Fayetteville, AR. Shareholders Pressure Wal-Mart For Lobbying Disclosure
On June 6, the Bud Walton Arena in Fayetteville, Arkansas, will be transformed into a gladiator pit at Wal-Mart's annual meeting, where shareholders will do battle with the Walton heirs on four resolutions that challenge how the giant retailer does business. While the outcome of the vote is in little doubt -- the pressure for greater transparency could have an impact.
The heirs of Sam Walton control more than half of the total 3.23 billion outstanding shares in the company. Last year, of the four shareholder resolutions listed on the Proxy Ballot, none garnered more than 17 percent of the voting shares.
This year, of the three shareholders resolutions, only one is new: "Request for Annual Report on Lobbying."
According to Sonia Kowal, Director of Socially Responsible Investing at Zevin Asset Management, shareholder resolutions at Wal-Mart are a steep climb. "We recognize that it is very unlikely that we will achieve a very sizeable vote for this resolution given the high percentage of insider ownership," Kowal admits, "but it is still important for us to shine a light on the company's lack of disclosure and strongly encourage them to improve."
Kowal says the "dirty little secret" in proxy voting "is that fund managers may feel pressure to side with management against shareholders' best interests because they manage (or want to manage) those companies' 401(k) plans." She estimates that lobbying disclosure resolutions typically pull down 30 percent to 40 percent of the vote -- but a recent lobbying disclosure resolution at Valero Energy broke the 50 percent barrier.
The lobbying resolution that faces Wal-Mart Shareholders reads as follows:
Whereas, corporate lobbying exposes our company to risks that could adversely affect the company's stated goals, objectives, and ultimately shareholder value, and
Whereas, we rely on the information provided by our company and, therefore, have a strong interest in full disclosure of our company's lobbying to evaluate whether it is consistent with our company's expressed goals and in the best interests of shareholders and long-term value.
Resolved, the shareholders of Wal-Mart Stores, Inc. ("Walmart") request the Board authorize the preparation of a report, updated annually, disclosing:
1. Company policy and procedures governing lobbying, both direct and indirect, and grassroots lobbying communications.
2. Payments by Wal-Mart used for (a) direct or indirect lobbying or (b) grassroots lobbying communications, in each case including the amount of the payment and the recipient.
3. Wal-Mart's membership in and payments to any tax-exempt organization that writes and endorses model legislation.
4. Description of management's and the Board's decision making process and oversight for making payments described in section 2 and 3 above.
For purposes of this proposal, a "grassroots lobbying communication" is a communication directed to the general public that (a) refers to specific legislation or regulation, (b) reflects a view on the legislation or regulation and (c) encourages the recipient of the communication to take action with respect to the legislation or regulation. "Indirect lobbying" is lobbying engaged in by a trade association or other organization of which Wal-Mart is a member.
Both "direct and indirect lobbying" and "grassroots lobbying communications" include efforts at the local, state and federal levels.
The report shall be presented to the Audit Committee or other relevant oversight committees and posted on Walmart's website.
Zevin has engaged in similar lobbying disclosure resolutions with other companies over the last few years. Kowal says Wal-Mart stood out for two reasons:
"It's one of the largest companies in America, yet is way behind the curve as to what it discloses about its lobbying. Many large companies such as Microsoft and Pepsi provide comprehensive lobbying disclosures including information about their payments to trade associations. The other reason was their links to the U. S. Chamber of Commerce's lobbying to dilute the Foreign Corrupt Practices Act. Through its membership in the Chamber, Wal-Mart has been linked to an aggressive lobbying campaign to eviscerate the FCPA, which renders it illegal for corporations to bribe officials in foreign countries. Given the legal case against Wal-Mart over its alleged bribing of Mexican officials to win construction permits, this is playing with fire."
Wal-Mart's FY 14 Annual Report says the company spent $173 million for "ongoing inquiries and investigations" regarding its alleged violations of the FCPA in Mexico, Brazil, China and India. But the company gives shareholder no report on how much it has spent lobbying to weaken the FCPA itself.
