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Proxy Advisers Urge Walmart Ousters

Joe Mont | May 22, 2012

Walmart's annual shareholders meeting next week is shaping up to be a battleground.

Thus far, ahead on the June 1 meeting, three proxy advisory firms have urged shareholders to vote against CEO Michael Duke amid investigations into the use of bribes in Mexico.

On May 19, Institutional Shareholder Services (ISS) recommended that its approximately 1,700 clients vote to oust Duke, as well as three other directors—Chairman Robson Walton, Christopher Williams, and former CEO Lee Scott.

It wrote that, if recent reports in the New York Times are accurate, “the decision by Scott and Duke to enable executives implicated in the bribery allegations to conduct the company's investigation into those allegations reflects a staggering lack of judgment. “

“Their presence in the boardroom when updates on or results of the internal investigation are being communicated to the board could deter the investigating personnel from inquiring fully into their roles in the scandal or assigning culpability to them,” it added. “There is one man who has had the ability to steer the company on the correct course at every crossroads, at the time of the original investigation and again today—Chairman S. Robson Walton. Walton could have acted in his fellow shareholders' best interests, but from all outward appearances has failed to do so.”

On May 18, Glass Lewis informed its clients that Duke and Scott “should have been aware of the credible threat of widespread bribery involving the company's Mexican subsidiary and acted more proactively to fully investigate and resolve the claims.” It also urged votes against Williams and board members  Aida Alvarez, Michele Burns, James Cash, and Arne Sorenson.

Last week, Egan-Jones Ratings Co. also recommended that clients "withhold" votes from Duke and Scott because, faced with a potential violation of the U.S. Foreign Corrupt Practices Act, they “reportedly did not adequately investigate the allegations and reportedly failed to notify either U.S. or Mexican authorities at that time.” Grading Walmart for corporate governance, it issued an overall rating of “D” and an “F” for disclosure and controls.

On Monday, New York Comptroller John Liu praised the recommendations by ISS and Glass Lewis.

New York City's pension funds are long-term Walmart shareholders, with 5.6 million shares. On May 2, representing those funds, Liu urged a vote against Duke, Scott, Sorenson, Walton, and Williams, saying that the 2005 and 2006 bribery allegations were at “the same time period during which the audit committee was stonewalling repeated demands from the NYC Funds and other investors for a comprehensive, independent compliance review.”

“Although the directors' re-election is assured given that the Walton family and other insiders control a majority of shares, outside shareowners like us can deliver a strong message about the need to restore credibility to Walmart's boardroom to protect long-term value for shareowners,” Liu wrote on Monday. “The Walmart board's failure in 2005 to act on repeated investor concerns about a cavalier attitude toward legal compliance at the highest levels of management has exposed long-term shareowners, as well as loyal employees and customers, to even more serious consequences today.”