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California teachers pension fund to vote against Wal-Mart board

CEO of the California State Teachers' Retirement System cites 'a breakdown of corporate governance and lack of oversight' in the wake of bribery allegations in Mexico.

May 23, 2012|By Marc Lifsher, Los Angeles Times

SACRAMENTO — The California State Teachers' Retirement System will cast its 5.3 million shares of Wal-Mart Stores Inc. against the reelection of the company's board after allegations of bribery in the retailer's Mexican operations.

Citing "a breakdown of corporate governance and lack of oversight," Jack Ehnes, chief executive of CalSTRS, made the announcement Tuesday

"CalSTRS believes former and current Wal-Mart executives and board members breached their fiduciary responsibilities," Ehnes said. "They did so by failing to respond to indications of a pattern of unethical conduct in the company's foreign operations."

The allegations that Wal-Mart officials in Mexico paid $24 million in bribes to officials there to speed the opening of stores were first reported in April by the New York Times.

Ehnes said it appears that Wal-Mart top executives "actively suppressed an internal investigation which would have brought these improper actions to light."

In a related action, CalSTRS — with assets of $153.7 billion — this month sued some of the same Wal-Mart officials, seeking changes in corporate governance.

Ehnes said that because CalSTRS is a very large, long-term institutional investor, it has a strong interest in making sure that the company is run in an ethical manner.

Wal-Mart did not respond to the CalSTRS announcement. However in a statement last month the Bentonville, Ark., company stressed that it is "committed to having a strong and effective global anti-corruption program in every country in which we operate."

CalSTRS is the biggest public pension fund to publicly announce that it would vote against the Wal-Mart board's reelection ahead of the June 1 annual meeting in Fayetteville, Ark. CalSTRS' even larger cousin, the California Public Employees' Retirement System, said it was still deciding which current Wal-Mart directors it would oppose.

Earlier this month, New York Comptroller John C. Liu said that five city pension funds, which own 5.6 million Wal-Mart shares, would vote against five board members.

Since then, two proxy advisory firms — Institutional Shareholder Services Inc. and Glass, Lewis & Co. — recommended to their institutional investor clients that they not vote for Chief Executive Mike Duke and former CEO Lee Scott, among other board members.

The proxy services' no-vote advice is based on "solid justification," said Brad Barber, a finance professor at the UC Davis Graduate School of Management. "These types of missteps have the potential to destroy shareholder value," he said.

By voting against reelection of Wal-Mart directors, CalSTRS and other pension funds are sending a strong signal that they are concerned about unethical behavior.

"It's a great opportunity for shareholders to say we're very unhappy with what you did," said Paul Lapides, director of the Corporate Governance Center at Kennesaw State University in Georgia. "I'm sure the directors will pay attention to the vote."

Widespread shareholder ire isn't expected to topple the Wal-Mart board, warned Paul Hodgson, the senior research director at GMI Ratings Inc., a corporate governance center formerly known as the Corporate Library.

The effect of the protest vote — though large — will be "severely limited" by the fact that the family of founder Sam Walton controls 48% of the voting shares, Hodgson said.

marc.lifsher@latimes.com

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