The pension funds of New York City are the latest group to file a derivative lawsuit against Wal-Mart Stores Inc., based on reported allegations of bribery in Mexico and a possible cover-up by Wal-Mart officials. The suit, filed in Delaware Chancery Court, alleges that Wal-Mart’s officers and board of directors breached their fiduciary duty to both the company and shareholders by failing to properly handle claims of alleged bribery and apparently attempting to cover up details of the issue. The issue was brought to light by the New York Times in an April report which said that management at Wal-Mart de Mexico, or Walmex, allegedly orchestrated bribes of $24 million to help it grow quickly in the last decade, and that Wal-Mart’s top brass tried to cover it up. New York City Comptroller John C. Liu said in a statement:
Rooting out the directors and executives responsible for the current crisis would be a first step, but Wal-Mart also needs corporate governance reforms and an independent board that will protect outside shareholders and safeguard against another breakdown of internal controls.
The lawsuit comes after the California State Teachers’ Retirement System, or CALSTRS, filed a derivative lawsuit in Delaware Chancery Court in early May. In total, 11 derivative complaints were filed in April and May in Delaware and Arkansas tracking the allegations, according to a story in the New York Times. A securities lawsuit was also filed by the City of Pontiac General Employees Retirement System in Tennessee.
It should be noted that in a derivative lawsuit, Plaintiffs seek a recovery for the company, not shareholders. The pension funds are seeking to essentially stand in the shoes of Wal-Mart and sue the company’s executives and directors for damage they have done to the retailer. Such lawsuits often result in changes in corporate governance.
Wal-Mart says it’s in the early stages of a full and independent investigation, which will take time. The bribery issue is also being investigated by the U.S. Department of Justice, the U.S. Securities and Exchange Commission and a number of government agencies in Mexico. Wal-Mart said in early June that, while it could not predict the outcome of the various suits, it did not believe that the outcome would have a material effect on its financial conditions or results of operations. It remains to be seen if the company’s assessment is accurate.
It should be noted that the New York City Comptroller’s Office was among a group of shareholders that voted against certain board members in Wal-Mart’s recent election. It previously said that it voted its shares against Chairman Robson Walton, Chief Executive Michael Duke, former CEO Lee Scott, current audit committee chairman Christopher Williams, and audit committee director Arne Sorenson. While several directors received many more votes against them than usual, they were still elected with a majority of votes cast in their favor. It was alleged in the lawsuit that the New York City funds held 5.6 million Wal-Mart shares as of March 31 and collectively have more than $121 billion in assets. Fifteen of Wal-Mart’s 16 current board members are named as Defendants in the lawsuit. Marissa Mayer, who recently joined the board, is not listed as a Defendant.
Along with Comptroller Liu, the trustees of the New York City pension funds include the New York City Employees’ Retirement System, the Teachers’ Retirement System, the New York City Police Pension Fund, the New York City Fire Department Pension Fund, and the Board of Education Retirement System.
Source: Insurance Journal
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