Corporate Governance at Walmart

Introduction

Corporate Governance has over the years received a lot of attention among large

organisations in both developing and developed organisations (Cremers and Nair, 2005). It is

argued that good governance tend to bring about investor goodwill as well as confidence.

Research has confirmed that good corporate governance in an organisation increases both

profits and company valuations. Well governed organisations also enjoy lower capital

expenditure, better performance, favourable treatment of the stakeholders and higher sale

growth. Weak corporate governance may result to poor performance and productivity, risky

financing patterns and makes organisations susceptible to economic recessions. Ragothaman

and Gollakota (2009) have identified several reasons for the growing prominence of

corporate governance. These reasons may include the pension fund report, deregulation of the

capital markets, the evolution of the private savings and series of corporate scandals.

Corporate governance has subjugated policy agenda for more than a decade (Cremers and

Nair, 2005). In order to satisfy the expectations of the stakeholders, most countries have

developed national regulations defining the “best practices” in the corporate governance

(Cremers and Nair, 2005). Walmart has been criticised for its business performance and

operations for many years now. Its governance practices have been thought to be weak thus

affecting the overall performance of the company. This paper will focus on Walmart Stores

Inc. And will discuss its governance protocols and practices in relation to responsibilities of

directors, independence of directors, qualifications of directors and length of tenure of its

directors amongst other issues. In addition, the paper will outline the criteria suitable for the

review of Walmart corporate governance and will list some recommendations for the

improvement of the company’s governance practices.

Background of Walmart
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Walmart is a multinational retail firm that runs a chain of hypermarkets, grocery

stores to name a few (Lichtenstein, 2009). The corporation has its headquarters situated in

Bentonville, Arkansas. It was established by Sam Walton in the year 1962 and therefore

incorporated in the year 1969. Till then, the corporation has open over 11,500 stores in 27

nations. According to Fortune Global 500, the corporation is considered the world’s largest

corporation when value in terms of revenue. It roofs almost 2.2 million employees. It is also

considered the world’s most valuable corporations by market value as well as the largest

grocery retailer in the United States (Lichtenstein, 2009). For instance, in 2015, 59.8 per cent

of its 288 billion dollars sales were generated from the grocery. Between the years 1980’s and

1990’s, the company gained its momentum tremendously to become a national giant. For

example, in 1988, the corporation became the most moneymaking store in the United States.

Criteria for Review of Walmart’s Governance

Reviewing the corporate governance of Walmart will enable the clarification of where

the company is and where they should be for them to achieve good governance (GNDI

Principles, 2014). Reviewing of the corporate governance will also ensure the company is

conforming to the “best practice”. By reviewing Walmart’s governance, it will be possible to

benchmark the company against other companies. Effective governance allows companies to

operate their activities with proper accountability and create value in the long run. The first

guiding principle in reviewing the effectiveness of Walmart’s governance is independence.

Board of directors in organisations should have an independent judgement and provide an

independent overview of management (GNDI Principles, 2014). Thus, corporate governance

should be developed in order for the board to offer an independent leadership separate from

management and influential stakeholders. This is important because, the board can have

polices on managing and preventing conflicts of interests. Another principle to be considered

when reviewing the governance of Walmart is composition and leadership.

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Considering the nature and extent of the company’s operations, the board should

have a proper number of directors with relevant skills, expertise and experiences who can

effectively provide insight and add value (GNDI Principles, 2014). The duties of the chair

and the CEO should be separate. Nevertheless, in other circumstances where directors’

independence is safeguarded, the board name a lead that has the authority to call meetings

and act as the first among equals. This enables directors to effectively discharge their duties

and allocate time to discharge their duties. Another principle of review is nomination. A

formal, transparent and severe procedure should be implemented for the nomination and re-

election of the board of directors. In addition, a formal performance assessment is expected to

be undertaken of the directors standing for re-election. In circumstances where the directors’

re-election is not a requirement of the law, the directors ought to be handed over for re-

election at systematic intervals by the shareholders (GNDI Principles, 2014).

Nomination principle ensures a free and fair election in an organisation.

Responsibility is another principle that has provided guidance in the review of Walmart’s

corporate governance. Every company is expected to be managed and led by an effective

board of directors that collectively oversee both the short-term and the long-term

organisational success (GNDI Principles, 2014). The board ought to be accountable for

approving the vision, purpose, mission and strategies of an organisation. In addition, the

board is expected to oversee the company’s performance and should act and conduct its roles

in the best interest of the company. This principle is important since judging a company’s

governance in terms of the responsibility of the board will give an overview of what

responsibilities a board should uphold in a given organisation and how they could have an

impact on its performance (GNDI Principles, 2014).

