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2012-05-07
Bentonville, AR. Wal-Mart At 50: A Crisis or Governance

In less than a month, Wal-Mart will celebrate a Golden Anniversary at its annual shareholder's bash at Bud Walton Arena on the campus of the University of Arkansas in Fayetteville.

Last year, entertainers Will Smith and the Black Eyed Peas were brought in to divert the 16,000 shareholders from the company's worst-ever U.S. U.S. same store sales growth of -1.5%

I did not go to Bud Walton Arena last June, and I won't be there this June. I own one share of Wal-Mart stock, which I bought in 1993, but I prefer to monitor the festivities online. It would not surprise me if the corporation passes on my suggestion that they hire a few Mexican mariachi bands to serenade the shareholders.

The 'Mexigate' bribery cover-up has spiced up the debate over corporate governance at Wal-Mart. Last week, the California State Teachers' Retirement System (CalSTRS), which owns $315.5 million in Wal-Mart stock, filed a "derivative action" against Wal-Mart executives and board members, charging "alleged gross misconduct" by executive officers and directors." The lawsuit claims that "senior Wal-Mart officials engaged in large opportunistic stock sales prior to the charges of corporate corruption being made public." CalSTRS says that members of the Wal-Mart board "participated in a high level cover-up."

"How we do business," CalSTRS warned, "is just as important as how well we do business."

So how does Wal-Mart do business? Here are some examples involving Wal-Mart directors from their most recent FY 2012 proxy statement, under the heading, "Related Party Transactions:"

Eric Scott, the son of Lee Scott, former Wal-Mart CEO and current member of the board, is the CEO of Cheyenne Industries. Wal-Mart bought roughly $24 million in home furnishings from Eric Scott's company in 2012.

Wal-Mart paid Saatchi & Saatchi $198,000 for marketing services. Brittany Duke, the daughter of Wal-Mart CEO Michael Duke, is an executive officer at Saatchi.

Stephen Weber, a senior manager in IT at Wal-Mart, was paid $167,869 in salary and benefits in 2012. Weber is Michael Duke's son-in-law. His bonus alone of $32,024 is 40% more than the average Wal-Mart worker in Texas makes in a year.

Arne Sorenson, the CEO of Marriott International, is also a director at Wal-Mart. Sorenson's company received $19 million from Wal-Mart in 2012 for "hotel, lodging and related services."

Under New York Stock Exchange rules, a majority of Wal-Mart directors must be "independent." But this determination is left up to the Wal-Mart board, which is controlled by Jim and Rob Walton, Sam Walton's surviving sons. (Rob Walton's son-in-law, Greg Penner, also sits on the Wal-Mart board).

Wal-Mart lists 10 of its 16 directors as being "independent," yet 3 of these directors -- including Arne Sorenson -- are officers of a Wal-Mart provider or service vendor; 6 Wal-Mart directors also sit as a director of a company that is a Wal-Mart provider or vendor; 3 Wal-Mart directors are associated with an entity to which Wal-Mart made donations; and 2 have immediate family members who worked for Wal-Mart vendors. In the Wal-Mart corporate family, it appears that everybody is doing business with everybody else.

The "independence" of these Wal-Mart directors is further compromised by the fact that they are paid between $229,819 and $288,251 per year to sit on the board. Rob Walton, whose net worth is around $23 billion, was paid $235,000 for his services as Chairman of the Board -- which is more than 10 Wal-Mart workers in Arkansas make in a year.

Last week, a group of community and union activists in Boston went searching for Wal-Mart board member James I. Cash, Jr. Cash is an Emeritus Professor at the Harvard Business School, and sits on the board of General Electric. "We're calling on locally-based Wal-Mart board member Dr. James Cash to support the call for resignations of top executives who are implicated in the Mexican bribery scandal," Russ Davis, Executive Director of Massachusetts Jobs With Justice, told me. "We are deeply concerned that Wal-Mart is using money and fear to coerce local communities into accepting their expansion plans. We are demanding to know how much money Wal-Mart has contributed to local officials and nonprofit organizations through their lobbyists and the Walton Family Foundation and what, if anything, was promised in return."

At the Wal-Mart annual meeting on June 1st, shareholders will be asked to support a Resolution that calls on the company to produce a report 'disclosing the amounts that the company has paid or incurred in connection with influencing legislation, participating...in any political campaign...and attempting to influence the general public" on legislative matters or referenda. In their supporting statement,
political spending disclosure "permits citizens and shareholders to react to the speech of corporate entities in a proper way."

After researching the Mexican bribery case, CalSTRS concluded that "the complete breakdown of Wal-Mart's corporate governance threatens to damage the Company's business reputation."

What you can do: Wal-Mart may have entered the Golden Years, but its self-dealing and covers ups have seriously tarnished the brand, and put its "independent" governance in a state of crisis.

Readers are urged to go to Wal-Mart's Global Ethics Office (yes, it really exists) at:

https://walmartethics.com/ReportAConcern.aspx

and file the following concern: "I am concerned about the lack of independence on Wal-Mart's board of directors. It appears that the 10 directors the company says are 'independent' are really bought and paid for with their six figure salaries. If they speak out against the company, or ask for more transparency, they could be risking that big salary -- which they get for doing almost nothing. Wal-Mart is not really meeting NYSE standars on board independence,and somebody on the board should have blown the whistle on the Mexican bribery cover up. Now it looks like the millions spent on board members is just hush money to buys board silence. Is this ethical?"










 
 
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