Wal-Mart: How I Voted – Proxy Score 10%

Wal-Mart Stores (WMT) ($WMT) is one of the stocks in my portfolio. Their annual meeting is coming up on 6/1/2012. Voting ends 5/31 on Moxy Vote’s proxy voting platform, which had 8 recommendations “from good causes,” including 3 consolidations, when I checked and voted on 5/24. ProxyDemocracy.org had 4 funds voting.  I voted with management 10% of the time.

I generally vote against pay packages where NEOs were paid above median in the previous year but make exceptions where something obviously warrants different treatment. According to Bebchuk, Lucian A. and Grinstein, Yaniv (The Growth of Executive Pay, Oxford Review of Economic Policy, Vol. 21, Issue 2, pp. 283-303, 2005), aggregate compensation by public companies to NEO increased from 5 percent in 1993-1995 to about 10 percent in 2001-2003.

Few firms want to admit to having average executives. They survey executive compensation at corporations and then set compensation packages that are above average for their “peer group,” which is often chosen aspirationally. While the “Lake Woebegone effect” may be nice in fictional towns, “where all the children are above average,” it doesn’t work well for society to have all CEOs considered above average and their collective pay spiraling out of control. We need to slow the pace of money going to the 1% if our economy is not to become third-world.

WMT’s SummaryCompensation Table shows Michael T. Duke, CEO/Chair, was the highest paid named executive officer (NEO) at about $18M in 2011. I’m using Yahoo! Finance to determine market cap and  Wikipedia’s rule of thumb regarding classification. According to those sources, at about $222B WMT is a large-cap company. According to the United States Proxy Exchange (USPX) guidelines (pages 9&10), using data from Equilar, the median CEO compensation at large-cap corporations was $10.8 million in 2010, so WMT’s pay is well above that median. On that basis, I voted against the pay plan and the compensation committee members: Linda S. Wolf, Steven S. Reinemund and Douglas N. Daft.

With regard to shareowner proposals. I voted in favor of the proposal requesting disclosure of political contributions as I have done at other companies. Especially in light of the Citizens United decision, this is increasingly important. Shareowners have a right to know where our money is going. I voted against the proposal that WMT nominate at least one director from the healthcare sector. Although I’m sympathetic to the purpose, I think this can be better accomplished through a proxy access proposal. I also voted against the creative proposal by employees seeking a report on if compensation policies encourage declining rates of return on investment. While it is encouraging to see employees take an active role in governance, again I think this is better accomplished through proxy access.

As the MoxyVote.com Blog points out, All Eyes on Wal-Mart, with recent ethical breaches mentioned in the news. ISS and Glass Lewis have recommended their clients not support CEO Mike Duke and former CEO Lee Scott, among others, for seats on the board. Scott was CEO when Wal-Mart was investigating the alleged bribery practices in late 2005, and Duke was leading the company’s international business. Said Glass Lewis (Lompo Record):

We believe that these directors, in their current or former positions as executives with direct responsibilities relating to the matters, should have been aware of the credible threat of widespread bribery involving the company’s Mexican subsidiary and acted more proactively to full investigate and resolve the claims.

Both CalSTRS and CalPERS have taken the unusual step of voting against the entire board at Wal-Mart. CalPERS demanded and investigation and CalSTRS filed a lawsuit against several directors and officers, demanding they reimburse the company’s shareholders for any fines or other penalties that result from the scandal. (see CalPERS says it will vote against Wal-Mart directors, SacBee, 5/23/2012). A statement released by Jack Ehnes, chief executive officer of CalSTRS, included the following:

CalSTRS believes former and current Wal-Mart executives and board members breached their fiduciary responsibilities. They did so by failing to respond to indications of a pattern of unethical conduct in the company’s foreign operations. Beyond that, CalSTRS believes that in some cases, Wal-Mart leadership actively suppressed an internal investigation which would have brought these improper actions to light.

Based on these allegations, which indicate a breakdown of corporate governance and lack of oversight that should have averted this situation, CalSTRS does not have confidence that the current board has the independence and leadership needed to address these difficult issues.

CalSTRS will vote its more than five million investor shares against the entire board’s reelection at Wal-Mart Stores, Inc. annual meeting. We encourage our fellow shareholders to do the same.

As a long-term investor, CalSTRS wants Wal-Mart to have long-term value for our members, the teachers of California. CalSTRS also thinks that ethical corporate governance practices lead to sustained profitability. Wal-Mart has established high principles for ethical behavior. Now it needs to live by them, not just on the retail level, but in the executive suites and the boardroom.

I share their concerns and not only voted against all the directors but also voted against the auditor. We shouldn’t have to rely on the New York Times to find out about payoffs in Mexico. Since insiders hold almost 50% of shares, we’ll be sending a message, rather than having an immediate impact.

Mark your calendars; here’s the deadline for proposals by shareowners for next year:

If you wish to present a proposal for possible inclusion in our 2013 proxy statement pursuant to the SEC’s rules, send the proposal to Gordon Y. Allison, Vice President and General Counsel, Corporate Division, 702 Southwest 8th Street, Bentonville, Arkansas 72716-0215, by registered, certified, or express mail. Shareholder proposals for inclusion in our proxy statement for the 2013 Annual Shareholders’ Meeting must be received by our company on or before December 17, 2012.

 According to SharkRepellent.net, unlike at most of the S&P 500, WMT bylaws don’t allow shareowners to call special meetings. There at least one item ripe for democratic reform. Another would be proxy access. Here’s how I actually voted on Moxy Vote’s proxy voting platform but showing ProxyDemocracy.org‘s display, which is a little tighter.

NUM. PROXY ITEM MGMT McRitchie
1 Elect Director Aida M. Alvarez For Against
2 Elect Director James W. Breyer For Against
3 Elect Director M. Michele Burns For Against
4 Elect Director James I. Cash, Jr. For Against
5 Elect Director Roger C. Corbett For Against
6 Elect Director Douglas N. Daft For Against
7 Elect Director Michael T. Duke For Against
8 Elect Director Marissa A. Mayer For Against
9 Elect Director Gregory B. Penner For Against
10 Elect Director Steven S. Reinemund For Against
11 Elect Director H. Lee Scott, Jr. For Against
12 Elect Director Arne M. Sorenson For Against
13 Elect Director Jim C. Walton For Against
14 Elect Director S. Robson Walton For Against
15 Elect Director Christopher J. Williams For Against
16 Elect Director Linda S. Wolf For Against
17 Ratify Auditors For Against
18 Advisory Vote to Ratify Named Executive Officers’ Compensation For Against
19 Report on Political Contributions Against For
20 Request Director Nominee with Patient Safety and Healthcare Quality Experience Against Against
21 Performance-Based Equity Awards Against Against

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