Wal-Mart shareholders: low confidence with execs

Discontent with Wal-Mart’s top executives hit historic levels when thousands of shareholders pledged to vote against CEO Mike Duke and former CEO Lee Scott among other directors linked to the bribery scandal and alleged cover-up in its Mexican subsidiary.

Shareholders delivered on the threat Friday with an unprecedented vote against the top management. However, all 16 Wal-Mart directors were elected or re-elected.

Revelations of the bribery scandal first hit April 21 when the New York Times reported a “campaign of bribery” that was allegedly managed by former Wal-Mart de Mexico CEO Eduardo Castro Wright. The bribery schemes allowed Wal-Mart to obtain construction and other permits quicker than its competitors.

‘STINGING REBUKE’
One of the more outspoken critics has been New York City Comptroller John C. Liu , who released a statement Monday (June 4) in response to the final vote count made public by Wal-Mart Stores Inc.

“Outside shareholders delivered a stinging rebuke to Wal-Mart’s top leadership by casting more than 30% of our votes against the company’s chairman, (Robson Walton) CEO (Mike Duke) and former CEO (Lee Scott). The results are a vote of no confidence that sends a message to Wal-Mart’s entire board, which has ignored our concerns and failed to safeguard the company’s standards of ethical and legal compliance. It’s up to the board now to restore investor confidence. Directors need to increase their independence and initiate a truly independent investigation into reports that Wal-Mart executives covered-up widespread bribery in Mexico and hold accountable any executives involved.”

David Tovar, a Wal-Mart spokesman, said in an email to Bloomberg News that “a substantial majority of our shareholders supported their election.”

VOTE COMPARISONS
The Walton family, directors and officers of Wal-Mart Stores control 50.12% of the company’s 3.4 billion outstanding shares, virtually rendering all the other shareholders a minority.

According to the Wal-Mart release nearly 13% of votes cast were against Duke, compared to 3% a year ago and 7% in 2010.

When discounting the insider majority vote, 32% of the remaining votes were against Duke, typically deemed a vote of no confidence according to corporate governance experts.

Duke was serving as president of Walmart’s international division during the time of the alleged crime and cover-up.

Chairman Rob Walton, son of founder Sam Walton, had 15.6 % of the total votes against him as reported by Wal-Mart. That compared to 7.5% in 2011 and 9.62% in 2010. The non-insider vote against Walton was 31.2%.

Walton said loud and clear at Friday’s annual shareholder meeting the company is fully investigating all allegations.

“Integrity is not negotiable. We will do the right thing, the right way. You have my word,” Walton said.

Former CEO Scott had 15.6% of the votes against his re-election to the board. Scott was the CEO of Wal-Mart during the time of the alleged violations. In 2011 and 2010 the vote against Scott totaled, 8.55% and 9.7%, respectively.

When subtracting away the insider vote, a total of 38.4% of shareholders cast ballots against Scott on Friday.

Christopher Williams, chairman and CEO of The Williams Capital Group, who serves as chairman of Wal-Mart's audit committee had more than 13% of voters against his re-election. When factoring out the insider-vote, the percentage against Williams serving another term was 32.8.

SHARE PRICE STRENGTH
“A good chunk of the minority shareholders are upset,” Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware, said Monday in an interview with Bloomberg News. “If there is that much opposition, maybe they need to revisit how the board is comprised.”

Elson added: “Given the family’s control, the amount of opposing votes is a big number.”

Shares of Wal-Mart (NYSE: WMT) have not been hurt by the Mexico bribery allegations.  They have, in fact, hit historic highs.

The Friday before the scandal broke, Wal-Mart shares (NYSE: WMT) closed at $62.45. In the next few days, the share price fell to $57.36. But the $57.36 share price would be the bottom with respect to fallout from the scandal.

The share price closed Monday (June 4) at $65.98, up 43 cents, in heavier than normal trading volume. During the past 52 weeks, the share price has ranged from a $66.66 high to a $48.31 low.