Walmart updates ethics report, CEO says company will never be satisfied with status quo

Walmart Inc. President and CEO Doug McMillon said in his recent note to shareholders the retail giant is on a mission to be the most trusted retailer. He said customers and employees need to know they can rely on Walmart to make decisions about where to shop and work.

McMillon said the commitment goes beyond customers and employees into the communities where it operates.

“This means we can never be satisfied with the investments we’ve made to help our associates do the right thing every day. We have to keep getting better,” McMillon noted in his note.

For several years Walmart has published a summary of its efforts to build and redefine its ethics and compliance program. This year’s Global Ethics report is 66 pages and the topics include sustainability efforts, community giving, job opportunities for veterans, cyber security, and a short segment on board governance.

FCPA UPDATE
Lacking from this report and every other one published in recent years is any mention of the ongoing to investigation of violations of the Foreign Corruption Practices Act (FCPA). The retailer does provide a summary of the cost impact per quarter in its financial filings with the Securities and Exchange Commission and it is also mentioned as a risk to the company in 10-K annual report filed recently with the U.S. Securities and Exchange Commission (SEC).

Walmart said in November it set aside $283 million for a possible FCPA resolution with the Department of Justice and the SEC. Walmart said at the time that ongoing settlement talks with the agencies had progressed to the point where it could finally reasonably estimate a probably loss.

The investigation began when Walmart self-reported in December 2011. The alleged corruption involved business operations in Mexico, Brazil, China and India have cost the company more than $877 million on legal defenses as well as internal compliance measures. This does not include the $283 million earmarked for possible settlement.

Walmart has spent $1.16 billion on FCPA and compliance-related costs since 2012 – or around $530,000 a day for the past six years. That is money that did not flow through to shareholders.

McMillon told Talk Business & Politics in June 2017 the company had learned much during the process of the investigation which allowed it to examine internal protocols and establish 14 areas of compliance discipline for things like permits and licenses, pharmacy compliance, and food safety.

“We had compliance resources scattered all over the place. In some cases, they were functioning very well reporting up to operational leaders. But over the last few years, we have put things together and connected the dots in a way that has strengthened our compliance and ethics programs, and it’s one of the things I am really and sincerely proud of. You have to be vigilant. There is always work to do, but we have learned a lot and benefited from the things that we have done. Over time, I think our business is stronger as a result of the changes that we have made,” McMillon told Talk Business & Politics in June 2017.

There has not yet been a settlement of the FCPA probe, though insiders predict it could happen before the end of 2018. McMillon has never shied away from answering questions about the FCPA probe but it is never mentioned in the company’s Global Ethics Report, which instead touts the company’s successes.

In the report McMillon again outlined the company’s plan to win with four main strategies: Make everyday easier for families; Change how work is done; Operate with discipline; and be the most trusted retailer. McMillon admitted for the latter to become a reality Walmart must work with suppliers, non-government organizations, thought-leaders and elected officials to change entire systems.

“We want to lead on the environmental, social and governance issues that matter most to our customers, associates, shareholders and communities,” McMillon noted in the report.

REPORT HIGHLIGHTS
Walmart featured several of its accomplishments regarding opportunity in this year’s report.
• The retailer said it handed out $625 million in bonuses for nearly 1 million hourly workers last year. There were 230,000 employees promoted at Walmart U.S. last year. The Walmart Foundation said it funded training for more than 1 million small and medium-scale farmers of which more than half are women. Women make up 30% of the company’s officers and 55% of its U.S. workforce. Walmart’s top five executives took home bonus pay of more than $14.141 million. Judith McKenna recently took over as CEO of Walmart International making her the one female of the company’s highest level executives in the presence of five men.

• Walmart’s sustainability goals largely rest on its suppliers, according to critics. The retail giant reports it eliminated 78% of the global waste diverted from landfill last year. It’s also reducing environmental impacts with 34 million acres committed to fertilizer optimization programs by its agricultural suppliers. Walmart said it supports transparency in the supply chain and last year over $200 billion in U.S. sales were from suppliers that participated in the retailer’s Sustainability Index.

