Company Name: Wal-Mart Stores, Inc.
Public Availability Date: May 14, 2007
Document Sections:
INQUIRY LETTER
STAFF REPLY LETTER
[INQUIRY LETTER]
April 19, 2007
Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549
Re: Request for Commission Review by AFL-CIO Reserve Fund Shareholder Proposal
of Wal-Mart Stores, Inc. Securities Exchange Act of 1934Rule 14a-8
Dear Sir/Madam:
The AFL-CIO respectfully requests that the Securities and Exchange Commission
(the "Commission") review the response of the staff of the Division of
Corporation Finance (the "Staff"), dated March 28, 2007 (the "Staff Response")
to Wal-Mart Stores, Inc. ("Wal-Mart") correspondence of January 24, 2007,
notifying the Staff of its intention to omit, pursuant to Rule 14a-8(i)(10), a
shareholder proposal (the "Proposal") submitted by the AFL-CIO Reserve Fund (the
"Proponent"). The Proposal sought to "urge the board of directors ("Board") to
disclose in a separate report to shareholders the Company's relationships with
its executive compensation consultants or firms."
The Company has not provided shareholders with any of the three disclosures
requested in the Proposal. Specifically, Wal-Mart has not notified shareholders
whether management participated in selecting executive compensation consultants
("Consultants"), they have not provided information about specific services
provided by Consultants during the last five years, and they have not notified
investors that Consultants are free to provide additional services to the
Company without any policies and procedures to protect investors from conflicts
of interest.
The Staff Response is appropriate for review by the Commission because there
appears to be no reasonable ground to grant Wal-Mart's request for relief.
Specifically, it is our opinion that there is nothing in the record that
provides a logical basis for determining that Wal-Mart has substantially
implemented the Proposal. Therefore, we respectfully request that the Commission
review and reverse the Staff Response.
I. Proposal
The Proposal urges the Board of Directors "to disclose in a separate report to
shareholders the Company's relationships with its executive compensation
consultants or firms. Specifically, the Company should, with respect to each
firm or consultant retained by the Company, the Board, or Board Committee to
advise on executive compensation policies or plans (each, a "Consultant"):
1) identify the entity (e.g. the Company, the Board) that retained the
Consultant, and disclose whether any member of the Company's senior management
participated in the process of selecting or retaining the Consultant;
2) disclose whether the Consultant has provided, at any time in the last five
years, non-compensation-related services to the Company or any affiliate of the
Company, including services provided by the Consultant through an affiliate for
such services; and
3) disclose the Company's policies and procedures regarding
non-compensation-related services provided by its Consultant."
II. Wal-Mart's Request for No-Action
On January 24, 2007, Wal-Mart filed with the Staff a letter requesting that the
Staff concur that Wal-Mart could properly exclude the Proposal from its 2007
proxy materials. The Company argued that the Proposal is excludable under Rule
14a-8(i)(10) because the New Disclosures will substantially implement the
Proposal.
III. SEC No-Action
On April 9, 2007, the SEC notified the Company that "There appears to be some
basis for your view that Wal-Mart may exclude the proposal under Rule
14a-8(i)(10). Accordingly, we will not recommend enforcement action to the
Commission if Wal-Mart omits the proposal from its proxy materials in reliance
on Rule 14a-8(i)(10)."
IV. Facts
Since the Proposal was filed, Wal-Mart hired Watson Wyatt & Co. ("Watson Wyatt")
as their Consultant. The Company has stated that Watson Wyatt "has been engaged
to advise Wal-Mart from time to time in the past" and that an unnamed
compensation consultant provided services to the company in the last five years
"but the fees on such work were insignificant to both the Company and the
compensation consultant." See Mr. Guess' Letter to Daniel F. Pedrotty, dated
January 15, 2007 ("Exhibit A"); M. Michele Burns, Letter to Meredith Miller,
March 15, 2007 ("Exhibit B").
According to the Compensation, Nominating, and Governance Committee
("Committee") Charter, included within the Company's 2006 proxy materials, the
Committee has sole authority to retain and terminate the consultants who advise
the Committee on executive pay.
However, Wal-Mart's Associate General Counsel and Assistant Secretary, Samuel A.
Guess, during a telephone call on January 5, 2007, indicated that the senior
management of the Company selects Consultants. In addition, correspondence from
the Company dated January 15, 2007 states that an unidentified employee of the
Company "engaged the consultant[s]" for fiscal year 2007 and continues to
"manage [the] relationship[s]" with Consultants. See Mr. Guess' Letter to Daniel
F. Pedrotty, dated January 15, 2007 ("Exhibit A").
When Wal-Mart spokesman John Simley was asked to respond to investor concerns
over these incompatible statements, he asserted that Mr. Guess was not referring
to the compensation consultant hired to advise the Company on executive pay.1
However, the sole purpose of the Proponent's communication with Mr. Guess was to
discuss the Proposal requesting that the Company disclose certain information
about their practices for hiring executive compensation consultants.
