The Wall Street Journal had (another) troubling piece about Wal-Mart the other day. This time a former employee is alleging that, while working for Wal-Mart, he was “tasked with the electronic monitoring of directors’ meetings…” It almost seems implausible that such an impropriety would even be attempted much less committed over a period of time, but then there were those weird things going on in the HP boardroom involving spying on directors. The New York Times Floyd Norris raises the question on his blog “how will the board react?” My thoughts follow.
Does Wal-Mart really have a board? You will know the answer if the directors whose conversations it is alleged were improperly monitored do not resign en masse or at least demand a tough independent investigation of the allegations. I am skeptical they will do either.
With four insiders (an unusually high number among major publicly traded companies, to say the least) and directors having met formally on only 4 occasions in 2006 (another 3 meetings were phoned in), Wal-Mart’s board appears to be little more than a ratifying body for the controlling shareholder. It is hard to imagine that an empowered and independent board would not have taken more decisive and visible action to prevent the self-inflicted stumbles and misadventures that continue to plague this accident prone company. What happens on the Wal-Mart board is what inside directors —i.e., the Walton family— want to happen. It is rather troubling as well that the nomination, governance and compensation functions of the board are folded into one committee. Such consolidation of power and duties makes meaningful review of board performance and practices impossible for all practical purposes. Those who are invited to sit and remain on the board are clearly expected to toe the line —perhaps even in meetings held in the absence of management and inside directors.
Wal-Mart’s problems will persist as long as its thinking is conducted through the narrow and myopic prism its board structure symbolizes and until its corporate governance —and its ethical culture— are dragged into the 21st century.