Zevin's resolution is not unique. In 2013, 70 shareholder groups filed 50 lobbying disclosure proposals, and the 40 that went to vote averaged 26% support. Many companies, like 3M, Accenture, Amgen, Bristol-Myers Squibb, Endo Health Solutions and St. Jude Medical, have improved their lobbying disclosures. Intel and Microsoft disclose all trade association payments. The International Corporate Governance Network (ICGN) supports lobbying disclosure as a best practice.
"We need better, more complete disclosure of how Wal-Mart uses its resources to affect legislation," Kowal explains. "Lobbying disclosure will help us better evaluate whether Wal-Mart's lobbying expenditures and actions advance its interests and whether it presents risks to company value."
Wal-Mart management issued a 667-word rejection of lobbying disclosure:
"Wal-Mart already discloses information about its lobbying activities," their Proxy Statement says. "The additional disclosures of proprietary and confidential information required by this proposal are unnecessary and would risk putting Wal-Mart at a competitive disadvantage." The company says it complies with the Lobbying Disclosure Act of 1995 by submitting quarterly reports on Wal-Mart and WAL-PAC spending to Congress, available on their website -- outlining its lobbying expenditures, specific legislative items it lobbied on, and who lobbied on Wal-Mart's behalf.
Wal-Mart admits it pays dues to "certain retail industry and other trade associations" which "may sometimes take positions on legislation." But the retailer says it "may not agree with every lobbying action taken by such associations." It argues that "additional disclosures regarding the specific payments made to these trade associations would not necessarily present an accurate reflection of Wal-Mart's positions on certain public policy issues."
"We are involved in a number of legislative initiatives that could dramatically affect our business and operations," Wal-Mart says. "Because parties with adverse interests also lobby for their own business reasons, any unilaterally expanded disclosure by Wal-Mart regarding its lobbying activities could benefit these parties to the detriment of Wal-Mart and its shareholders."
But Kowal responds: "Currently mandated disclosure is a patchwork view of what is actually going on and presents only a partial picture. Disclosure laws cover federal lobbying---but at the state level, lobbying disclosure is not comprehensively required by law. We're also worried about Wal-Mart's contributions to trade associations or other organizations that lobby indirectly on the company's behalf without disclosure. These contributions can dwarf the direct political and lobbying expenditures which are reported to regulators."
In May of 2012, Wal-Mart announced that after almost 20 years it was "suspending" its membership in the conservative American Legislative Council (ALEC) over the latter's position on voting and gun laws. Wal-Mart said "the divide between these activities and our purpose as a business has become too wide."
Kowal says she was "heartened" by Wal-Mart's withdrawal from ALEC, but notes "the company is a member of the U.S. Chamber of Commerce -- although they don't disclose any memberships in, or payments to, trade associations, or the portions of such amounts used for lobbying. Transparent reporting would reveal whether company assets are being used for objectives contrary to Wal-Mart's long term interests."
What is Wal-Mart trying to hide? As Kowal notes,"Wal-Mart's trade association involvement should advance the company's interests and be consistent with the company's mission and values. If it does meet these standards, Wal-Mart should have no problem disclosing these trade association membership payments and the portions that are being used to lobby."
What you can do: Wal-Mart's typical disclaimer is that it is "committed to participating in the political process as a good corporate citizen." But the "political process" at Bud Walton Arena has about as much unpredictability as the recent election in Crimea.
Yet Zevin says they are in this for the long haul.
"I do think Wal-Mart understands why shareholders are interested in this issue," Kowal says, "yet the company is still reticent to provide the needed information. A strong vote at the upcoming annual shareholder meeting will send a clear message to management that this is something that they need to prioritize."
If you like watching pre-determined elections, Wal-Mart's 2014 Annual Shareholders' Meeting can be viewed online via a live webcast.