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New York City Comptroller
John C. Liu
|Contact : Matthew Sweeney , (212) 669-3747||May 01, 2012|
NYC COMPTROLLER LIU, PENSION FUNDS TO VOTE AGAINST FIVE WAL-MART DIRECTORS
‘No' Vote Follows Reported Cover-up of Alleged Bribery; Board Stonewalled NYC Comptroller's Repeated Demands for Investigation in 2005-2006
NEW YORK, NY – City Comptroller John C. Liu today announced that the New York City Pension Funds will vote against five Wal-Mart directors at the company’s annual shareowner meeting on June 1, 2012 in Bentonville, Arkansas following the recently reported cover-up of alleged widespread bribery. In 2005 and 2006, the Comptroller’s Office repeatedly asked Wal-Mart directors to conduct an independent investigation into concerns of legal and regulatory non-compliance and lack of controls over internal policies at the company. The corporation obstinately refused to address those concerns.
“Wal-Mart presents itself as a leader in corporate ethics, but it is clear that the company’s leadership does not practice what it preaches,” Comptroller Liu said. “The bribery allegations are damaging, but reports of a widespread cover-up, involving Wal-Mart’s top executives, could have even more devastating consequences. Time and again our Pension Funds have approached Wal-Mart’s board with serious concerns about its practices in the U.S. and abroad and received only empty reassurances. This board has failed its shareholders.”
The recent report that Wal-Mart quashed an independent investigation into allegations that its executives systematically bribed Mexican officials from 2002 to 2005 suggests a disturbing disregard for legal and ethical compliance at the highest levels of the corporation. If the allegations are true, the company not only violated the Foreign Corrupt Practices Act (FCPA), but may also have broken federal securities and other laws, possibly including criminal statutes.
These circumstances raise serious concerns for the New York City Pension Funds, which are long-term Wal-Mart shareowners, particularly with respect to the ability of certain board nominees to act in the best interests of shareowners.
It remains unclear whether Wal-Mart’s non-executive directors were informed by management of the bribery allegations or had knowledge of, or approved, decisions to reject the independent investigation recommended by outside counsel that had extensive expertise in the FCPA. What is clear is that:
- Wal-Mart’s failure to pursue a timely, independent investigation in fall 2005 has potentially exposed the corporation and its shareowners to even more serious financial and reputational harm.
- Two current inside directors, CEO Michael Duke and former CEO H. Lee Scott, were aware of the allegations and, in Mr. Scott’s case, took affirmative steps to shut down a thorough independent investigation.
- The audit committee of Wal-Mart’s board of directors failed to ensure adequate internal controls with respect to Wal-Mart’s legal and regulatory compliance, as evidenced by the company’s failure to respond appropriately when the bribery allegations surfaced in 2005. If the underlying bribery allegations are true, the company’s failure to detect the fraudulent accounting used to hide substantial illegal payments over several years would reflect weak internal controls over financial reporting as well.
The audit committee’s failure with respect to legal and regulatory compliance is especially troubling given that, in three separate letters between May 2005 and May 2006, then-NYC Comptroller William C. Thompson, Jr., joined by other institutional shareowners, requested that Wal-Mart’s audit committee retain independent counsel to conduct a comprehensive review of Wal-Mart’s legal and regulatory controls and issue a report to shareowners with findings and recommendations. The shareowners, who were unaware of the concurrent bribery allegations that have recently come to light, specifically expressed “serious concerns about reports of legal and regulatory non-compliance at Wal-Mart.”
The Comptroller’s Office and allied shareowners discussed our concerns with two audit committee directors, including current audit committee chair Christopher J. Williams, in a meeting at the Comptroller’s Office on September 14, 2005. Following the meeting, Comptroller Thompson and the other fiduciaries reiterated the request for an independent review in a letter dated November 30, 2005; the letter specifically cited “a cavalier attitude toward legal compliance at the highest levels of management.” Although unknown to shareowners at the time, only weeks earlier Wal-Mart executives had also inexplicably rejected an independent investigation of alleged bribery of Mexican officials and instead launched a limited, internal inquiry, according to the recent New York Times report.
In light of these circumstances, the Comptroller’s Office, on behalf of the New York City Pension Funds, intends to vote against the re-election of directors Duke, Scott and Williams at Wal-Mart’s annual meeting on June 1, 2012. Directors Duke and Scott failed to act in shareowners’ best interests when confronted with credible allegations of widespread bribery, while Mr. Williams bears responsibility for the audit committee’s failure to ensure adequate internal compliance controls, notwithstanding repeated shareowner concerns.
The Funds will also vote against current audit committee director Arne M. Sorenson; although Mr. Sorenson did not join the board until 2008, his role as CEO of Marriott International, which has a multi-million dollar vendor relationship with Wal-Mart, compromises his independence. This is an acute concern given that the audit committee is now overseeing the independent investigation belatedly launched in December 2011. It is inappropriate for the audit committee to oversee this investigation given that directors Williams and Sorenson are on the committee. It is particularly troubling because the investigation involves matters for which Williams may have been ultimately responsible, given his role on the audit committee at the time.
Finally, the Funds will also vote against inside Chairman S. Robson Walton, whose 49.5% ownership effectively guarantees his re-election and that of his fellow directors. The Funds’ policy is to oppose the affiliated chair of a board that is not at least two-thirds independent, as is the case with Wal-Mart.
At present, the NYC Funds lack sufficient information to cast an informed vote on five additional nominees who have been on the board since at least 2005. Unless information becomes available clarifying whether or not these directors had knowledge of the bribery allegations and aborted independent investigation, the Funds intend to abstain on their election.
