Corporate Governance Report

Walmart Inc. is a multinational retail corporation headquartered in Arkansas. As of 2019, Walmart is

the world’s largest company by revenue, according to the Fortune Global 500 list, as well as the
largest private employer, with 2.2 million employees.
The company was founded in in 1962 by Sam Walton and was listed on the New York Stock
Exchange ten years later, in 1972. Since that date, Walmart has been a publicly traded family-owned
business, with Sam Walton’s heirs owning over 50 percent of the shares both through their holding
company, Walton Enterprises, which holds 49.38% of the shares, and through their individual
holdings. The remaining shares are owned by both institutional investors (around 30% of the
company’s voting power) and by the public (around 20%). The second biggest shareholder, after the
Walton family, is Vanguard Spa, an institutional index fund which owns 4.5% of Walmart’s shares. A
relatively small number of shares is also owned by independent directors of the Board, probably both
for compensation and as a way of ensuring that they will act in the best interest of the company.
Such a concentrated, family-based ownership has both advantages and disadvantages. On the one
hand, the presence of a controlling shareholder provides stability to the firm, thanks to leadership
continuity, to slower ownership turnover, and to the personal attachment of owners to the company.
Also, decision-making is faster than when ownership is dispersed. On the other hand, personal family
conflict and relationships could be detrimental to the company, preventing the owners to take
decisions without being conditioned by personal emotions. For example, the appointment of Gregory
Penner, Rob Walton’s grandson-in-law, as Chairman of the Board raised some criticism among
shareholders and investors. Indeed, the practice of nepotism, particularly in family companies, may
lead to a selection of leaders not based on their competencies, and that could be damaging for the
company. This, however, does not seem to be the case, being Gregory Penner a Stanford graduate
with more than 15 years of experience in the company.
Also, generational transition often proved to be fatal in family companies. The case of Walmart,
however, can be considered one of successful generational transition, considering that the company’s
stock has been steadily increasing since its IPO. Indeed, the Walton’s family, thanks to its experience
and knowledge of the industry, has been able to manage Sam Walton’s business so as to put it in a
position of consistent and continuous competitive advantage.

Walmart is currently governed by and eleven-member Board of Directors composed of 7 independent

directors, 3 members of the Walton family (among which there is the Chairman of the Board, Gregory
B. Penner) and the CEO, Doug McMillon. Until the first days of November, the members of such
Board were 12, with 8 independent directors. However, Steve Easterbrook, McDonald’s ex-CEO and
member of the Board, resigned right after announcing his exit from McDonald’s, on November 4 th.
Walmart’s Board of Directors is elected annually – although directors can serve for up to 12 years –
and, as well as its corporate governance guidelines in general, fully complies with either the NYSE
regulations or the SEC recommendations for governance in public listed companies, even though the
company could have benefited from an exemption regarding the composition of the Board. More
specifically, the NYSE, in section 303A.01 relating to Corporate Governance Standards, requires the
Board of Directors to be composed of a majority of independent directors. However, this Standard
does not apply to listed companies “of which more than 50% of the voting power for the election of
directors is held by an individual, a group or another company”, like in the case of Walmart, which,
despite this, decided to comply with such Standard anyway. Indeed, a Board with a majority of
independent directors is seen as protecting both shareholders’ interests, therefore increasing
investors’ confidence, and the company’s interests as a whole, preventing the interest of an individual
shareholder to prevail.
Moreover, Walmart’s Board is composed by highly skilled members with different areas of
competence. In particular, the Nominating and Governance Committee generally evaluates
candidates which have experience relevant to either the Successful Oversight of Strategy or the
Effective Oversight and Governance areas. In the Notice of 2019 Annual Shareholders’ Meeting, such
experiences are listed for each director of the Board, together with data on the demographics of the
Board as a whole. The different experience backgrounds that characterize each director can also be
beneficial to the company in terms of network expansion. Indeed, as the appointment of Sarah Friar
presented later demonstrates, the choice of members is also influenced by the strategic aims of the
company.
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In addition to the Board of Directors, the 12 directors are divided into five Committees, in compliance
with the NYSE and SEC criteria: Audit, Compensation & Management Development, Nominating &
Governance (all of which are composed of independent directors), Strategic Planning & Finance and
Technology & e-Commerce. However, the company also decided not to establish either a Risk or a
Related Party Transaction Committee as suggested by the SEC criteria, deeming both of them to be
unnecessary.

