Walmart and Shareholders Lawsuit - Coursework Example

Wal-Mart and Shareholder’s Lawsuit Wal-Mart and Shareholders Lawsuit One of America’s largest pension plans, the California Teachers’ Retirement System, filed a lawsuit against the leadership of Wal-Mart, alleging that they had violated their fiduciary duty linked to a bribery scandal at the retailer’s Mexican subsidiary. The pension plan holds about 3.5 million shares in Wal-Mart, which is estimated to be at a value of nearly $313 million. Although this is a small interest, much lower than 1 percent, the lawsuit was filed on behalf of Wal-Mart itself against the people whom the pension plan alleged had failed in their obligation to the retailer. The lawsuit identified the company’s board members and several past and present executives or board members as the defendants. This particular kind of lawsuit, known as a derivative suit, is fairly common ever since several corporate misconducts have become known. However, for the CalSTRS pension plan, this is the first time that they have brought forward such a lawsuit. It was filed in Delaware, and demanded that any damages emanating as a consequence of Wal-Mart’s leadership’s breaching of their fiduciary duties be paid to Wal-Mart, and that the retailer should make some necessary improvements to its corporate governance as well as internal procedures (Lifsher, 2012). Jack Ehnes, the Chief Executive Officer of the pension fund said that the gravity of the situation was such that it called for shareholders to step into the role of the board and act as substitutes for the board members so that their interests may be safeguarded. James D. Cox a professor of Law at Duke Law School, stated that the lawsuit at hand would likely leady to more from smaller investors. The reason he cited for this statement was that a derivative law suits are generally heavily piled upon. Owing to the fact that derivative law suits demand that damages be given back to the company, there is little monetary reward for the plaintiffs. However, Mr. Cox mentioned that any company that settled this kind of a lawsuit was likely to agree to compensate the plaintiffs for their legal fees, which can be substantial (Dinnocenzio, 2012). Mr. Jack Ehnes of CalSTRS said that the fund had not acted in collaboration with Wal-Mart’s other shareholders in filing this lawsuit, but owing to the pension fund’s significant involvement with Wal-Mart, he anticipated that a very boisterous period would ensue. He also said that the fund’s link to the lawsuit originated from making sure that there was a responsible board of directors who put forth their interests, ensured compliance as well as code of ethics. Mr. Ehnes mentioned that everyone needed to know what was going on in the boardroom and what was taking place in Wal-Mart’s corporate culture (Clifford, 2012). A spokesman for Wal-Mart, Mr. Greg Rossiter defended Wal-Mart by saying that the company took its shareholders very seriously and that it was closely reviewing the lawsuit and looking into that the issues that had be brought to light. The allegations in the lawsuit are based mainly on an article that appeared in the New-York times that revealed that Wal-Mart investigators had unearthed convincing proof that the retailer’s Mexican subsidiary had bribed officials in Mexico. As well, executives based at the corporate headquarters in Arkansas then ended the investigation. The lawsuit at hand appears to be the first of its kind, an established institutional investor following the allegations of the bribery. Earlier on, leaders of pension funds of New York City had declared that they would vote their shares against the five directors running for re-election at Wal-Mart’s shareholder meeting. Derivative lawsuits are sometimes used by Activist pension funds to bring about transformations in corporate governance. An example would be of a Massachusetts pension fund that filed a derivate lawsuit against Hewlett-Packard in the year 2010. Mr. Jack Ehnes, however, said that CalSTRS would generally rather meet with management instead of filing lawsuits. Mr. Charles M. Elson, a professor who specializes in corporate governance at the University of Delaware said that it was very uncommon for the fund to take the drastic measure that they did in the form of the lawsuit against Wal-Mart, indicating that they must be very upset. Mr. Cox, the law professor mentioned above, stated that Wal-Mart and CalSTRS would next tackle the issue of deciding whether any of Wal-Mart’s board members were adequately independent to decide whether to dismiss or pursue the lawsuit against the directors and the members of management. CalSTRS contended that in the lawsuit, the majority of the directors had conflicts of interest and this would deter them from arriving at an objective decision. Mr. Cox also said that he anticipated that Wal-Mart would find two or three of the directors who looked appeared to be more conscientious than others and then establish a special committee to represent the company. He added that special committees usually feel that derivative lawsuits should be quashed (times, 2012). It had been reported in the New York Times that some executives of Wal-Mart, in the years 2005 and 2006, were privy to the allegations of bribery but chose to ignore the, It was not clear, however, whether the director of the retailer were told about these allegations. Since the later part of the year 1011, prosecutors of the Justice Department had been observing Wal-Mart’s internal investigation of the bribery allegations. The retailer had informed the Justice Department after finding out about the report in the New York Times. Additionally, officials of the Securities and Exchange Commission had also been in touch with officials of Wal-Mart with regards to the issue. American Foreign Companies are not allowed to bribe foreign officials, under the regulations of the Foreign Corrupt Practices Act. The allegations in this case were also being investigated widely in Mexico. All of Wal-Mart’s current directors, along with their executives and some ex board members and executives were named in the lawsuit. Names of the accused included Michael T, Duke, Wal-Mart CEO and a board member; H.Lee Scott Jr, another board member, and Mr. Duke’s predecessor as CEO. Others were Eduado Catro Wright, vice-chairman of Wal-Mart, and Thomas A. Mars, its chief administrative office (Gonzalez-Perez, 2013). Virtue based ethics has been of increasing interest the business world. It essentially implies that there is some desirable characteristic