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August 17, 2012
Pension Fund Wants Wal-Mart to Come Clean on Bribery Allegations
    by Robert Kropp

After receiving documents relating to allegations of bribery by the retail giant's Mexican subsidiary, the Indiana Electrical Workers Pension Trust Fund charges in a lawsuit that nearly half of the pages were blacked out.


When The New York Times reported in April on allegations of bribery at Wal-Mart's Mexican subsidiary, the newspaper stated that the company's own investigators found evidence of more than $24 million in bribes which circumvented regulatory mandates and "bought zoning approvals, reductions in environmental impact fees and the allegiance of neighborhood leaders."

Upon learning of the bribes, however, executives at Wal-Mart's headquarters "focused more on damage control than on rooting out wrongdoing," The Times found.

Institutional investors and corporate governance advocates were quick to respond to the news. When GovernanceMetrics International (GMI) gave Wal-Mart a rating of F for its environmental, social, and corporate governance (ESG) performance, the research firm stated, "Wal-Mart missed the chance to clean up its alleged bribery problems in Mexico, just as it also turned a deaf ear to warnings about the mistreatment of its workers."

Members of the Interfaith Center on Corporate Responsibility (ICCR), who have been engaging with the retail giant on social issues for decades, expressed their dismay over allegations. Sr. Barbara Aires, who has led ICCR's engagement with Wal-Mart for more than 20 years, said, "Should these reports be confirmed, we deem this a significant breach of trust and a loss of management credibility."

The scandal broke too late for shareowners to file resolutions addressing the allegations this year. Instead, investors led by the New York City Pension Funds campaigned to remove five director's from Wal-Mart's board. Following the company's annual general meeting in June, City Comptroller John Liu stated, "Outside shareowners delivered a stinging rebuke to Wal-Mart's top leadership by casting more than 30% of our votes against the company's chairman, CEO and former CEO. The results are a vote of no confidence that sends a message to Wal-Martís entire board, which has ignored our concerns and failed to safeguard the companyís standards of ethical and legal compliance."

"It's up to the board now to restore investor confidence," Liu continued. "Directors need to increase their independence and initiate a truly independent investigation into reports that Wal-Mart executives covered up widespread bribery in Mexico and hold accountable any executives involved."

One week later, Liu announced that the NYC Pension Funds had filed a shareholder derivative lawsuit against Wal-Mart, alleging that the company's directors "breached their fiduciary duty to the company and its shareholders by failing to properly handle credible claims of the bribery allegations and attempting to cover up details of the scandal."

The lawsuit wasn't the first in which institutional investors attempted to hold Wal-Mart's board accountable for the bribery allegations and subsequent cover-up. In May, the California State Teachers' Retirement System (CalSTRS) filed suit in the same Delaware court, "seeking to remedy the damages sustained by Wal-Mart as a result of alleged gross misconduct by Wal-Mart's executive officers and directors," according to Chief Executive Officer Jack Ehnes.

In all, "At least nine lawsuits have been filed related to the bribery accusations," according to Reuters, and apparently the case has led to infighting between CalSTRS and the NYC Pension Funds over which is to be the lead plaintiff. Leo Strine, the chief judge of Delaware's Chancery Court, stated in court, "More energy was spent by dueling plaintiffs over who gets to be lead counsel and lead plaintiff than was spent writing the complaints."

Declining to name a lead plaintiff in the lawsuit, Strine also criticized the pension funds for basing their lawsuits on media reports of the scandal, rather than conducting their own investigations.

Reuters reported this week that the Indiana Electrical Workers Pension Trust Fund (IBEW), which had sued Wal-Mart in the same court seeking access to records of the case, has again filed suit against the company, charging that the documents provided were "woefully deficient" because they were "so heavily redacted."

The fund "said in its complaint that nearly half of 3,474 pages of documents Wal-Mart produced in response to its demand were entirely blacked out," Reuters reported. The complaint itself was redacted by the company, which had been given three days in which to do so.

According to the lawsuit, an unnamed whistleblower had provided the fund with internal emails from 2005 and 2006, which substantiated many of the allegations first reported by The Times in April.

If the bribery allegations are found to be factual, Wal-Mart could face prosecution under the Foreign Corrupt Practices Act (FCPA). Furthermore, the ranking Democrats of two Congressional committees wrote to Michael Duke, Wal-Mart's CEO, stating, "We have obtained internal company documents, including internal audit reports, from other sources suggesting that Wal-Mart may have had compliance issues relating not only to bribery, but also to 'questionable financial behavior' including tax evasion and money laundering in Mexico."

"Although you have stated on multiple occasions that you intend to cooperate with our investigation, you have failed to provide the documents we requested, and you continue to deny us access to key witnesses," Representatives Elijah Cummings and Henry Waxman wrote.

 

 
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