At times, owning a piece of Wal-Mart must feel like a Faustian pact. While the world’s largest retailer can deliver great returns—first-quarter earnings rose 10 percent from a year earlier—its practices have long made some shareholders wince.
There’s the criticism about how it treats employees, from how much it pays them and who it promotes to its tactics when they want to form unions. Some talk about the perils of a business model built on “Everyday Low Prices”: the impact on small business, the relentless pressure that puts on suppliers, the temptation to cut corners overseas. What keeps investors from agitating for change, in part, is the fact that almost half the shares are owned by the Walton family, which has a history of being impervious to such pressure.
Friday could be different. Wal-Mart’s annual general meeting in Fayetteville, Ark., which was supposed to be rocking with the festive energy of Wal-Mart’s 50th anniversary, is instead buzzing with discontent. Several state pension funds are voting to oust Chief Executive Officer Mike Duke, former chief and current director Lee Scott, and key directors. The country’s two leading proxy advisory firms, ISS and Glass Lewis, have suggested that its clients do the same. Pension fund CalSTRS even initiated its first-ever lawsuit against Wal-Mart executives and directors.
(Update, noon: At the meeting, Chairman Rob Walton issued the first public response from top management to the bribery scandal. Walton told shareholders that Wal-Mart is taking the allegations seriously, according to a report from Bloomberg: “Acting with integrity is not negotiable,” Walton said, from a stage with a mock-up of Sam Walton’s original Five and Dime store. “You have my word. We will act the right way.”)
The reason some investors are up in arms isn’t that they just learned about allegations of $24 million in suspect payments to Mexican officials several years ago. That’s little more than chump change at a retailer that rang up more than $112 billion in sales in the last quarter alone. It’s the ham-handed and almost paranoid way that Wal-Mart’s leaders allegedly reacted when learning of the bribes: ignoring calls for an independent investigation, hushing up the charges, and then pooh-poohing the issue as old news, despite evidence that those involved had been promoted instead of punished. The man who was running Wal-Mart’s Mexico unit at the time—current vice chair Eduardo Castro-Wright—is set to retire in July.
In the weeks since the alleged violations were chronicled in the New York Times, the script that has guided Wal-Mart’s leaders seems to draw more inspiration from the British comedy Fawlty Towers than any case study on leading amid a crisis. CEO Duke, who ran Wal-Mart’s international business at the time, displayed his “don’t-mention-the-war” instincts during an employee pep rally on May 30. Although he studiously avoided any mention of the bribery scandal itself, he cryptically implored the crowd of international workers to “do the right thing, every single day.”
They’re the lucky ones. Shareholders and practically everyone else have had to make do with written statements attributed to Duke that affirm his commitment to integrity and assure investors that the company will now conduct a thorough investigation. His $18.1 million in compensation last year presumably doesn’t cover being forced to actually talk to the press or investors in a crisis. The board of directors, meanwhile, hasn’t even issued a statement. (See update, above.)
But the reality is that directors may have no choice but to react this time to shareholder concerns. The reason isn’t so much to restore trust as reduce culpability. Bribery itself is a troubling charge, but not one that’s unusual for companies expanding in global markets. What irks Wal-Mart investors is a fresh reminder, simply alleged at this point, that Wal-Mart’s clubby board and senior management seem to be putting a deep discount on them.