(May 7, 2012) — The $153 billion California State Teachers’ Retirement System (CalSTRS) has filed suit against Wal-Mart officials, accusing them of using bribery and corruption to gain approval from the Mexican government to build new stores.
“By utilizing the derivative action, CalSTRS is seeking to remedy the damages sustained by Wal-Mart as a result of alleged gross misconduct by Wal-Mart’s executive officers and directors,” said CalSTRS Chief Executive Officer Jack Ehnes. “The focus of this action, unprecedented in CalSTRS history, is corporate governance reform to ensure that similar misconduct is not repeated in the future. We need truly independent directors who will set the right tone from the top.”
Dana Dillon, chair of CalSTRS’ board, added: “As fiduciaries for California’s teachers, we believe there is a real need for reform. Better corporate governance leads to greater long term value. How we do business is just as important as how well we do business.”
According to the New York Times, the CalSTRS suit is the first by a large institutional investor over the Wal-Mart bribery scandal.
The complaint by CalSTRS — which holds more than 5.3 million shares of Wal-Mart Stores — against the retail giant “points to a failure to act amid overwhelming evidence that corporate malfeasance and bribery were taking place in Wal-Mart’s expansion operations in Mexico,” the pension fund said in a statement. In addition, the suit charges that senior Wal-Mart officials engaged in large opportunistic stock sales prior to the charges of corporate corruption being made public in a New York Times investigation on April 21.
As outlined by CalSTRS, the fund believes:
1) Senior executives of Wal-Mart de Mexico, Wal-Mart’s Mexican subsidiary, relied on bribery of government officials to facilitate the company’s expansion plans in Mexico.
2) The payment of bribes to facilitate the company’s expansion in Mexico violated express terms of Wal-Mart’s internal code of ethics, including provisions governing business conducted outside the United States.
3) The complete breakdown of Wal-Mart’s corporate governance has exposed the company to regulatory action and investigations, potential liability under the Foreign Corrupt Practices Act and civil litigation, and threatens to damage the company’s business reputation.
4) Members of the Wal-Mart board participated in a high level cover-up of an internal investigation which revealed a pattern of bribery in violation of their own code of ethics and fiduciary responsibilities.
5) Two Wal-Mart executives engaged in opportunistic stock trades, between the time the New York Times originally inquired about the story in December, 2011 and when the piece finally ran in April, 2012.