June 1, 2012 at 2:02 PM ET
Wal-Mart brought in Aerosmith and Cheap Trick to perform at its annual meeting Friday, but it looks like the nation's largest retailer might have been better served by referees than by rockers.
The event in Fayetteville, Ark., which coincided with Wal-Mart's 50th anniversary celebration, was accompanied by vocal dissatisfaction from prominent shareholders such as the New York City Comptroller's Office, which controls pension funds for city workers, and the California Public Employees' Retirement System. Both pledged to vote against the of re-election board members who were part of the company's upper echelon when widespread bribery was alleged to have transpired within the retailer's Mexican division, according to an extensive investigation by the New York Times.
"[S]hareowners like us can deliver a strong message about the need to restore credibility to Wal-Mart’s boardroom to protect long-term value for shareowners.” New York City comptroller John Liu said in a letter to shareholders last week.
Liu's letter was in response to recommendations made by two firms that provide proxy advisory services. "Recent allegations of bribery at the company's Mexico subsidiary, and particularly the response of senior management in Bentonville, call into question the ability of the company's leaders to protect shareholders' investments," Institutional Shareholder Services wrote in a May report.
However outside shareholders vote, any change would need to be initiated by the Walton family, which has a controlling stake in the company's governance. The family so far has shown little willingness to address shareholder calls to remove certain directors and to not conduct its bribery investigation in-house.
In an e-mailed response to Msnbc.com Friday afternoon, Wal-Mart spokeswoman Brooke Buchanan said the company takes compliance with the Foreign Corrupt Practices Act seriously and that it continues "to strengthen its anti-corruption programs around the world."
"In March of 2011, Walmart initiated a worldwide review of its anti-corruption program, including a global review of its policies, practices, and controls for FCPA compliance. This includes developing and implementing recommendations for FCPA training, anti-corruption safeguards, and internal controls in every country in which we operate," Buchanan said.
She said the Audit Committee of the Board of Directors is conducting an internal probe. "A thorough investigation will take time and we are in the early stages. It would be inappropriate to comment further on the specific allegations, or for us or others to come to specific conclusions until the investigation is finished," she said.
Shareholders are trying to make a point, said Charles Elson, a professor at the University of Delaware who specializes in corporate governance. He characterized the votes as a "futile effort," though, due to Wal-Mart's closely held majority.
Some analysts believe that an overwhelming vote of no-confidence on the part of institutional and other outside investors could prompt the company's leadership to act voluntarily. "I don't think they will ignore it if there is a significant protest vote," said Paul Hodgson, a senior research associate at research company GMI Ratings. "They may make a few sacrifices," he predicted.
Hodgson predicted board members H. Lee Scott, a former Wal-Mart CEO, and Christopher Williams, chair of the company's audit committee, were the most vulnerable to being removed from the board because, if the bribery and subsequent cover-up alleged by the New York Times were true, both men were at the time in positions where they would — or should — have known about the activities, he said.
Wal-Mart also faced dissent in its ranks. Around 5,000 workers attended the meeting, according to CNBC, with some seeking more regulations regarding executive compensation as well as governance changes after the bribery scandal. In an interview with CNBC, Jackie Goebel, member of employee group United for Respect, said associates wanted to see executives held to the same ethical standards to which rank-and-file workers were held.
If the company doesn't budge, disgruntled shareholders have one additional option: the courtroom. Just under a month ago, the California State Teachers' Retirement System filed a lawsuit against Wal-Mart's board and against a host of current and former directors and executives, citing "highly credible allegations of rampant corruption."
Elson said the suit is a legally viable alternative, although a highly quixotic one. "Shareholder suits are usually very difficult to win," he said.
"The publicity attendant to that kind of a suit might induce the Waltons to make some changes but I'd be the last to predict that they will prior to the conclusion of their own internal investigation," said Kent Hughes, managing director at Egan-Jones Proxy Services, an advisory firm that recommended shareholder vote against keeping H. Lee Scott and Michael Duke, the company's current CEO.
"I do feel as though a suit made by a reputable party ought to carry some weight with the Waltons," he said. "It obviously puts some pressure on them, but if it's conclusive pressure, I don't know."