California Teachers Fund to Vote Against Wal-Mart Board

Jack Ehnes
Jack Ehnes, chief executive officer of the California State Teachers' Retirement System (CalSTRS), speaks during a session on the fourth day of the World Economic Forum (WEF) Annual Meeting 2011 in Davos, Switzerland. Photographer: Tomohiro Ohsumi/Bloomberg

The California State Teachers’ Retirement System will vote its 5.3 million Wal-Mart Stores Inc. shares against the entire board’s re-election amid a probe into alleged bribery in Mexican operations.

The board failed to respond to indications of unethical conduct, and Wal-Mart’s leadership may have “actively suppressed” an internal investigation, Calstrs Chief Executive Officer Jack Ehnes said today in a statement disclosing how the shares will be voted.

“Calstrs does not have confidence that the current board has the independence and leadership needed to address these difficult issues,” Ehnes said in the statement.

The move shows mounting pressure against Wal-Mart, the world’s largest retailer, over its corporate-governance practices in advance of the company’s annual meeting on June 1 in Fayetteville, Arkansas. The New York City Pension Fund and a major adviser to investors have also urged investors to vote against some directors in the wake of bribery allegations.

Wal-Mart, based in Bentonville, Arkansas, has said it is probing allegations reported by the New York Times last month that executives paid more than $24 million in bribes to clear the way for expansion in Mexico. A company spokesman, David Tovar, didn’t return a phone call seeking comment today.

Lawsuit Filed

Calstrs on May 4 said it sued current and former Wal-Mart directors, alleging bribery and a cover-up. Wal-Mart directors and executives responsible for overseeing the company’s Mexican unit should reimburse the Bentonville, Arkansas-based retailer for damages the chain suffered as a result of the bribery scheme, lawyers for Calstrs said in the lawsuit, filed in Delaware Chancery Court in Wilmington.

Calstrs holds less than 1 percent of Wal-Mart shares, a stake valued at about $313.5 million. The total holdings of Calstrs were worth about $153.7 billion on April 30. The retirement system, based in West Sacramento, California, serves 856,000 public-school educators.

The pension plan is the third shareholder-related group this month to come out against Wal-Mart directors. On May 19, Institutional Shareholder Services Inc., an adviser based in Rockville, Maryland, recommended that Wal-Mart stockholders vote against Chairman Rob Walton, CEO Mike Duke, retired CEO Lee Scott and Chris Williams, who heads the audit committee.

Board Members

Institutional Shareholder Services is concerned that bribery allegations arose and that Wal-Mart’s board may not be structured to handle the investigation properly, Pat McGurn, special counsel to the advisory firm, said in a telephone interview today. Some of same board members who are involved in the investigation were executives or on the board when the alleged bribes took place, he said.

A senior Wal-Mart lawyer received bribery allegations in September 2005 and a cover-up may have occurred later, according to the Times article. Scott was CEO from 2000 to 2009. Duke became vice chairman, overseeing Wal-Mart’s international operations, in September 2005. Williams has been on the board since 2004 and Walton has been chairman since 1992.

“You don’t want the same people serving as witness and juror,” McGurn said. “You want to make sure you have independent directors. We are really concerned with board oversight vis a vis senior management.”

Wal-Mart was founded in by Sam Walton. His heirs control Walton Enterprises Inc., which owns 47 percent of Wal-Mart stock, according to data compiled by Bloomberg.

Voting Power

Calstrs is concerned that the Walton family has effective voting control of proxy issues, Mike Sicilia, a Calstrs spokesman, said in an interview.

“That makes it difficult for unaffiliated shareholders to nominate directors to the board,” Sicilia said.

On May 1, New York City Comptroller John Liu said the New York City Pension Fund would vote against five Wal-Mart directors because of the bribery allegations.

Liu said the funds will vote against Rob Walton, Duke, Scott, Williams and Arne Sorenson, president and CEO of Marriott International Inc.

New York Pension Funds said in a statement that Marriott “has a multimillion dollar vendor relationship with Wal-Mart,” so Sorenson shouldn’t be on a board overseeing the allegations.

Wal-Mart rose 1.2 percent to $63.82 at 2:15 p.m. in New York. The shares gained 5.5 percent this year through yesterday.