Walmart board under attack after bribery probe inaction is revealed

The supermarket group Walmart is in crisis after bribery allegations in Mexico that have triggered a share price fall and risks of divestments and shareholder revolts.

The New York Times reported in April that Walmart’s own investigators had found the company’s Mexican subsidiary had paid millions of dollars in bribes to secure business, but that the executives ended the investigation when given the initial findings.

Shares subsequently fell sharply, and was followed by vociferous criticism from shareholders, many threatening a revolt and even to launch legal proceedings against Walmart executives.

One of the largest US pension funds, the California State Teachers’ Retirement System, has filed a ‘derivative suit’, on behalf of Walmart itself, against the board and several present or former executives or directors.

The suit says the fund has lost faith in the board’s independence and will vote its 5.3 million shares against all Walmart’s board nominees at the annual shareholders’ meeting, due at the time of going to press. It says the allegations “indicate a breakdown of corporate governance and lack of oversight that should have averted this situation”.
 
More actions are likely. However, Paul Hodgson, senior research associate at governance research consultancy GMI Ratings, said: “Public shareholders can’t really effect any kind of change at Walmart in any way.” He believes a no confidence vote may be the best the shareholders can expect, given the share structure.  

The company embarked on a damage limitation campaign as the rebellion escalated last month. In a statement, it said it had strengthened internal controls to ensure it was complying with the US Foreign Corrupt Practices Act, which prohibits companies from bribing foreign officials to secure business. A top-level compliance official will also be installed.

In Mexico, Walmart said it had bolstered its training, auditing and internal controls to achieve better compliance with anti-bribery laws.

In addition, the US Justice Department opened a Foreign Corrupt Practices Act investigation into Walmart last year. It is still pursuing the case, though it has recently said it is frustrated by the company’s lack of co-operation.

On the political front, two US Democratic representatives have asked to meet company officials and others who may be familiar with the bribery allegations, and Mexican presidential candidates are calling for action.

Walmart is Mexico’s largest retailer, with more than 2,000 stores and restaurants, and is the country’s biggest private employer.