Wal-Mart Directors Draw Flak From Glass Lewis Over Bribery

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Former Wal-Mart CEO Michael Duke
Michael T. Duke, former chief executive officer of Wal-Mart Stores. Photographer: Joshua Roberts/Bloomberg

Wal-Mart Stores Inc.’s more than three-year-old foreign-bribery scandal remains a concern for Glass Lewis & Co., which is telling investors to vote against three board members over the issue.

The shareholder-advisory firm released a list of recommendations for Wal-Mart’s shareholder meeting on June 5, offering a mixed view of the company. While it endorsed 12 of the 15 board nominees, it also called for an independent chairman -- something Wal-Mart has opposed. Institutional Shareholder Services Inc., another shareholder adviser, supported all the board candidates, though it too would like the chairman to be someone from outside the company.

Wal-Mart has faced questions about the foreign-corruption issue since November 2011, when the retailer disclosed possible violations in Mexico to the Justice Department and Securities and Exchange Commission. The New York Times reported in 2012 that the retailer paid $24 million in alleged bribes in Mexico. That year, the retailer announced that the probe had expanded to other countries, including China, India and Brazil.

Glass Lewis and ISS have both chided Wal-Mart for not answering questions about the investigations, which are focused on whether the company violated the Foreign Corrupt Practices Act. ISS has recommended against multiple board nominees at each of the past three annual meetings due to concerns about “the lack of meaningful disclosure,” the firm said.

‘Ongoing Progress’

This year ISS felt that Wal-Mart has improved its global compliance enough to warrant a change in its recommendation.

“We acknowledge the ongoing progress and the investment that the company has made in enhancing its global compliance operations and providing a clearer picture of the board’s risk oversight role,” the firm said in a report.

Glass Lewis, meanwhile, recommended voting against Michael Duke, Aida Alvarez and James Cash Jr., citing their ties to the situation. Duke, who eventually became CEO, was vice chairman of the international division during the alleged bribery in Mexico. Alvarez and Cash served on the audit committee of the board during that time.

“We believe that director Duke, in his former position as an executive with direct responsibilities related to the matter, should have done more to address the threat of widespread bribery involving the company’s Mexican subsidiary and acted more proactively to fully investigate and resolve the claims,” the firm said in its report.

In response, Wal-Mart spokesman Randy Hargrove said the company believes “all three have exhibited executive leadership in their roles on the board, and we support their re-election.”

More Disclosure

ISS recommended voting for four of five shareholder proposals, while Glass Lewis endorsed two. Both firms support ballot measures that would require Wal-Mart to disclose information regarding its recoupment practices and require that the board have an independent chairman.

Wal-Mart, based in Bentonville, Arkansas, has recommended against the shareholder proposals. Hargrove said the board “remains committed to high governance standards.”

Both firms also were against a proposal requiring the company to report and set goals for greenhouse-gas emissions of overseas shipping of its products. Glass Lewis also opposed initiatives that would allow certain shareholders to nominate director candidates and would require the company to report on the benchmarks it uses in its incentive compensation plans.

Wal-Mart’s founding family controls about half its outstanding shares, so the recommendations are unlikely to affect the outcome of proposals at its investor meeting.

In addition to coping with the bribery criticism, Wal-Mart is trying to pull itself out of a sales slump. Earnings and revenue both missed analysts’ estimates last quarter.

Wal-Mart shares have declined 13 percent this year, compared with a 2.2 percent gain for the Standard & Poor’s 500 Index.

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