Proxy advisory firm Institutional Shareholder Services, commonly known as ISS, has issued a new report recommending Wal-Mart shareholders vote against two existing directors, as well as the company’s executive compensation proposals.
The report takes Wal-Mart to task for not disclosing information to shareholders regarding investigations into alleged violations by the company of the Foreign Corrupt Practices Act.
ISS notes that as of May 15, Wal-Mart has spent more than $US450 million on investigations reviews related to the FCPA allegations, which stem from a 2012 New York Times report outlining alleged bribery at the company’s Mexican subsidiary.
From ISS (emphasis ours):
“We noted in our report last year that the FCPA investigation had continued for approximately 18 months, at a cost to date in excess of $US200 million… The company cannot predict at this time the outcome or impact of the on-going government
investigations, the shareholder lawsuits, or its own internal investigations and review, but expects to continue to
incur additional costs. Shareholders should keep in mind that, according to the company, it has already spent more than $US450 million as of May 15, 2014 and these costs only relate to the investigations and the company’s compliance program/process improvements in aggregate. Hence, the company could be faced with fines, legal
expenses, or other costs depending on the outcome of the investigations, the magnitude of which is unknown at
ISS recommends shareholders vote against former CEO Mike Duke, as well as S. Robson Walton, who is the chairman of the board and beneficial owner of more than 50% of the company’s voting stock, according to ISS.
Last year, ISS recommended shareholders vote against Duke, Walton, and then-Audit Committee chair Christopher Williams for similar failings. Each of those directors were ultimately supported by more than 87% of shareholders excluding abstaining voters.
ISS’ recommendations come after CtW Investment Group, which works with union-sponsored pension funds, earlier this month sent a letter to Wal-Mart shareholders urging them to vote against the retailer’s executive compensation proposal, as well as director Linda Wolf, chair of the company’s Compensation, Nominating & Governance Committee.
On the issue of executive pay, ISS found, among other things, that certain short-term incentive goals were relaxed, some long-term goals were lowered, and numerous adjustments were made to incentive plan results. ISS notes that most features of Wal-Mart’s executive pay program do not, “on an individual basis raise significant concern in the context of the company’s size and comparable peers’ compensation programs and practices.” But ISS says that in the aggregate, “a somewhat troubling picture does emerge from the sum of these parts.”
And while board change at the family-controlled retail behemoth will most certainly not result from the ISS and CtW reports, investors have begun to express displeasure with Wal-Mart via the company’s stock.
Over the last year, shares of Wal-Mart are down about 2%, and since the middle of 2012, the stock has essentially been dead money, with the share price range-bound between $US70 and $US80.
This chart from ISS shows how Wal-Mart has underperformed both the S&P 500 and the food staples index.
For its fiscal year ended January 31, Wal-Mart’s earnings per share fell 3% from the prior year. Wal-Mart’s first quarter results earlier this month were also lackluster. Wal-Mart’s traffic trends, foreign performance and its faltering return on investment were also outlined here.
Wal-Mart’s annual meeting is scheduled for June 6.
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