Wal-Mart Stores Inc., Bentonville, Ark., was called on by New York City's pension funds, the Illinois State Board of Investment, the University Superannuation Scheme Ltd. and other major shareholders to form a committee to review legal and regulatory controls and compliance because of concerns about alleged abuses of employees. In a letter to Roland A. Hernandez, chairman of the Wal-Mart board's audit committee, the shareholders asked the audit committee to set up the special committee, comprising independent directors, and to report findings and recommendations by December.
The funds' concerns included alleged exploitation of illegal immigrants and alleged violation of child labor laws.
"As long-term investors and shareholders of Wal-Mart, we are deeply concerned that the frequency of reports exposing (alleged) legal and regulatory non-compliance at the company could be indicative of inadequate internal controls and a lack of board oversight and accountability," New York City Comptroller William C. Thompson Jr. said in a statement issued by his office. Mr. Thompson oversees the $85 billion New York City Retirement Systems. "These negative reports and headlines have damaged Wal-Mart's global reputation. The board of directors could help to bolster the company's image and shareholder confidence by enabling a committee of independent directors to take the action we have requested."
Ed Smith, chairman of the $10.5 billion Illinois State Board, Chicago, said in a statement issued by the shareholders group, "It used to be that we had to go to a Third World country to find this kind of exploitation. Now, I am appalled and embarrassed to find these practices at Wal-Mart, one of our holdings. The company has a duty to mount the independent investigation we are seeking — primarily because it's the right thing to do, but also because such practices could expose the company to legal liability. The ramifications for shareholders could be disastrous."
Jason Fletcher, Americas equities manager of the $36 billion University Superannuation Scheme,Liverpool, England, also said in the group statement: "As active and responsible long-term shareholders, U.K. University Superannuation Scheme's policy seeks to ensure that formal, effective and transparent internal control principles and systems are in place and implemented in companies in which it invests."
"Employees who fear for their jobs won't report wrongdoing," Karina Litvack, head of governance and socially responsible investment at F&C Asset Management, said in the group statement.
In total, the four funds own 11,455,206 Wal-Mart shares, with an estimated market value of $546 million.
Marty Heires, Wal-Mart senior manager-public relations, said: "We just received the letter. The audit committee will review it and respond appropriately."