CalSTRS Statement on Delaware Court Ruling on Wal-Mart Derivative Suit

Statement Michael Sicilia

WEST SACRAMENTO, Calif. – Today, Chancellor Andre G. Bouchard of the Delaware Court of Chancery issued an Order granting Wal-Mart’s motion to dismiss Plaintiffs’ Complaint in In re Wal-Mart Stores, Inc. Delaware Derivative Litigation.  The California State Teachers’ Retirement System, the New York City Retirement Funds, and the Indiana Electrical Workers Pension Trust Fund IBEW are Co-Lead Plaintiffs in the case.

The Wal-Mart case is a derivative action, meaning it was filed by stockholders on behalf of Wal-Mart against current and former members of Wal-Mart’s board of directors.

The stockholders alleged that employees of Wal-Mart’s Mexican affiliate systematically bribed local officials to expedite Wal-Mart’s expansion into Mexico in violation of the United States Foreign Corrupt Practices Act. Additionally, the action alleged that senior members of management, as well as members of the board of directors, intentionally covered up the issue when they learned of the FCPA violations.  The lawsuit seeks to hold Wal-Mart’s board and certain company officers accountable for presiding over the flawed internal investigation into credible and documented bribery allegations, exposing the company to hundreds of millions of dollars in fines and legal fees.

To bring a derivative action under Delaware law, a stockholder must serve a demand on the corporation’s board of directors or demonstrate that the corporation’s board would be incapable of impartially considering the demand. The Delaware Court of Chancery ruled today that the stockholder claims in the Delaware action were barred because the court in a case in the United States District Court for the Western District of Arkansas, brought by a different group of Wal-Mart stockholders, ruled that the stockholders must make a formal demand on the corporation before proceeding with their claims. The Arkansas court ruled that the stockholder plaintiffs had not established the fact that making a demand on the corporation would be a futile effort. Today, the Delaware Court of Chancery held that under the United States Constitution, it had to defer to the decision of the Arkansas federal court.

CalSTRS holds more than 4.3 million Wal-Mart shares worth more than $300 million (as of March 31, 2016), and has long led the effort for improved corporate governance and stricter oversight at Wal-Mart. In 2012, in the wake of the Wal-Mart bribery scandal becoming public, CalSTRS announced its intent to vote its then 5.3 million investor shares against the reelection of Wal-Mart’s entire board of directors, and urged other shareholders to do the same. Since then, as a lead Plaintiff in the Wal-Mart derivative litigation, CalSTRS has continued to advocate for an overhauled system of corporate governance at Wal-Mart in order to ensure that similar misconduct does not occur in the future.

Jack Ehnes, CalSTRS Chief Executive Officer, made the following statement regarding Chancellor Bouchard’s opinion:

“CalSTRS remains committed to advancing the interests of Wal-Mart and its shareholders, and we will continue our efforts to ensure that Wal-Mart’s board of directors act with sufficient independence and oversight to prevent the governance breakdown that resulted in bribery and a cover-up in Wal-Mart’s non-US operations.”

CalSTRS is considering an appeal of the Court’s ruling. Even if the decision is affirmed, CalSTRS has the option of making a formal demand on the board to take action against former or current Wal-Mart corporate officers and board members involved in cover-up of the bribery scheme.

About CalSTRS

The California State Teachers’ Retirement System, with a portfolio valued at $186.8 billion as of March 31, 2016, is the largest educator-only pension fund in the world. CalSTRS administers a hybrid retirement system, consisting of traditional defined benefit, cash balance and voluntary defined contribution plans. CalSTRS also provides disability and survivor benefits. CalSTRS serves California’s 896,000 public school educators and their families from the state’s 1,700 school districts, county offices of education and community college districts.

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