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Wal-Mart Shareholder Proposals Touch Upon FCPA Issues

Wal-Mart’s annual shareholders meeting is June 6th at Bud Walton Arena on the campus of the University of Arkansas.  It sounds exciting, but like most corporate shareholder meetings, most of the action is in advance of the annual meeting as shareholders seek to have proposals included in the company’s proxy statement and management responds to the proposals.

Wal-Mart’s proxy statement includes three shareholder proposals each of which touch upon issues related to the company’s Foreign Corrupt Practices Act scrutiny.

The first shareholder proposal asks that the Board of Directors “adopt a policy that, whenever possible, the board chairman should be a director who has not previously served as an executive officer of the  Company and who is “independent” of management.”  The supporting statement for this proposal states in pertinent part:

“We believe the Board of Directors ability to provide independent oversight of management is compromised when the chairman of the board is not independent.  We believe that an independent Chairman who sets agendas, priorities and procedures for the board can enhance its oversight and accountability of management, and help ensure the objective functioning of an effective board. We view the alternative of having a lead outside director, even one with a robust set of duties, as adequate only in exceptional circumstances fully disclosed by the board. Investigations into bribery and corruption at Wal-Mart’s subsidiaries in Mexico, China, Brazil, and India, along with a recent National Labor Relations Board decision to authorize a nationwide complaint against the company for violations of federal labor law, highlight the need for enhanced oversight of Wal-Mart’s corporate culture and behavior. A board led by an independent chairman is best positioned to drive such change.”

Wal-Mart’s board of directors recommends that shareholders vote against the proposal.

The second shareholder proposal “urge[s] the board of directors to adopt a policy that Walmart will disclose annually whether Walmart, in the previous fiscal year, recouped any incentive or stock compensation from any senior executive or caused a senior executive to forfeit an outstanding incentive or stock compensation award, in each case as a result of a determination that the senior executive breached a company policy or engaged in conduct inimical to the interests of or detrimental to Walmart.”

The supporting statement for this proposal states in pertinent part:

“As of Q3 2014, Walmart has incurred $381 million in costs associated with investigations into alleged Foreign Corrupt Practices Act violations in Mexico, China, India and Brazil.  Walmart also recently pled guilty to federal and state criminal and civil  charges of illegally dumping hazardous materials, leading  to over $110 million in fines. Recoupment disclosure would allow shareholders to determine whether Walmart recouped compensation from any current or former senior executive for similar misconduct.”

Wal-Mart’s board of directors recommends that shareholders vote against the proposal and the proxy statement notes in pertinent part as follows.

“In sum, the Board believes that this proposal is unnecessary because existing SEC disclosure rules already require sufficient  disclosures regarding Walmart’s comprehensive recoupment policies and practices and because the report requested by the proposal would not include the full range of sanctions used by Walmart to address Associate misconduct.”

The third shareholder proposal requests that the board of directors authorize the preparation of an annual reporting on lobbying. The supporting statement for this proposal states in pertinent part:

“As shareholders, we encourage transparency and accountability in our company’s use of corporate funds to influence legislation  and regulation. Walmart is reportedly a member of the Chamber of Commerce, which is characterized as “by far the most muscular business lobby group in Washington”, spending more than $1 billion on lobbying since 1998. Walmart has experienced negative press because of its involvement with the Chamber that actively lobbies against the Foreign Corrupt Practices Act (“Wal-Mart Took Part in Lobbying Campaign to Amend Anti-Bribery Law,”  Washington Post, April 12, 2012). Walmart does not disclose its memberships in, or payments to, trade associations, or the portions of such amounts used for lobbying. Transparent reporting would reveal whether company assets are being used for objectives contrary to Walmart’s long-term interests.”

Wal-Mart’s board of directors recommends that shareholders vote against the proposal and the proxy statement notes in pertinent part as follows.

“The Board recommends that shareholders vote against this proposal. Walmart already discloses information about its lobbying activities and procedures (including the oversight role played by the Board), as required by existing law, regulations, and Walmart policies. The additional disclosures of proprietary and confidential information required by this proposal are unnecessary and would risk putting Walmart at a competitive disadvantage.”

Institutional investors often follow guidance of shareholder advisory services such as Institutional Shareholder Services (“ISS”) in voting on shareholder proposals.  As reported here and here, ISS is encouraging shareholders to vote for the proposals and an ISS report states:

“The board failed to make progress in providing meaningful information to shareholders about any specific findings on the FCPA-related investigations and whether executives will be held accountable for related compliance failures.”

“Several years into the investigations and more than a decade after the actions at the heart of the allegations began to occur, shareholders still have little insight into the risks associated with the alleged compliance failures, and little reason for confidence that senior executives will be held accountable for any failures which are found to have occurred on their watch.”

To state the obvious (or perhaps not so obvious as the case may be), Wal-Mart’s FCPA scrutiny is still ongoing.  Yes, it has been approximately 2.5 years since Wal-Mart first disclosed its FCPA scrutiny in a December 2011 SEC filing and yes it has been approximately two years since the New York Times article that elevated Wal-Mart’s FCPA scrutiny.  However, it is typical (warranted is often a separate issue) for corporate FCPA scrutiny to last between 2-4 years and in some cases more from the first instance of disclosure to an enforcement action if any.

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