CalSTRS: The Dogs Turn on Walmart

The California State Teachers’ Retirement System (CalSTRS), by many measures the second largest pension in the United States, has taken the advice of and has joined proxy advisory firms ISS and Glass Lewis in an effort to oust the Walmart (NYSE: WMT) board. The CalSTRS effort is more aggressive than that of the two proxy firms, which only want chairman Rob Walton, CEO Mike Duke and former CEO Lee Scott out. CalSTRS wants to unseat the entire board:

CalSTRS will vote its more than five million investor shares against the entire board’s reelection at Wal-Mart Stores, Inc. annual meeting. We encourage our fellow shareholders to do the same.

Walmart has not been very good to CalSTRS, and many other investors, as least as far as returns go. Its share price has been nearly flat over the past decade. But, like other holders of shares in the world’s largest retailer, it has ignored the rule that people, including executives, are innocent until proven guilty. The fund writes in a letter about its plans:

Based on these allegations, which indicate a breakdown of corporate governance and lack of oversight that should have averted this situation, CalSTRS does not have confidence that the current board has the independence and leadership needed to address these difficult issues.

A number of charges have arisen against Walmart over bribery activity at its Mexico operations. There are also allegations that past and current management knew about them and covered them up. Federal investigations, and a probe by Walmart’s board, have only just begun. It may be months before these conclude. In the meantime, no one in management or on the board has been pushed out, which is as it should be.

If the CalSTRS approach set a standard by which to measure boards and management, all of the leaders of Chesapeake Energy (NYSE: CHK) and JP Morgan (NYSE: JPM) would be gone by now. The same holds true for dozens of companies that have been through recent ethical scandals. Some board members and executives has been forced out at companies where there were breaches of reasonable standards. This includes Best Buy (NYSE: BBY) and Green Mountain Coffee Roasters (NASDAQ: GMCR). There have been no widespread suggestions that the entire boards and top managements of these corporations resign or be turned out by shareholders. Not everyone on the boards of these two public corporations was part of the wrongdoings. By forcing the resignations of those who had violated fair codes of conduct, these board members actually have proved their worthiness as fiduciaries.

The CalSTRS pressure to unseat the entire Walmart board is too radical. The directors who should reasonably judge the chairman and two CEOs ought to be left to do their jobs.

Douglas A. McIntyre