Penner, McMillon Relationship ‘Crucial’ To Long-Term Wal-Mart Success

At least two retail watchers say the change of board leadership at Wal-Mart Stores is a good move.

They suggest that Greg Penner is more than just a son-in-law to former Board Chairman Rob Walton; that he has experience as a Wal-Mart employee and will not be shy about pushing management to succeed in a retail world constantly disrupted by demographics and technology.

Walton, 70, son of Wal-Mart founders Helen and Sam Walton, announced the change in Board leadership at the June 5 shareholders meeting in Fayetteville. Penner, 45, became chairman effective at the end of the meeting. Penner is only the third person to lead the board in its 54-year history.

Media headlines suggested that Penner was the “safe bet” for the prestigious job given he is the son-in-law to Rob Walton. Governance expert Alan Ellstrand, a professor at the University of Arkansas, said Penner’s qualifications are more than the family status.

“The board chairman at Wal-Mart also sets the culture, which is at the core of how the company operates around the world. Penner is family and a former associate well-versed in the culture,” Ellstrand said.

While there are other board members who may have been there longer, many of them are also running their own companies, working in higher education or serving on other active boards, Ellstrand added. He said the board chairman’s role manages the governance process which can be cumbersome for a global company of Wal-Mart’s size. Before governance rules and regulations were expanded in 2002 with Sarbanes-Oxley Act, it was far more common for the top executive to share the role of CEO and Board Chairman.

“It’s hard to be your own boss because it limits the oversight. The CEO reports to the board chairman so finding the right person is crucial because these two positions share a strong relationship,” Ellstrand said.

THE PENNER FIT
He said Rob Walton cut his teeth in the family business, but is still viewed by some outsiders as the wealthy heir. Former Wal-Mart CEO David Glass said at the recent shareholders meeting that Walton was hired as the retailer’s first general counsel after completing law school because the company was expanding so fast that management needed legal oversight and that oversight was useful during the 23 years Walton served as board chairman.

Penner has spent nearly two decades working for Wal-Mart in a number of roles starting as a management trainee and rising to chief financial officer in the retailer’s Japanese business. He also, and possibly more important, was a senior vice president of finance and strategy for Walmart.com during its startup phase. His experience outside of Wal-Mart includes corporate finance at Goldman Sachs and then founding – with Walton Family financial support – the investment management firm Madrone Capital Partners.

Ellstrand said Penner also is a good choice because he understands Wal-Mart operations from an inside view. Equally important is his expertise in technology and his younger age, which positions the company for the future. He said the younger Penner and Wal-Mart CEO Doug McMillon along with board members Marissa Meyer, CEO of Yahoo, and Kevin Systrom, founder of Instagram, give the board several steps into the future.

CHEMISTRY NEEDED
Andy Wilson, a retired Wal-Mart executive officer, told The City Wire that Penner is family and that is important but no more so than ensuring the company has the right people steering its future.

“Chemistry between management and [the] board is important and I believe the management and board in place at this time is strong and suited to take Wal-Mart forward in the future. Doug [McMillon] is better positioned for leadership overall and his efforts to bring service back through investing in people is straight out of Sam Walton’s playbook,” Wilson said.

He said Penner also understands the changing dynamic of brick-and-mortar and e-commerce, and McMillon and Penner have the full support of the Walton Family, even if Wall Street is slow to catch on.

Wal-Mart stock has not performed well under McMillon’s tenure with shares down nearly 16% so far this year. Wal-Mart shares traded around $72.39 on Tuesday (June 23) and were down just 15 cents from $72.54 on Feb. 1, 2014, when McMillon took over as CEO. During this period, Wal-Mart has made significant investments in technology infrastructure and committing $1 billion toward higher wages and better training for store workers.

McMillon recently told Wall Street analysts that the board has taken a long view and the investment payoff in technology will require patience. While the investment in people is long-term, McMillon said it’s already yielding small dividends.

Wilson agreed, noting that investments Wal-Mart is making in people and technology are not for this quarter or next, but to position the retailer to serve a new generation. He said Rob Walton’s stepping aside was supportive of the board’s long-term view.

“The Wal-Mart board is a very active and hard-working group of professionals and that isn’t going to change,” Wilson said.