CalSTRS Files Suit Against Wal-Mart Officials
Wal-Mart's payment of bribes and internal cover-up at the highest levels prompt legal action in Delaware Court of Chancery
WEST SACRAMENTO, CA – The Teachers’ Retirement Board, the governing body of CalSTRS, today took legal action on behalf of Wal-Mart against current and former Wal-Mart board members. The derivative action lawsuit (PDF – 132 KB) alleges bribery and a subsequent cover-up in the corporation’s Mexico expansion.
A derivative action is a lawsuit brought by a shareholder on behalf of a corporation against a third party. The shareholder in this case, CalSTRS, is suing current and former executives and board members of Wal-Mart.
“By utilizing the derivative action, CalSTRS is seeking to remedy the damages sustained by Wal-Mart as a result of alleged gross misconduct by Wal-Mart’s executive officers and directors,” said CalSTRS Chief Executive Officer Jack Ehnes. “The focus of this action, unprecedented in CalSTRS history, is corporate governance reform to ensure that similar misconduct is not repeated in the future. We need truly independent directors who will set the right tone from the top.”
“As fiduciaries for California’s teachers, we believe there is a real need for reform,” said Dana Dillon, chair of the board of CalSTRS. “Better corporate governance leads to greater long term value. How we do business is just as important as how well we do business.”
CalSTRS has retained Girard Gibbs LLP and Labaton Sucharow LLP to bring the action against the officers and directors of Wal-Mart. The complaint points to a failure to act amid overwhelming evidence that corporate malfeasance and bribery were taking place in Wal-Mart’s expansion operations in Mexico. Moreover, the suit charges that senior Wal-Mart officials engaged in large opportunistic stock sales prior to the charges of corporate corruption being made public in a New York Times investigation, April 21, 2012.
CalSTRS is the plaintiff in the action, filed in the Court of Chancery in Wilmington, DE, where the corporation is chartered.
- Senior executives of Wal-Mart de Mexico, Wal-Mart’s Mexican subsidiary, relied on bribery of government officials to facilitate the Company’s expansion plans in Mexico.
- The payment of bribes to facilitate the company’s expansion in Mexico violated express terms of Wal-Mart’s internal code of ethics, including provisions governing business conducted outside the United States.
- The complete breakdown of Wal-Mart’s corporate governance has exposed the Company to regulatory action and investigations, potential liability under the Foreign Corrupt Practices Act and civil litigation, and threatens to damage the Company’s business reputation.
- Members of the Wal-Mart board participated in a high level cover-up of an internal investigation which revealed a pattern of bribery in violation of their own code of ethics and fiduciary responsibilities.
- Two Wal-Mart executives engaged in opportunistic stock trades, between the time the New York Times originally inquired about the story in December, 2011 and when the piece finally ran in April, 2012.
In order to address these failures, CalSTRS will be seeking changes in governance and corporate culture and practices at Wal-Mart. CalSTRS believes Wal-Mart’s board is dominated by directors beholden to the Walton family rather than shareholders.
As a prudent, long-term institutional investor, CalSTRS holds more than 5.3 million shares of Wal-Mart, valued at more than $313.5 million as of May 1, 2012. The holdings account for 0.41 percent of CalSTRS global equities portfolio.
The California State Teachers’ Retirement System, with a portfolio valued at $153 billion as of March 31, 2012, is the largest teacher pension fund and second largest public pension fund in the United States. CalSTRS administers a hybrid retirement system, consisting of traditional defined benefit, cash balance and voluntary defined contribution plans, as well as disability and survivor benefits. CalSTRS serves California’s 856,000 public school educators and their families from the state’s 1,600 school districts, county offices of education and community college districts.