Wal-Mart Stores Inc. (WMT) needs a new board. A large proxy management company did not go that far in a recent report about Walmart's need for more independent directors. However, its evaluation and conclusion are not aggressive enough to solve Walmart's severe governance flaws.
Proxy firm ISS recently recommended Walmart add an independent chairman in the place of founder Sam Walton's son. S. Robson Walton represents his family's interest. However, ISS believes that without more members from outside the family, issues like a probe into potential foreign bribes by management may be kept out of the public eye, or mishandled altogether.
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The Walmart board's structure shows the extent to which the founding family can override the interests of other shareholders. The structure is not unusual at companies in which a founder passed along his ownership interests to his relatives upon death. However, the fact that this structure exists elsewhere is not an excuse for it to exist at Walmart.
Walmart has 14 directors. Two are members of the Walton family. Another is Michael Duke, Walmart's former CEO. Another is C. Douglas McMillon, the current CEO. An equally serious problem is that the Walton family has roughly half of the voting shares, which gives it the ability to control the board, regardless of its membership.
The problems with controlling shareholders at public companies have surfaced many times before. Walmart's situation is unique for now. Not only is there a large bribery investigation going on, and one which might involve some of the retailer's most senior management. Walmart also is at the center of the storm about the minimum wage and what it should pay its lowest paid workers.
One of the observations made recently by The Wall Street Journal in a discussion about the ISS recommendations was that, even though the power of the Walton family is so great, the board can ignore them. However, the board never will, which makes the notion of board independence at Walmart a farce.