Controversy looms on Wal-Mart’s 50th anniversary

by The City Wire staff (info@thecitywire.com) 19 views 

Thousands of shareholders and Walmart employees from the four corners of the globe will descend on Bentonville this week to celebrate the retail giant’s golden anniversary and annual meeting at 7 a.m. Friday (June 1).

Wall Street will be watching with a front row seat.

If history repeats, meeting goers will be treated to performances from a star-studded cast of musical entertainment balanced with inspirational accounts from chosen associates and a brief financial review of fiscal 2012.

The retail goliath posted a record net profit of $15.766 billion in fiscal 2012 while returning $11.3 billion to shareholders through dividends and share repurchases during the year, but not everyone is anxious to celebrate.

While there has been much anticipation around this jubilant event, recent allegations of bribery and a cover-up in the retailer’s Mexican business segment by top executives has cast a dark shadow on the “squeaky clean” image the company touts at every opportunity.

These serious allegations implicating CEO Mike Duke, former CEO Lee Scott and others will no doubt give hecklers plenty of ammunition for protest this week. But analysts say ousting these executive giants is no easy feat.

Employees and shareholders alike have called for the resignation of Duke and others linked to the ongoing investigation. Aside from sparse but carefully scripted comments on the controversy, Wal-Mart’s media machine has been relatively mute on the volatile subject.

MOUNTING OPPOSITION
At least three large institutional shareholders: the New York City Pension Fund, California State Teachers' Retirement System and the California Public Employees' Retirement System, said earlier this month they have lost faith in the board's independence amid the bribery allegations. These outspoken dissenters together control 18.1 million votes — a mere 5.23% of the total outstanding shares.

In addition, three influential proxy advisement firms — Egan Jones, Glass Lewis & Co. and ISS — also recently encouraged their large client bases to vote out Duke and Scott, among others, when they cast their ballots this week.

The potential fallout from these combined initiatives at best are likely to serve as protests, given that 1.7 billion votes would be needed to outvote the family’s holdings — near 50% of the total 3.4 billion shares.

It would take about 26% of votes by minority stakeholders against the board, outside the family control, to demonstrate a vote of no confidence, according to Paul Hodgson, senior associate at governance research firm GMI Ratings.

The protesters have focused on Scott who was CEO when Wal-Mart was investigating the alleged bribery practices in late 2005 and Duke, who was leading the company's international business.

Robson Walton, son of founder Sam Walton and longtime legal counsel for the company, has also been implicated in the alleged cover-up. Robson Walton also heads up the family’s vote and is a sure target for protestors given he pledged to honor his father’s legacy:

"Personal and moral integrity is one of our basic fundamentals, and it has to start with each of us,"  Sam Walton.

 

In his address to shareholders, Robson Walton said in the company’s recent annual report, “There's no doubt that Dad would be proud of Walmart today. He never wavered in his belief that integrity was essential.”

Chairman Walton also stated in the report, “We also are proud of the service of our board members, and of the processes we have in place to serve our shareholders. Good corporate governance is good business. As your chairman, I am pleased that we continue to strengthen our structure and best practices.”
                                  
Glass Lewis disagrees and recently released the following statement: "We believe that these directors, in their current or former positions as executives with direct responsibilities relating to the matters, should have been aware of the credible threat of widespread bribery involving the company's Mexican subsidiary and acted more proactively to full investigate and resolve the claims.”

Marek Fuchs, former Wall Street analyst and author, notes the Wal-Mart issue may draw some fireworks, but it is the wrong time and wrong place for a shareholder protest to effect much change.

He said Wal-Mart shares are doing well, trading near their 12-year high and the scandal, as it were – doling out bribes for land use in foreign territories – is too commonplace to stand out and sustain outrage.

He said without the family’s nod of approval little change can come through a shareholder vote, but that doesn’t keep minority shareholders from trying.

SHAREHOLDER PROPOSALS
Aside from the election of 16 board members, there are six proposals up for vote this year – three company recommendations and three from shareholders.

Minority shareholders are asking for more transparency with respect to the company’s political contributions and money paid to lobbyist to influence legislative outcomes. They also seek to have one director elected with expertise in patient safety and health care matters. Lastly, shareholders have asked the board adopt a policy to have executive compensation and corporate governance analyzed annually.

Wal-Mart does not support these three proposals and has asked shareholders to vote them down, according to the Proxy filing with Securities and Exchange Commission.

The company does support the following proposals: elect the 16 nominees as directors, ratify the appointment of Ernst & Young as the retailer’s independent auditor for fiscal 2013, and approval of the compensation paid to company’s named executive officers.

SAM’S LEGACY
Aside from the 50 years since the first Walmart opened in Rogers, it’s also been 20 years since founder Sam Walton succumbed to cancer.

Andy Wilson of Springdale was recruited by the senior Walton in 1976 right out of college and rose quickly through the management ranks becoming a corporate officer by age 30. Wilson characterized Walton as a humble leader among leaders.

He said Walton grew the business one store at time and never allowed himself to get caught up in the company’s success, though he lived life with a sense of urgency and very competitive spirit.

“Sam Walton put people first, no matter how many billion’s were sold each week. He was a great visionary who managed to inspire those he touched,” Wilson said.

While the master merchant is credited with swimming upstream and growing his retail venture from its infancy in 1962 – $250,000 in sales – to $42.9 billion some 30 years later, that proved to be only the beginning.

Since Walton’s death in April 1992, the company’s sales have grown 9-fold to more than $443.9 billion in 2012 with 10,231 stores in 27 countries.

Analysts say Wal-Mart shareholders assembling this week can celebrate the retailer’s return to positive same-store sales in its U.S. division and a bright long-term future, no matter who sits at the helm.

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