Walmart’s Organizational Governance

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The corporation has adopted a number of guidelines which clearly indicate their

principles and protocols. These guidelines are subject to alteration which allows the director

to deviate from its procedures as they may believe appropriate or even as required by relevant

laws and regulations. Therefore, Walmart’s corporate governance guidelines include; director

qualifications, director responsibilities, board committees, director access to offices, director

compensation, annual performance evaluation and length of tenure of directors (Walmart

Store Inc., 2014).

Director Qualifications

The majority of directors in Walmart have a large number of directors who conform

to the standards for independence as per the New York Stock Exchange (Walmart Store Inc.,

2014). The directors undergo annual reviews on their skills and characteristics with which the

board requires for its directors and this responsibility is carried out by the nominating, and

governance committee. This committee is also responsible of conducting an annual

assessment of whether the members qualify to be independent as per their applicable

standards. Therefore, during this course, the directors ought to update the Board on any

changes in their relationships that my affects their appointment by the Board. Nominees for

director role will be chosen on the grounds of excellent achievement in their individual

careers (Walmart Store Inc., 2014). These achievements may include; experience, wisdom,

understanding business environment, integrity and ability to make corporate decisions to

name a few. The Board in Walmart believes that if one qualifies to be director in the

corporation, one should possess a fundamental understanding of: (i.) principal processes,

strategies, financial objectives of the corporation, (ii.) the outcome of operations and financial

settings of the corporation and (iii.) the position in which the corporation occupies with

regard to its competitors (Walmart Store Inc., 2014).

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The Board in Walmart does not discriminate when it comes to matters of colour, race

gender, religion as well as sexual orientation to name a few (Walmart Store Inc., 2014).

Walmart’s organizational governance in terms of director qualification also states that

directors ought to advise the Chairperson of the board if he or she would accept a request to

work for another public company board. Therefore, no member is allowed to work on more

than two other audit committees of public companies without attaining approval from the

board (Walmart Store Inc., 2014). According to the principles of good governance, the board

of directors should comprise of people with relevant and diverse skills and background in

order to discharge duties efficiently and effectively. Concerning Walmart, composition and

leadership of the company has been well applied and hence, the directors possess relevant

expertise for organization’s success.

Director Responsibilities

The fundamental duties of the directors are to practice their judgment in accordance

with the best interests of the company as well as its shareholders (Walmart Store Inc., 2014).

They are also responsible of ensuring care and loyalty in the company. Walmart directors

ought to be entitled to depend on the honesty and integrity of the senior executives of the

corporation as well as its external advisors and auditors. This should be done to the fullest

extent allowed by the law. Walmart directors should also be entitled to liability insurance

purchased by the company on their behalf (Walmart Store Inc., 2014). In addition, specific

roles and responsibilities of the Board will comprise of overseeing the performance and

management of business affairs in the corporation, reviewing and approval of business plans;

recommending the appropriate candidates for election from a group of shareholders to name a

few. Directors in Walmart are required to serve on Board committees and hence can be

appointed to any committee he or she is interested in (Walmart Store Inc., 2014). They are
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also required to be present in regular meetings and spend tie in order to appropriately

discharge their responsibilities. The principle of good governance emphasizes on the ability

of the directors to act in the best interest of the company. In Walmart, the director’s

responsibilities are founded upon vision, mission and purpose of the organization and are in

accordance with the guiding principles of good governance.

Director Access to Officers

Directors of Walmart have been allowed full access to officers as well as other

associates of the corporation (Walmart Store Inc., 2014). They have the right to access and

have a contact with the company’s outside advisors. Therefore, any meeting the director

wishes to initiate, it can be organized either through the CEO, the secretary or even through

the director. Therefore, the directors ought to utilize their judgment to ensure that any such

contact isn’t troublesome to the daily operation of the company’s businesses. In addition,

they have to report annually to the Board concerning management development as well as

successions (Walmart Store Inc., 2014). They also ought to report progress and long-standing

strategic planning. Good governance asserts that every director should have equal access to

officers and information in a timely and effective manner. Walmart can be considered to

having “good practice” in the basis of free access to associates as well as information in the

organization.

Director Compensation

In Walmart, the compensation entitled to their directors is reviewed by the

Compensation, Nominating and Governance Committee (CNGC) (Walmart Store Inc., 2014).

They also recommend both the form and amount of compensation to the directors. These

operations are done in accordance to legal and regulatory guidelines. CNGC considers if the

director’s compensation is way above customary levels, the independence of the director may
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be jeopardized. The director’s independence may also face risks if the company offers other

forms of indirect compensation to either the director or organization which the director is

allied (Walmart Store Inc., 2014). The best practice of good governance emphasizes on a

formal and transparent process of compensation. Compensations are expected to be level, fair

and reasonable in order to assert long-term corporate success. Therefore, as a result of

constant review of the compensation policy by the CNGC, Walmart ensures its compensation

policy is in accordance to legal and regulatory guidelines and is fair and acceptable by all.

