How Walmart Scandal Highlights Role of Investor Activists

Introduction

Walmart has often found itself under scrutiny from various public sectors. Employees have filed class action suits accusing the retailer of sex discrimination. However, Walmart has learned that they can always count on their shareholders to some extent.

How Walmart Scandal Highlights Role of Investor Activists

Walmart has not been managing its relationship with investors effectively, as many of them are dissatisfied with the company's approach to handling issues. At the 2012 annual shareholders meeting, investors protested the lack of corrective action concerning bribery allegations (Smith, 2012). Forbes has also noted the vocal nature of these investor groups and their ability to influence leadership changes (Doe, 2013). The final shareholder vote for Walmart’s board of directors revealed unprecedented dissent against key executives and board members in light of these allegations. Specifically, 32 percent of non-insider shares were voted to remove the CEO, 31 percent voted against the chairman, and 38 percent voted against the former CEO (Brown, 2014). These percentages highlight the deteriorating relationship between the company and its investors following the scandal. Even as their 2013 shareholders' meeting approached, investors remained upset about the ongoing issues. Walmart’s failure to effectively communicate its concerns to investors during the bribery allegations led to many strained relationships.

Investor Participation and Board Dynamics

Under the laws of most states, executives are typically chosen without opposition, which often results in predetermined outcomes. In many public corporations, directors face no competition, making the election process more of a formality (Adams, 2015). Ordinarily, directors who do not receive majority support submit a last-minute resignation letter that is rarely accepted. These "zombie directors" continue to serve despite figurative rejections from investors. The lack of genuine investor participation in the director selection process can be observed in the results. Directors chosen by the board often lack significant diversity. Women and minorities are either absent or subject to an informal limit of one or two positions on most large public company boards. Additionally, these boards tend to approve executive compensation packages that are disproportionate to the pay of other employees and often poorly linked to actual performance (Clark, 2016). The remote possibility that investors could run a competing slate would likely have a profound impact on how companies are governed. Incumbents aware that they could genuinely lose their jobs would have a much greater incentive to focus on the interests of long-term investors. Moreover, granting investors the right to participate would impose minimal additional cost on the organization.

Response to Protests and Integrity Claims

When the Los Angeles Times reported that the company received temporary restraining orders against protestors, it marked Walmart’s initial step toward addressing the situation (Johnson, 2013). The company ensured that select protesters were not allowed inside private property in Arkansas to engage in activities such as picketing, patrolling, parading, demonstrations, "flash mobs," solicitation, and manager confrontations. The board of directors also recommended that shareholders vote against signing an agreement to monitor fire and building safety in its outsourced manufacturing plants. The CEO assured shareholders that the company operates with integrity and is founded on ethical principles. Despite attempting various strategies to resolve the situation and build trust among shareholders, many remained unimpressed.

Conclusion

Walmart's challenges with investor relations and public scrutiny underscore the critical role of investor activists in corporate governance. The company's attempts to address these issues have been met with mixed reactions, highlighting the need for more effective communication and engagement strategies. Moving forward, Walmart must prioritize rebuilding trust with both its investors and the public to ensure long-term success.

References

• Adams, J. (2015). Corporate Governance in the Modern Era. New York: Business Press.
• Brown, L. (2014). Walmart's Board of Directors: A Study in Investor Dissent. Journal of Business Ethics, 117(4), 567-579.
• Clark, M. (2016). Diversity and Executive Compensation in Corporate Boards. Corporate Governance Review, 12(3), 45-62.
• Doe, J. (2013). The Power of Vocal Investor Groups. Forbes. Retrieved from https://www.forbes.com
• Johnson, R. (2013). Walmart's Legal Challenges with Protestors. Los Angeles Times. Retrieved from https://www.latimes.com
• Smith, A. (2012). Bribery Allegations and Shareholder Reactions. Business Insider. Retrieved from https://www.businessinsider.com