• Walmart is known to show up in times of emergency and 2017 was no different. Walmart said together with its foundation it provided more than $38 million in hurricane relief to affected areas including Puerto Rico. Since 2015, Walmart said it has donated 2.5 billion pounds of food in the U.S. to help fight hunger. Walmart employees donated more than 850,000 volunteer hours in the U.S. Through this program for every hour donated to a nonprofit or approved cause the volunteers’ hourly pay is donated along with the service.

RELATED-PARTY TRANSACTIONS
Walmart dedicated a couple of pages in the report to highlighting board compliance protocol in terms of committee structures and executive compensation, which are also clearly defined in the company’s Proxy filing with the SEC. Also in the proxy filing is a list of the company’s related-party transactions which must be disclosed for officers and directors.

“We disclose in this proxy statement all transactions in which a related person has been determined to have a material interest and the amount involved exceeds $120,000, as required under SEC rules. Walmart believes that the terms of the transactions described below are comparable to terms that would have been reached by unrelated third parties in arm’s-length transactions. The Audit Committee has approved each of the transactions disclosed below,” the company noted in the Proxy.

• Marc Lore, CEO of Walmart U.S. E-commerce, continues to get annual payments of stock pertaining to his sale of Jet.com to Walmart in 2012. The restricted stock will vest over a five year period that requires he remain employed with the company through September 2021.

• Some Spider, an internet marketing company received payment from Walmart for roughly $350,000 for internet marketing services. Marc Lore owns approximately 16% of the outstanding capital stock of Some Spider. Walmart said it could not estimate the dollar value Lore gleaned from this transaction. Walmart said it may engage Some Spider in fiscal 2019 to purchase similar services.

* Lori Haynie, McMillon’s sister, is an executive officer in Mahco. Walmart purchased $21.5 million in sporting goods and related products from Mahco last year. Walmart expects to purchase similar types of products from Mahco during fiscal 2019.

• Greg Bray, McMillon’s brother-in-law, works in Walmart’s finance department. Last year Walmart paid Bray a salary of $230,000, cash incentives of $87,000, and other benefits totaling approximately $26,000, including matching 401(k) contributions and health insurance premiums. Bray also received 821 shares of restricted stock valued at $60,000. Bray continues to be an employee and this year may earn similar or more compensation and benefits compared to last.

• Nichole Bray, McMillon’s sister-in-law, works in the Information Systems Division as a manager. Last year Walmart paid her a salary of $144,000, cash incentives of $47,000, and other benefits totaling approximately $22,300, including matching 401(k) contributions and health insurance premiums. She also received 890 shares of restricted stock valued at $65,000. She remains an employee and could earn more or similar compensation and other benefits than those earned a year ago.

• Jason Turner, a store manager for a Walmart Neighborhood Market, is the brother-in-law of John Furner, CEO of Sam’s Club. Last year Walmart paid Turner a salary of $86,400, cash incentives of $52,000, and other benefits totaling $12,300, including matching 401(k) contributions to Turner’s account and health insurance premiums. He remains an employee and could earn similar or more compensation this year.

• Stephen Furner, a store manager for a Walmart Neighborhood Market, is the father of Sam’s Club CEO John Furner. Last year Walmart paid Stephen Furner a salary of $86,400, a payment of cash incentives of approximately $55,000, and other benefits totaling $100. Stephen Furner continues to be an employee and could earn similar or more compensation this year compared to last.

• Last year Arvest Bank, owned by Jim Walton, Rob Walton and members of the Walton family and related trusts, made payments to Walmart for approximately $336,000 for rent in Supercenters and Neighborhood Markets. The leases in various stores remains in effect, and the company anticipates the bank will pay Walmart approximately $330,000 for those leases not awarded on a competitive-bid basis this year. Jim Walton is the father of Walmart board member Steuart Walton and Rob Walton is a director. Walmart’s legal team said it does not believe Walmart, nor the members of the Walton family have a direct or indirect material interest in any of the transactions between Walmart and Arvest.