New York City Comptroller John C. Liu serves as the investment advisor to, custodian and trustee of the New York City Pension Funds. The New York City Pension Funds are composed of the New York City Employees’ Retirement System, Teachers’ Retirement System, New York City Police Pension Fund, New York City Fire Department Pension Fund and the Board of Education Retirement System. The New York City Pension Funds held 4,708,965 shares of Wal-Mart valued at $ 277,970,203.95 as of 4/27/2012.
EXCERPTS FROM COMPTROLLER’S LETTERS TO WAL-MART, 2005-2006
Correspondence available at www.comptroller.nyc.gov/press/wlamart.html
May 25, 2005
New York City Comptroller William C. Thompson, Jr. et al to Roland A. Hernandez, Audit Committee Chair:
“We are fiduciaries of the New York City pension funds, Illinois State Board of Investment, Universities Superannuation Scheme (USS) Ltd. And F & C Asset Management, which hold, in aggregate 11,455,206 shares of Wal-Mart common stock … We are writing to voice our serious concerns about reports of legal and regulatory non-compliance at Wal-Mart. …Accordingly, we urge the Audit Committee of the Board of Directors to establish a special committee of independent directors to conduct a comprehensive review of the company’s legal and regulatory controls, as well as its internal systems to ensure compliance with Wal-Mart’s own policies and standards, and to issue a report on the findings and recommendations to the shareholders by December 2005.”
November 30, 2005
New York City Comptroller William C. Thompson, Jr. et al to Roland A. Hernandez, Audit Committee Chair and Christopher J. Williams, Director:
“While your review [during a September 14, 2005 meeting in New York City] of the Committee’s progress over the past three years was useful, we remain seriously concerned about reported legal and regulatory non-compliance at Wal-Mart. In fact, [two recent disclosures concerning Wal-Mart] “suggest a cavalier attitude toward legal compliance at the highest levels of management. We therefore write to reiterate our request that the Audit Committee immediately appoint a special committee of independent directors to review Wal-Mart’s legal and regulatory controls, as well as its internal systems to ensure compliance with Wal-Mart’s own policies and standards. As requested in our May 25, 2005 letter to you, we ask again that the special committee retain outside counsel to assist in its examination and issue a report to shareholders on its findings and recommendations.”
May 10, 2006
New York City Comptroller William C. Thompson, Jr., et al to Roland A. Hernandez, Audit Committee Chair:
“To date, we do not feel we have received a meaningful response to this core concern [regarding compliance controls]. Rather, you have offered general statements regarding Wal-Mart’s progress over the past three years with respect to improved legal and regulatory controls. Such assurances are insufficient when investors still have concerns regarding weak internal controls governing legal and regulatory compliance coupled with an inadequate response by senior management.
“We understand that discussing these complex issues via letter is challenging and would like to accept your proposal to organize another meeting. We would like to use this meeting as an opportunity to discuss specifically the legal and regulatory compliance review process and the concrete and detailed steps the Board is currently taking to carry out this comprehensive review in a timely manner and issue a report to shareholders.”
In addition to Comptroller Liu, the New York City Pension Funds trustees are:
New York City Employees’ Retirement System: Ranji Nagaswami, Mayor’s Representative (Chair); New York City Public Advocate Bill de Blasio; Borough Presidents: Scott Stringer (Manhattan), Helen Marshall (Queens), Marty Markowitz (Brooklyn), James Molinaro (Staten Island), and Ruben Diaz, Jr. (Bronx); Lillian Roberts, Executive Director, District Council 37, AFSCME; John Samuelsen, President Transport Workers Union Local 100; Gregory Floyd, President, International Brotherhood of Teamsters, Local 237.
Teachers’ Retirement System: Ranji Nagaswami, Mayor’s Representative; Deputy Chancellor Kathleen Grimm, New York City Department of Education; Mayoral appointee Freida Foster and Sandra March, Melvyn Aaronson (Chair) and Mona Romain, all of the United Federation of Teachers.
New York City Police Pension Fund: Mayor Michael Bloomberg; New York City Finance Commissioner David Frankel; New York City Police Commissioner Raymond Kelly (Chair); Patrick Lynch, Patrolmen’s Benevolent Association; Michael Palladino, Detectives Endowment Association; Edward D. Mullins, Sergeants Benevolent Association; Thomas Sullivan, Lieutenants Benevolent Association; and, Roy T. Richter, Captain’s Endowment Association.
New York City Fire Department Pension Fund: Mayor Michael Bloomberg; New York City Fire Commissioner Salvatore Cassano (Chair); New York City Finance Commissioner David Frankel; Stephen Cassidy, President, James Slevin, Vice President, Robert Straub, Treasurer, and John Kelly, Brooklyn Representative and Chair, Uniformed Firefighters Association of Greater New York; John Dunne, Captains’ Rep.; James Lemonda, Chiefs’ Rep., and James J. McGowan, Lieutenants’ Rep., Uniformed Fire Officers Association; and, Sean O’Connor, Marine Engineers Association.
Board of Education Retirement System: Schools Chancellor Dennis Walcott; Mayoral: Eduardo Marti, Gitte Peng, Jeff Kay; Tino Hernandez, Judy Bergtraum, Freida Foster, and Linda Laursell Bryant; Patrick Sullivan (Manhattan BP), Gbubemi Okotieuro (Brooklyn BP), Dmytro Fedkowskyj (Queens BP), Wilfredo Pagan (Bronx BP) and Diane Peruggia (Staten Island BP); and employee members Joseph D’Amico of the IUOE Local 891 and Milagros Rodriguez of District Council 37, Local 372.
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