proud.

TR…a Walmart kinda guy!

gordon arnold
Guest
2 years 4 months ago
Walmart does a tremendous job of putting affordable products and services at the disposal of tens of millions of people in many countries. The single biggest contributing factor to this success is their superior distribution capabilities combined with unsurpassed buying power. One might think this would make those left out of the opportunity eager for a new store close enough for a visit. Or that those being served would be happy to return and visit the store for whatever needs can be supplied. A simple look at corporate sales results and same store sales demonstrates that the general public is happy with the company and what they can supply. What Walmart does poorly is seen very clearly in the discussion we have here. The company’s ability to perpetuate and expand ill feelings and bad press is growing at the same pace as sales. The board of directors has failed to turn this fact around and in fact find ways to get new groups to support the decent or create a new circumstance of supported grievances. A look at recent retail history will show good number of the dead or dying retail giants were crushed for the exact same reason –… Read more »
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