May 25, 2012 / 5:17 PM / 7 years ago

Bribery scandal may dampen Wal-Mart annual party

(Reuters) - Wal-Mart Stores Inc’s (WMT.N) annual meeting in northwest Arkansas was supposed to be an unbridled celebration of the world’s largest retailer’s 50th anniversary.

But a bribery scandal has led to growing calls for its chief executive and others to be removed from the boardroom and activist shareholders threaten to put a damper on the June 1 party, even if their efforts have little chance of succeeding.

Wal-Mart was bombarded by negative comments from shareholders and activists after the New York Times reported in April that management at Wal-Mart de Mexico WALMEXV.MX, or Walmex, allegedly orchestrated bribes of $24 million to help it grow quickly last decade and that Wal-Mart’s top brass tried to cover it up.

The black eye came as Wal-Mart plans to use its annual shareholder extravaganza to mark a half century since opening its first store and after the company worked for years to improve its image.

While investigations into possible violations of the U.S. Foreign Corrupt Practices Act proceed, Wal-Mart is not expected to say much about the matter. The allegations are being investigated by the U.S. Department of Justice, the U.S. Securities and Exchange Commission, and government agencies in Mexico. Wal-Mart is also conducting an internal probe.

“They’re unlikely to be able to say anything detailed. It’s really going to be about moving forward and what’s being done,” said UBS analyst Robert Carroll, who monitored last year’s meeting, which featured jokes by Will Smith and performances by the Black Eyed Peas and others. “You can’t party too hard, you can’t totally ignore it. It might put a little bit of a damper on the 50th anniversary.”

Despite the negative headlines, the annual meeting will still serve as a pep rally for employees, while investors can cheer seeing Wal-Mart shares soar to 12-year highs after their late April decline.

Wal-Mart’s shareholders’ meeting is the biggest event of the year in the area. Roughly 5,000 employees from stores around the world are chosen by their peers to attend, with the trip paid for by Bentonville, Arkansas-based Wal-Mart.

After team-building meetings and concerts - this year’s evening acts include Carrie Underwood, Aerosmith and Cheap Trick - the week culminates in the annual meeting on Friday.

The meeting, expected to draw at least 14,000 attendees, is held at the Bud Walton Arena at the University of Arkansas in Fayetteville, named for Wal-Mart co-founder James “Bud” Walton, who footed half of the $30 million it cost to build the arena.


There is growing dissension among some shareholders who believe that current board members, including Chairman Robson “Rob” Walton, CEO Mike Duke and former CEO Lee Scott, knew of the issue and should have taken corrective actions years ago.

The two largest U.S. public pension funds, the California Public Employees’ Retirement System and the California State Teachers’ Retirement System, along with others including the New York City Pension Funds and Florida’s State Board of Administration, plan to vote against certain board members.

The three largest U.S. proxy advisory firms have recommended that shareholders vote against Duke and Scott, though they differ on whether other board members, including Walton, should be voted out.

At the same time, Wal-Mart employees in a group called Organization United for Respect at Walmart - which is supported by groups including a major grocery union - are encouraging shareholders to vote against several board members.

Still, any votes against board members are unlikely to lead to a shakeup. The Walton family controls roughly half of Wal-Mart’s 3.4 billion shares. Large financial institutions are the next-biggest shareholders, and they each hold less than 3 percent stakes. Warren Buffett’s Berkshire Hathaway Inc (BRKa.N) is the fifth-largest shareholder, with less than 1.5 percent. In early May, Buffett said his opinion on Wal-Mart had not changed because of the scandal.

“The vote from institutional and retail shareholders, any vote, is mostly symbolic,” said S&P Capital IQ Equity analyst Ian Gordon, who has attended the meeting in the past.

If 26 percent of shares, a majority of those not held by the Waltons, were voted against the board, “you could consider that a vote of no confidence,” said Paul Hodgson, senior research associate at GMI Ratings, a governance research firm.

On one note, the meeting will have a more upbeat tone than in the last two years. Quarterly sales at Walmart U.S. stores open at least a year - a key gauge of retail health known as same-store sales - returned to positive territory during the third quarter of fiscal 2012 after nine consecutive declines.

Shawn Kravetz, president of Esplanade Capital LLC, said the “black eye” of the Mexico situation, which he said could hinder future international growth, was one reason his firm sold 80 percent of its position in Wal-Mart after buying shares a little over a year ago in the low $50s. The shares were trading around $65.30 on Friday at midday.

“The business performance has been solid, specifically the quarter just reported. Some of the risks have gone up and we’re just seeing some better opportunities elsewhere,” he said.

Kravetz said he plans to vote for all of the board nominees.

Reporting by Jessica Wohl in Chicago, additional reporting by Lisa Baertlein; editing by Matthew Lewis

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