Walmart’s board is losing its independence

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Rob WaltonFollowing Walmart’s annual meeting, the company’s board of directors is officially less independent than it was a few weeks ago.

Three independent directors have left the board and the Waltons own over half of the company’s stock, making the board less independent and opening the door to greater Walton control. Renee Dudley explains the implications in a recent Bloomberg story:

[Some] institutional investors are expressing concern that the founding family’s stake allows the chain to have a minority of independent directors. As a result of buybacks, the Waltons own at least 50.9 percent of outstanding shares, up from about 39 percent a decade ago. Under New York Stock Exchange rules, that makes Wal-Mart a controlled company, allowing it to opt out of a requirement to have a majority of independent directors.

Investors’ concern over growing Walton control is well-founded, given the multitude of problems the company faces: an alleged bribery scandal that top executives were aware of and grossly mishandled; mounting costs related to investigation of said bribery scandal; failing at Retail 101-level duties like keeping shelves stocked, earnings weakness, human rights disasters in the supply chain; and persistent strikes by workers in its U.S. stores.

Unfortunately, a less independent board is less likely to address these challenges, as an analyst interviewed by Dudley explains:

[A] less independent board could be less likely to push executives to assertively confront myriad challenges, said Robin Sherk, a New York-based analyst at consulting and research firm Kantar Retail.

“When it’s that closely held, they could end up doing less risk-taking and just care more about safe returns,” Sherk said.

Christopher WilliamsOn the other hand, the recent board election showed that shareholders are not entirely satisfied with Walmart’s governance: excluding the Walton family’s shares, more than 30% of shareholders voted against director Christopher Williams and CEO Mike Duke, while 25% voted against board chair Rob Walton. On top of that, 35% of non-Walton shareholders supported a proposal that would require an independent board chair.

Walmart says it has no plans to take advantage of its controlled-company status, but does it have any plans to effectively respond to shareholder dissention?

Comments

  1. John says:

    If you look at an Oct. 1, 2013 SEC filing authorizing huge loans with a Special Meeting. There are so many zeros on that document I lost count. What does that mean to the Company? Can the Company then use those loan proceeds to buy back even more issued stock? Can anyone explain?

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