Wal-Mart Free NYC Coalition

Tuesday, June 07, 2005

Shareholders Call On Wal-Mart To Form Committee To Review Controls And Compliance

NYC Comptroller William C. Thompson, Jr. press release:

View shareholder letter

Expressing serious concerns about recent reports of legal and regulatory non-compliance, a group of Wal-Mart shareholders called on the Audit Committee of the company's Board of Directors to establish a special committee of independent directors to conduct a comprehensive review of Wal-Mart's legal and regulatory controls, as well as its internal system for ensuring compliance with its own policies and standards.

The shareholders, in a letter to Roland A. Hernandez, Chairman of the Audit Committee of the Board of Directors, urged the Board to issue a report on the Committee's findings and recommendations by December 2005.

The group is comprised of: New York City Comptroller William C. Thompson, Jr., who is the investment adviser to the $85 billion New York City Pension Funds; Edward M. Smith, Chairman of the $10.8 billion Illinois State Board of Investment; Karina Litvack, Head of Governance &Socially Responsible Investing of F&C Asset Management, with $250 billion under management; and, Jason Fletcher, Americas Equity Manager of the $36 billion UK University Superannuation Scheme. They collectively represent holdings of 11,455,206 shares of Wal-Mart common stock, with an estimated market value of $545,840,565.

“As long-term investors and shareholders of Wal-Mart, we are deeply concerned that the frequency of reports exposing legal and regulatory non-compliance at the company could be indicative of inadequate internal controls and a lack of board oversight and accountability,” Thompson said. “These negative reports and headlines have damaged Wal-Mart's global reputation. The Board of Directors could help to bolster the company's image and shareholder confidence by enabling a committee of independent directors to take the action we have requested.”

Among the concerns cited by shareholders were the raids by U.S. federal agents of 60 Wal-Mart stores in 21 states, resulting in the arrest of 250 illegal immigrant workers, the related $11 million settlement of charges that Wal-Mart exploited illegal immigrants, and Wal-Mart's 2005 settlement with the U.S. Department of Labor of 24 violations of child labor laws in three states.

“It used to be that we had to go to a third world country to find this kind of exploitation,” said Ed Smith, Chairman of the Illinois State Board of Investment. “Now, I am appalled and embarrassed to find these practices at Wal-Mart, one of our holdings. The company has a duty to mount the independent investigation we are seeking – primarily because it's the right thing to do, but also because such practices could expose the company to legal liability. The ramifications for shareholders could be disastrous.”

In addition, the shareholders pointed to a federal court certification of a national class action sex discrimination lawsuit on behalf of 1.5 million current and former female employees.

“As active and responsible long-term shareholders, USS's policy seeks to ensure that formal, effective and transparent internal control principles and systems are in place and implemented in companies in which it invests. Where the company has clearly run into problems which could have been prevented by better enterprise risk management and where we see no evidence that adequate corrective action has been taken, USS will engage with that company to encourage the board to better manage the risks that it clearly faces,” said Jason Fletcher, Americas Equities Manager of the UK University Superannuation Scheme Ltd.

The letter also raised concerns over the circumstances surrounding the recent resignation of Wal-Mart Vice Chairman Thomas Coughlin, who allegedly abused his expense account with up to $500,000 in questionable transactions over a five-year period, and Coughlin's admission that he filed false invoices to obtain reimbursements for anti-union activities.

Wal-Mart's firing of the whistleblower who reported Mr. Coughlin's questionable transactions also was raised.

“Employees who fear for their jobs won't report wrongdoing,” said Karina Litvack, Head of Governance &SRI for global asset manager F&C, which manages $230 billion. “By firing a key Coughlin whistleblower, Wal-Mart may have struck a deathblow to its own compliance system, further weakening its internal controls at a time when it should be aggressively fortifying them. Independent directors need to demonstrate to shareholders that Wal-Mart hasn't built an ostrich culture – where employees are better off sticking their heads in the sand than speaking up.”