Major pension fund to vote against Wal-Mart board

Tue May 22, 2012 5:18pm EDT

Shoppers cart their purchases from a Wal-Mart store in Mexico City, April 24, 2012. REUTERS/Edgard Garrido

Shoppers cart their purchases from a Wal-Mart store in Mexico City, April 24, 2012.

Credit: Reuters/Edgard Garrido

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(Reuters) - CalSTRS, the second largest U.S. public pension fund, plans to vote all of its Wal-Mart Stores Inc shares against the entire board in the wake of allegations that Wal-Mart officials failed to fully investigate bribery claims in Mexico.

CalSTRS, the California State Teachers' Retirement System, said on Tuesday it plans to vote its 5.3 million Wal-Mart shares against the re-election of all board members and encouraged other shareholders to do the same.

CalSTRS has already sued current and former Wal-Mart executives, saying allegations the company paid millions of dollars of bribes in Mexico and a cover-up by Wal-Mart officials raised the question of whether top executives should remain in place.

CalSTRS joins a growing call for shareholders not to vote for at least some Wal-Mart board members, including Chief Executive Mike Duke and former CEO Lee Scott.

The moves follow an April report by The New York Times that said Wal-Mart failed to fully investigate allegations in the last decade of widespread bribery by company officials in Mexico, a key foreign market.

Still, even with big shareholders such as CalSTRS saying they will vote against the board, the family of Wal-Mart founder Sam Walton controls roughly half of the company's shares, making any such votes unlikely to pass.

"Public shareholders can't really affect any kind of change at Wal-Mart in any way," said Paul Hodgson, senior research associate at GMI Ratings, a governance research firm.

If 26 percent of shares were voted against the board, "that's a majority of the publicly held shares, and therefore you could consider that a vote of no confidence," he said.

The allegations "indicate a breakdown of corporate governance and lack of oversight that should have averted this situation," CalSTRS said in a statement.

CalSTRS added it "does not have confidence the current board has the independence and leadership needed to address these difficult issues."

LATEST GROUP TO GO AGAINST THE BOARD

CalSTRS is concerned about the independence of the entire board. It is also voting against Marissa Mayer, a Google Inc executive who is standing for election to the Wal-Mart board for the first time.

The board currently totals 15 members, not including Mayer.

Shares of Wal-Mart ended the day up 1.1 percent at $63.73 after rising to $63.95, their highest level since April 2000.

CalSTRS is the latest shareholder to make its voting plans public ahead of Wal-Mart's June 1 shareholders' meeting.

The New York City Pension Funds, which hold 5.6 million Wal-Mart shares, are also opposed to the re-election of certain board members.

Proxy advisory firms have suggested shareholders vote against Chief Executive Michael Duke, former CEO Lee Scott and some other board nominees.

Scott was CEO during the period of the alleged bribery and Duke was head of Wal-Mart International when the allegations at Wal-Mart de Mexico, or Walmex, were being looked at by the company.

Still, some shareholders plan to support the board despite the lingering concerns about the bribery allegations.

"We don't think it has a meaningful malignant long-term impact on the company, we also don't think it's immaterial," said Shawn Kravetz, president of Esplanade Capital LLC, which sold most of its Wal-Mart shares on their recent rise. "At this moment we'll be siding with the board and its recommendation."

Institutional Shareholder Services, the largest proxy adviser, recommended votes against Duke, Scott, Chairman Robson Walton and Christopher Williams, who is chairman of the board's audit committee.

Glass Lewis recommended shareholders vote against Scott, Duke and Williams, as well as Aida Alvarez, Michele Burns, James Cash and Arne Sorenson. It said Williams, Alvarez, Burns, Cash and Sorenson served on the audit committee when there was a failure to fully investigate the bribery allegations.

Egan Jones recommended shareholders withhold votes for Duke and Scott.

Three board members are tied to the Walton family. Sam Walton's sons, Chairman Robson "Rob" Walton and his younger brother Jim, sit on the board, as does Gregory Penner, who is Rob Walton's son-in-law.

During last year's election, more than 2.85 billion shares were voted in favor for each of the 15 members. Sorenson had the largest number of shares voted against him, nearly 57.5 million.

CalSTRS, a $153.7 billion pension fund, has said as an index investor it is required to hold shares of the retailer, which is a component of the Dow Jones industrial average and many indexes.

(Reporting by Jessica Wohl in Chicago; editing by Gerald E. McCormick, Jeffrey Benkoe and Bernard Orr)

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