Rob Walton, chairman of Wal-Mart Stores Inc., was the first to address the issue of the recent bribery allegations at the retail giant’s Mexico division early on Friday at the company’s 2012 annual meeting.
This story first appeared in the June 4, 2012 issue of WWD. Subscribe Today.
Standing on the massive stage at the Bud Walton Arena at the University of Fayetteville, near a replica of his father Sam’s first five-and-10-cent store, he told the audience, “We’re taking allegations related to the Foreign Corrupt Practices Act very seriously. Months ago, we launched an investigation by outside counsel. The audit committee is using every resource necessary to ensure a thorough inquiry. We are also cooperating with the Department of Justice and the Securities and Exchange Commission to find out what happened. We will take whatever measures necessary to strengthen FCPA compliance around the world. Acting with integrity is not negotiable. We will not tolerate violations of the FCPA or any wrongdoing of any kind.”
The scandal was spoken about again nearly three hours later at the end of the meeting when Wal-Mart Stores chief executive officer Mike Duke took the stage and ticked off the retailer’s accomplishments outside its stores, going “above and beyond to help people during times of crisis, such as Hurricane Katrina and the tsunami in Japan.”
He said the company has also taken the lead on important social issues such as hunger, the environment and women’s empowerment. “Integrity is the bedrock of our foundation,” Duke said. “We have all heard about the recent allegations. Let me be clear: Wal-Mart is committed to compliance and integrity everywhere we operate. We will take the appropriate actions when the investigations are complete. If you work for Wal-Mart, there is no gray area between right and wrong. It’s either the right thing to do or we shouldn’t do it at all. We will not accept anything less than integrity.”
The meeting had two concurrent themes. There was the usual lighthearted, self-congratulatory tone as seen in Wal-Mart associates’ video confessionals, giving the requisite “thumbs-up” about their jobs. There was entertainment in the form of host Justin Timberlake, and an array of musical acts that included Lionel Richie, Taylor Swift, Celine Dion, Ladysmith Black Mambazo, the Zac Brown Band, a Chinese classical violin prodigy, and more.
Presentations by division heads were short on substance and long on anecdotes. Doug McMillon, ceo of Wal-Mart International, demonstrated a Masala Coke, mixing a can of Coca-Cola into a glass that contained Indian spices. He stepped into the audience and asked Duke to drink it. “They had me try that the other day and I said, ‘I’ve got to do this for somebody else,’” McMillon said. He steered clear of the scandal that’s occurred in his jurisdiction, saying only, “Profits are up 7 percent. Our focus is on driving growth and returns. This year we opened our 10,000th store and added 12 countries from across Southern Africa. Welcome Mass-Mart.”
The Mexico scandal comes at a time when Wal-Mart’s U.S. business has begun to build momentum. Bill Simon, president and ceo of the division, noted that the retailer delivered its best quarterly U.S. comp-store sales performance in three years, a 2.6 percent increase for the first quarter, which ended April 27. “We listen to associates on clothing styles and sizes,” he said. “We had the best same-store sales in apparel in six years. We listen to them on fabrics and had an 11 percent comp.”
Rosalind Brewer, ceo of Sam’s Club, connected milestones in the business over the decades to music associated with the period.
Later in the afternoon, Duke and senior executives participated in a question-and-answer session with Wall Street analysts.
Simon was asked if the success of Wal-Mart U.S. in the first quarter is sustainable. “We’ve had fits and starts that were partly us and also the overall U.S. economy,” he said. “We’ve managed expenses tightly and invested in price for our customer. The success we feel is our ability to execute our plan.”
Simon was also questioned about disgruntled associates who spoke with executives after the shareholders’ meeting. “There were employees out there with ballots,” Simon said, referring to a petition with 17,000 signatures created by Wal-Mart associate Venanzi Luna calling for the resignation of Duke and Walton because of the alleged bribery in Mexico. “Those people today are a relatively small number of people. The labor issue is a constant undertone in our business. We keep a very close eye on them,” said Simon.
Asked if more international acquisitions are planned, McMillon said, “We don’t feel the urge to plant flags and do a lot of land-grabbing. We can have a lot of growth through comp growth and doing more business in the markets we’re in. You’ll see greater focus on international investments that will meet the needs of consumers and benefit shareholders without trade-offs.”
Neil Ash, who was hired four months ago to lead Wal-Mart’s global online commerce division, said his team developed iPhone and iPad apps with “some cool store features like geofencing to create an in-store mode. Your smartphone is your personal GPS and remote control. We’ve mapped every store in the U.S. We’re also piloting mobile checkout and Endless Aisle where you scan a [quick response] code, say, in a bike department, and get access to the full inventory.”
The bribery issue was generally ignored by the analysts. “The FCPA investigation is likely to be protracted,” the panel was asked. “What are you doing to make sure senior executives have enough time to do stay focused on the real job?”
“The investigation is really being conducted by an independent group of experts,” said Jeff Gearhart, general counsel.
“The investment community has already voted that [the scandal] is not really an issue, but how do you protect the company’s reputation and deal with your naysayers?” asked another analyst.
“It creates a short-term challenge,” said Duke. “But in the long term, it creates an opportunity to be an even better company.”
Large institutional investors such as the California State Teachers Retirement System, which holds 5.3 million shares, previously said they intended to withhold votes from the board because they believe the board breached its fiduciary responsibilities. CalSTRS in May filed a lawsuit against Wal-Mart executives over the bribery issue. The New York City Pension Funds said it would vote against five directors, including Duke, former ceo H. Lee Scott and Walton, and vote for the three shareholders’ proposals.
The shareholder-sponsored propositions addressed lobbying, hiring directors with experience in the health care field because Wal-Mart has said it’s exploring ways to expand its presence in the $1 trillion health and wellness industry and changing executive compensation. Since about half of Wal-Mart shares are owned by the Walton family, proposals they oppose can’t pass. Walton took to the stage later during the event to announce that all 16 directors were re-elected and three shareholder proposals failed.
Given the 50-year milestone, there was much nostalgia, including when Sam Walton’s three children — Rob, Jim and Alice — stood in front of the five-and-dime mock-up and wondered how their father’s $50 million business had become a $440 billion global powerhouse serving 200 million customers a week in 27 markets.
Duke said there’s no looking back. “We’re looking ahead, looking at the world five, 10, 20 years from now. We talk about the next generation Wal-Mart. We’re thinking like a global company that understands the local customer.”