Shareholders Can Say Corruption Doesn't Pay

When one ponders an extremely powerful American company, Wal-Mart (NYS: WMT) springs to mind, especially given its ubiquity on the consumer landscape. That's why it's particularly interesting that many shareholders exhibited displeasure with Wal-Mart's top brass amid allegations of bribery in the Mexican market.

Last week it became clear that Wal-Mart was seated squarely on the proverbial hot seat in this year's shareholder voting season. One big sign: Major institutional shareholder CalSTRS had pre-announced its intention to vote against some key members of Wal-Mart's management and board.

As it turns out, a significant number of Wal-Mart shareholders did indeed vote against certain key members of Wal-Mart's leadership. More than 13% of the votes tallied were against the re-election of Wal-Mart CEO Mike Duke, and 15.6% came in against former CEO Lee Scott.

In still more embarrassing votes, Sam Walton's son Robert Walton, who currently serves as Wal-Mart's chairman, suffered 13% of votes against him as well, as did director Christopher Williams.

These percentages may not sound like much, but they're more significant than you think: about half of Wal-Mart's shares are owned by the Walton family, making it impossible for regular shareholders to gain a majority of the votes. Meanwhile, votes against directors are pretty rare in regular proxy voting situations. These votes really should send a message.

Wal-Mart is by no means alone in getting into hot water for possibly having run afoul of international bribery laws. According to Fortune, at least 81 companies were under investigation under the Foreign Corrupt Practices Act as of late April.

Shareholders shouldn't forget their ownership role in public companies, and that they can use their votes to push corporate leaders and directors to exhibit proper ethics at home and abroad. The dirty dealings that go on under corrupt business practices don't add up to good profits or fair competition, and shareholders shouldn't tolerate unethical behavior spoiling the marketplace and soiling American companies' brands.

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At the time this article was published Alyce Lomax does not own shares of any of the companies mentioned. Motley Fool newsletter services have recommended creating a diagonal call position in Wal-Mart. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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James McRitchie

Alyce, thanks for making the important point that while the 15.6% against former CEO Lee Scott may not sound like much, with the Waltons owning about 50% of the stock, you need to double that figure. 31.2% represents substantial dissent. Many retail shareowners don't bother voting. That may be especially true at companies like Wal-Mart where many assume votes don't mean anything. Believe me, votes count. Even when voters lose, it sends a message.

And don't leave voting to institutional investors, thinking they've done all the research and will vote in your interests. Institutional investors have a lot of conflicts of interests. Funds that want to administer a company's 401(k) plan are less likely to vote down the CEOs pay package or vote against directors. All funds, especially indexed funds, have an incentive to spend as little as possible voting to keep expenses down. The easiest way to do that is to always vote with management. Don't expect someone else to vote your interests... that's up to you.

June 06 2012 at 12:27 PM Report abuse rate up rate down Reply