trait, e.g. courage that falls between two drastically opposing poles such as rashness or cowardice. Hence the aspect of virtue is adopted in order to find establish a balance in arriving at decisions. Such an aspect does not pertain to any particular rules in making decisions, rather, it attempts to make decisions that are compatible with desire to achieve a particular kind of excellence which in turn involves storing moral judgment, dictated by virtues such as courage, wisdom, reasonableness, fairness and integrity. Ultimate Costs paid by the Involved Parties Wal-Mart stores Inc. had forecasted in December 2013, that the investigations and global compliance programs that originated from a Mexican bribery scandal would have cost more $400 million by the end of its fiscal year in January. Additionally, when the lawsuits by agitated shareholders and inquiries by the department of Justice and Securities & Exchange Commission conclude, the retailer may well have had to expend hundreds of millions of dollars more. At present, the lawsuits are gradually getting processed through the court system. In the reports filed with the Securities and Exchange Commission, Wal-Mart stated that it had alerted federal agencies back in November 2011 about an internal investigation into allegations pertaining to bribery by Wal-Mart officials employed in Mexico. However, it was not until The New York Times made public the details of these allegations in April 2012 that the scandal gained wide-spread acknowledgement. The editorial mentioned in the New York Times stated that Wal-Mart’s Mexican division had doled out more than $24 million in bribes in order to open stores more rapidly than they could have had they abided by the regular government methods. Wal-Mex (The Mexican subsidiary) had kept the payments from being reported to Wal-Mart’s headquarters in Bentonville in Arkansas. And although Wal-Mart had found out about the mis-deeds of Wel-Mex in 2005, it neglected to follow up on them (Friedman, 2013). Who got benefit? It can be concluded from just the information stated above, that Wel-Mex attempted to and for quite a long time, did indeed reap the benefits emanating from the quick establishment of numerous stores, which would not have been possible had they abided by the rules. And since the allegations about the bribery were not formally made public until much later, the larger corporation too got tapped into a ‘get rich quick’ bubble for which it ultimately ha d to and is still paying dearly! Who got hurt in this lawsuit? Also impacted negatively are the employees of Wal-Mart who were and will be deprived possibly of professional and ethical training and practices, it could also mean that they could be deprived of receiving adequate employee benefits as well as their pensions, should the company be drained financially as a result of the heavy charges and related programs that it has no choice but to finance in the form of fines, costs, and payments. Utilitarian approach to this case The theory of Utilitarianism has been derived from the word Utilis which means useful. It was derived by Jeremy Bentham which is a philosopher and legal theorist of 18th century. This theory basically revolves around the concept of consequentialism which is itself based on the principle that the moral and ethical value of ones deeds should be evaluated by the outcome of such action. This philosophy declares that the morality of an action is best reviewed by the usefulness or convenience of such deed. The products which will be made by utilitarian company will be categorized into different segments. Similar is the case in WalMart where they have designed products for each class i.e. lower, middle and upper class and target their customers accordingly using effective marketing techniques (Hill, Jones, & Schilling, 2014 ). Cash is like blood to the business, which is required heavily not only in the initial stage of the business but also in the running of the business in the later stages. Utilitarian has his limitations and can inject a specific amount of cash into the business and later on depend upon the investors to fulfill their needs. Working capital management is also an important aspect of planning business operations. Effective working capital management requires planning in inventory control, credit control, bad debts, billings, forecasting and capital expenditures. Finding the right worker can be challenge that is hardworking, dependable and enthusiastic about providing their services to business. Hence this is the case which Wal-Mart has experienced with this client in their California Teachers’ Retirement System Plan. How does resolved? The case verdict is still under investigation and the cost of the case is rising and dragging, hence the relative Wal-Mart costs are also raising. It is expected that by the end of Nov 2014 the earnings will increase in their cost and the company is expected to spend between $75 million and $80 million on their legal matters only. References Clifford, S. (2012). Pension Plan Sues Wal-Mart Officials Over Failures. Retrieved from The New York Times: http://www.nytimes.com/2012/05/04/business/pension-plan-sues-wal-mart-over-bribery-case.html?_r=0 Dinnocenzio, A. (2012). California State Teachers Retirement System Suing Walmart Execs In Wake Of Bribery Scandal. Retrieved from huffingtonpost.com: http://www.huffingtonpost.com/2012/05/04/california-state-teachers-retirement-system-walmart_n_1477990.html Dobson, J. (2012). Applying virtue ethics to business: The agent-based approach. Retrieved from Electronic Journal of Business: http://ejbo.jyu.fi/articles/0901_3.html Friedman, M. (2013). Wal-Marts Costs Connected To Mexican Bribery Case Reach $400M. Retrieved from arkansasbusiness.com: http://www.arkansasbusiness.com/article/96030/wal-marts-costs-connected-to-mexican-bribery-case-reach-400m Gonzalez-Perez, M.-A. (2013). International Business, Sustainability and Corporate Social Responsibility. Emerald Group Publishing. Hill, C., Jones, G., & Schilling, M. (2014 ). Strategic Management: Theory: An Integrated Approach. Cengage Learning. Lifsher, M. (2012). Teachers pension sues Wal-Mart officials over bribery allegations. Retrieved from Los Angeles Times: http://articles.latimes.com/2012/may/03/business/la-fi-mo-california-teachers-suing-20120503 times. (2012). New York and California Pursue Walmart In Mexican Bribery Case. Retrieved from The Times in Plain English: http://www.thetimesinplainenglish.com/wp/new-york-and-california-pursue-walmart-in-mexican-bribery-case/ Read More