Tenure of Directors

The number of directors in Walmart should not be less than three of exceed twenty

(Walmart Store Inc., 2014). Therefore, every year, the shareholders hold meetings where they

elect their directors of choice. The length of time the directors stay in position depends on the

qualifications of his or her successor after every year. In order to offer a variation on a

staggered board, a percentage of the board of directors is elected each year. This ensures

Walmart’s continuity and stability in the management (Walmart Store Inc., 2014). By doing

this, Walmart has the ability to create unitary Board that has the potential to administer good

leadership in the organization. However, good governance practice emphasizes on long-term

focus of organizations. Annual election of directors in Walmart has promoted a short-term

focus on the organization rather than long-term success. In other words, Walmart corporate

governance in terms of tenure of directors promotes a short-term perspective of the

organization and this can lead to poor long-term performance of the organization.

Independence of Directors
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From the 2012 annual meetings of Walmart, the Board of directors have less

independent than before. Three independent directors of the company left the board a few

years ago and the Walton’s take up more than half of the firm’s stock (Walmart Store Inc.,

2014). This has made the board less independent. The founding family’s stake in the

company allows it to have a very few independent directors. Investors are concerned of the

growing control of the company by the Walton’s family given the several issues that are

facing the company: bribery scandal, mounting costs as a result of the investigation of the

bribery scandal, persistent strike of workers and human rights disasters (Walmart Store Inc.,

2014). The less independent directors are less likely to solve these issues. In addition, the

recent board election indicated that a large number of shareholders are unsatisfied with

Walmart’s corporate governance. More and more shareholders of the company advocate for a

more independent board chair.

Recommendations for Improvement

Walmart Stores Inc. should increase the independence of the board of directors for it

to improve the board’s handling of governance challenges that has faced the company over

the years. The recommendation will have a huge impact on the company given the Walton

control over it. Walmart shareholders should consider a resolution that will call for an

independent chairman on the board of directors. The company needs to improve leadership

accountability by electing an independent chair. Perhaps the biggest challenge facing

Walmart is its emphasis on short-term performance (Subramanian, 2015). Almost one third of

Walmart directors are selected every one to three years. This framework promotes continuity

as well as the stability of the board (Subramanian, 2015). Nevertheless, a director elected for

a one year term tends to have a short term perspective. The board should be dismantled every

three years and not one year. This would allow longer-term investments.
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Conclusion

Corporate governance has attracted the attention of the media and is linked to

organisational performance. Good corporate governance can generate higher profits, higher

sales growth, and access to financing and better performance to name a few. Walmart is the

largest retailer company by revenue in the United States. Nevertheless, its performance and

operations have been criticised over the years and may be as a result of poor corporate

governance. In the company, the directors are elected on the basis of broad experience,

understanding of the workplace environment, outstanding personal careers and integrity.

Directors in the company are expected to act in the best of the company’s interests to

discharge duties and responsibility of care and loyalty. In addition, Walmart’s directors have

free access to officers of the company. Any meeting a director initiates is arranged by the

CEO. Also, the form and amount of the board’s compensation are reviewed by the

Compensation Nominating and Governance Committee in accordance with regulatory

guidelines. In general, the weaknesses of Walmart corporate governance are founded upon

the decreasing independence of directors and the short-term service of the directors. The

independence of directors in Walmart is low and more than 50per cent of the company’s

Stock is owned by the Walton’s family. There is a need for the increase in the independence

of directors in order for them to be able to solve the recent challenges faced by the company.
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References

Cremers, KJ and Nair, VB. 2005, Governance mechanisms and equity prices, Journal of

Finance, 60(6), 2859-2894.

GNDI Principles 2014, Guiding Principles of Good Governance – Australian Institute of

Company Directors.

Lichtenstein, N 2009, The Retail Revolution: How Wal-Mart Created a Brave New World of

Business, New York, Metropolitan Books.

Ragothaman, S and Gollakota, K 2009, The effect of firm characteristics on corporate

governance: An Investment Analysts Journal – No. 72 2010 11 empirical study in the

United States, Internal Journal of Management, 26(2), 309-319.

Subramanian, G 2015, Corporate Governance 2.0: Managing Organizations, Harvard

Business Review.

Walmart Store Inc. 2014, Walmart Store Inc.: Corporate Governance Guidelines, Retrived

15th March from,

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governance-guidelines.pdf