In recent years, many changes have been happening in the composition of the Board and the
Committees, in alignment with the company’s refreshment plan, which states that the frequent
addition of new directors contributes to the Board’s efficient functioning.
The first remarkable change dates back to 2016, when the owners decided to reduce the number of
directors in the Board from 15 to 12 in order to maximize efficiency in decision-making.
Recently, a special focus has also been put on the election of independent directors with a deep
knowledge of the digital and finance sectors, as the appointment of Sarah Friar, CEO of a social
media company, and of Steve Easterbrook confirms. These two figures were both elected in 2018 to
substitute both James Cash, who had served for the maximum period allowed by the bylaws, and
Kevin Systrom, co-founder of Instagram who decided to step down to focus on his personal work.
For what concerns the financial year under review, 2019, the only change than was made in the Board
composition is the addition of Cesar Conde as independent director. Conde is a specialist of the digital
world, and his nomination as director is coherent with Walmart’s strategy to improve its digital and
technological performance to boost their e-commerce.

Among the numerous documents that Walmart issues with regard to the company’s corporate
governance, there are two sections of the company’s website that are worth mentioning: the ESG
section and the Global Responsibility Report.
The ESG section deals with several environmental, social and governance topics, and is based on
frameworks such as the United Nations Sustainable Development Goals and the Global Reporting
Initiative Standards. The ESG initiatives are reviewed by the Nominating and Governance
Committee, which met five times during the fiscal year considered and to which the Chief
Sustainability Offices provides updates. In addition, an ESG team is in charge of listening to
stakeholders to evaluate issues and challenges. As for Governance, the report focuses on four areas,
which are Overseeing the ESG Agenda, Board Diversity, Ethics & Compliance, and Data Privacy.
The Global Responsibility Report, instead, is and ESG report with a particular focus on the progress
that the company is making towards best Corporate Governance practices.
The report was released for the first time in 2014, two years after the sprung of the Mexican bribery
scandal which hit the company in April 2012, and aims at keeping track of the improvements in
corporate governance to which Walmart is committed.
The commitment of Walmart to good Corporate Governance policies is also stressed by the fact that
its CEO, Doug McMillon, was appointed last September as chairman of Business Roundtable, a group
of prominent chief executives who, through their “Principles of Corporate Governance”, provides
guidance and best-practice advices to public companies.

Overall, since the 2012 scandal, in which Walmart’s CEO in Mexico together with his chief
lieutenants were found guilty of bribing Mexican officials in order to obtain building permits and
clearances, the company has steadily improved its corporate governance.
Its efforts, despite pleading guilty in June 2019, proved to be effective and the Global Responsibility
Plan met the investors’ approval.
Therefore, overall it can be said that Walmart’s ownership and governance structures are key elements
of the company’s astonishing performance in the market.
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Sources:

 Business Roundtable
Principles of Corporate Governance
 New York Stock Exchange
Corporate Governance Guide
 Securities and Exchange Commission
Code of Corporate Governance for Public Companies
 Walmart
Bylaws
Corporate Governance Guidelines
ESG Report
Notice of 2019 Annual Shareholders' Meeting
2018 Global Responsibility Report

Articles

 Bloomberg, Walmart Pays $282 Million to End Long-Running Bribe Probes (2019)
https://www.bloomberg.com/news/articles/2019-06-20/walmart-pays-140-million-unit-
pleads-guilty-over-brazil-bribes
 Harvard Business Review, Who’s Responsible for the Walmart Mexico Scandal (2014)
https://hbr.org/2014/05/whos-responsible-for-the-walmart-mexico-scandal
 Harvard Law School Forum on Corporate Governance & Financial Regulation, Wal-Mart
Bribery Case Raises Fundamental Governance Issues (2012)
https://corpgov.law.harvard.edu/2012/04/28/wal-mart-bribery-case-raises-fundamental-
governance-issues/
 The New York Times, Wal-Mart Hushed Up a Vast Mexican Bribery Case (2012)
https://www.nytimes.com/2012/04/22/business/at-wal-mart-in-mexico-a-bribe-inquiry-
silenced.html?_r=4&