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 The investors are pushing hard for changes in how the world's No. 1
retailer governs itself, seeking to install an independent chairman.
Many also support a measure that would require wider disclosure of
when it has “clawed back" compensation from executives linked to
ethical missteps.
Crucial to the debate will be the stance of BlackRock Inc,
Wal-Mart's No. 3 shareholder, which last year appeared to take the
company to task for its response to a Mexican bribery scandal which
has angered a number of shareholders. Wal-Mart, which says it cares
about outside shareholders views, has met with BlackRock twice since
last year.
The persistent investor gripes come as the retailer puts its best
foot forward at this week's shareholders' meeting outside of
Bentonville, Arkansas where it is based. Wal-Mart has brought in
thousands of workers from around the world for a three-day,
celebrity-studded affair that culminates in Friday's annual meeting.
“Wal-Mart shareowners have been pushing for a more independent and
accountable board ever since the bribery-related allegations several
years ago exposed serious board oversight failures," New York City
Comptroller Scott Stringer, who oversees city pension funds with
$160 billion in assets, said in a statement.
"The company will not succeed in restoring investor confidence in
its business practices and compliance until it heeds the calls to
overhaul its board," Stringer said.
The Comptroller's office was behind one of several derivative
lawsuits filed by investors against Wal-Mart in 2012 related to the
bribery allegations. That suit is ongoing.
Wal-Mart spokesman Randy Hargrove said the company takes governance
seriously and has reached out to many of its largest shareholders to
discuss its strategy and policies, and shared the insights of those
meetings with the board.
"We’ll continue to evaluate and act upon the recommendations that
the board feels are in the best interest of all of our
shareholders," he said.
This year the company will trumpet a move announced in February to
invest $1 billion in wages and training as a sign of its willingness
to listen to critics, who have long blasted the company for not
paying a "living wage".
But Wal-Mart has sought to quash criticism from another quarter in
the form of shareholders pushing to install an independent chairman.
Family scion Rob Walton has served as chairman for 23 years.
Shareholders have made similar proposals in the last two years but
Wal-Mart this year for the first time petitioned the Securities and
Exchange Commission to exclude the proposal. The request was denied.
Wal-Mart believes its board structure is sound, Hargrove said. Its
lead director is independent, as are 11 of 16 members, and it
separates the roles of chairman and chief executive.
The rebel shareholders argue a chairman without ties to management
or the founding family could help better address the bribery
allegations and avoid similar occurrences elsewhere. The company has
spent $612 million over the past three years on legal and related
costs to cope with an investigation into the matter, which remains
unresolved.
Because the Walton family owns 50.9 percent of the retailer's
shares, outside shareholder proposals face daunting odds. But a
significantly higher rate of support among non-Walton votes could
prod independent board members to adopt reforms, some governance
experts said.
BlackRock, which is the world’s largest asset manager and is seen as
a key swing vote, has slowly offered more detail about its voting
practices.
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Friday’s meeting will be the first since a June 2014 governance
report in which BlackRock said it had raised concerns “with a global
retailer after allegations of bribery surfaced at the company” and
that its requests for follow-up meetings had gone unanswered.
Wal-Mart’s Hargrove said the company has met with BlackRock twice in
the past year, which could help address its concerns.
BlackRock would not confirm that the report pertained to Wal-Mart or
comment on its voting at Wal-Mart this year. But the descriptions in
its report matched how its funds voted at the retailer, including
support for the independent chairman proposal last year.
“It’s one thing when you have pension funds and activist investors
raising concerns about a company like Wal-Mart, but when you have
BlackRock raising that concern that brings the debate right into the
mainstream," said William Atwood, executive director of the Illinois
State Board of Investment.
CLAWBACK
The top two proxy advisory firms, Institutional Shareholder Services
and Glass Lewis, have recommended votes for the independent chairman
proposal this year, as they did in the prior two years.
While the independent chairman proposal got just 15.4 percent of the
overall vote last year, support among non-Walton shares, assuming
all Walton shares were voted, was 40 percent, up from 35.6 percent
in 2013.
Last June Wal-Mart named director Gregory Penner as vice chairman, a
move viewed by many as setting him up to one day succeed his
father-in-law Rob Walton, who is 70 years old, atop the board.
"The bottom line is this is a family firm and change is going to be
very slow coming," said Ric Marshall, executive director at MSCI ESG
Research.
The "clawback" proposal, which was also launched after the bribery
allegations surfaced in 2012, got 38 percent of non-Walton votes,
last year. Wal-Mart is recommending a vote against it, arguing that
it already discloses enough on the issue.
"It's an area where the company has not been responsive to a very
reasonable proposal," said Laura Jordan, assistant treasurer at the
state of Connecticut. "It has the sense of digging in its heels."
(Reporting by Nathan Layne in Bentonville, Arkansas and Ross Kerber
in Boston; Editing by Christian Plumb)
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