Mr. Simley also told reporters, on February 27, 2007, that "the board [wa]s
considering hiring an additional consultant to advise on executive pay"
[emphasis added].2 This directly contradicts several letters from Wal-Mart
notifying investors that the Committee selected an independent Consultant in
January. See M. Michele Burns, Letter to Meredith Miller, March 15, 2007 stating
that the Committee began considering consultants in September 2006 and selected
Watson Wyatt at a meeting on January 22, 2007 ("Exhibit B"); Samuel A. Guess,
Opposition Statement to Daniel F. Pedrotty, March 15, 2007 ("Exhibit C" or
"Opposition Statement").
According to the Opposition Statement, Wal-Mart may retain the Consultant for
non-compensation related services in the future and the Committee will continue
to rely on the Company and its consultants to advise on executive pay. The
disclosures requested within the Proposal would force the Committee to evaluate
relationships between management, the Company and Consultants that may hinder
Consultants' ability to provide unbiased advice. It will also notify
shareholders if the Company takes future action that impairs Consultants'
independence.
V. Based on the facts, there is no logical basis to conclude that Wal-Mart has
substantially implemented the Proposal.
The Staff may allow a company to exclude a shareholder proposal under Rule
14a-8(i)(10) if the company has implemented policies and procedures that address
each element of the shareholder proposal or the company has implemented the
essential objective of the proposal. See Nordstrom, Inc. (February 8, 1995);
Lowe's Companies, Inc. (Jan. 21, 2005). There is no rational basis to conclude
that Wal-Mart has fulfilled either of these standards.
A. The New Disclosures do not address each element of the Proposal.
The Proposal urges the Company to inform all shareholders what entity at
Wal-Mart retained the Consultant and whether any member of senior management
participated in the process of selecting and retaining the Consultant. According
to a letter from Committee Chair M. Michele Burns, the Committee selected Watson
Wyatt after "the Committee evaluated candidates and discussed the scope of
engagement at four separate Committee meetings, including one meeting of the
Committee in a special executive session without members of management present"
[emphasis added]. Under the Proposal, Wal-Mart would be required to inform
shareholders that management participated in three out of four meetings that
culminated with the selection of Watson Wyatt as Consultant.
Pursuant to the Proposal, Wal-Mart would notify shareholders that Watson Wyatt
"has been engaged to advise Wal-Mart from time to time in the past." Wal-Mart
would also disclose the identity of the compensation consultant that provided
services to the Company in the last five years whose fees they determined to be
"insignificant to both the Company and the compensation consultant." The Company
has not informed shareholders of these particular facts or any other
relationships that may impair Consultants' ability to provide unbiased advice.
Finally, Wal-Mart has not addressed the Proposal's request for information
related to the Company's policies and procedures regarding
non-compensation-related services provided by its Consultant. Wal-Mart, through
the no-action process, has notified the Proponent that they have no such
policies. Our Proposal seeks to have the Company inform shareholders of this
fact.
Under the New Disclosures, Wal-Mart will not disclose any of these facts to
shareholders. In view of the substantial material differences between each
element of the Proposal and the New Disclosures, there is no rational basis to
conclude that the Company has substantially implemented the Proposal.
B. Wal-Mart has not implemented the essential objective of the Proposal.
The Proposal seeks shareholder approval of a resolution that would "urge the
board of directors ("Board") to disclose in a separate report to shareholders
the Company's relationships with its executive compensation consultants or
firms."
The New Disclosures will inform shareholders of the role Consultants play in
determining executive pay but will not include any information about
management's role in selecting Consultants or additional services these
Consultants perform for the Company. Shareholders need all of this information
to assess whether reciprocal relationships between the Company and the
Consultants may impair Consultants' ability to provide unbiased advice to the
Committee.
Unless and until Wal-Mart reveals the information requested in the Proposal,
shareholders will have no way to fully assess Consultants' independence. Absent
the Company's provision of this information to all shareholders, there is no
rational basis to conclude that they have fulfilled the essential purpose of the
Proposal.
C. The New Disclosures do not "compare favorably" to the Proposal.
There is similarly no basis for the Staff to have granted Wal-Mart's request for
relief based on an overly-broad application of the "compares favorably"
standard. See Texaco, Inc. (available March 29, 1991) ("Texaco Decision");
Columbia/HCA Healthcare Corp. (available February 19, 1998) ("Columbia
Decision"). The Commission has only granted past no-action requests despite a
company's failure to implement every part of a multi-part proposal in situations
where the proponent identified a single "fundamental" or "crucial" element of
the proposal which the company had implemented. By allowing Wal-Mart to exclude
the Proposal despite the Proponent's insistence that every element of the
Proposal is crucial, the Staff is inventing an overly-broad standard that will
lead to arbitrary application of Rule 14a-8(i)(10).
VI. Conclusion
The New Disclosures fail to fully identify reciprocal relationships among
management and Consultants that may give rise to conflicts of interest. The
Proposal identifies additional information that Wal-Mart shareholders need to
assess conflicts of interest that may arise in determining executive pay. The
Company has not committed to provide these disclosures and, as a result, there
is no rational basis to conclude that the Company substantially implemented the
Proposal.
SEC Chairman Christopher Cox said in his closing remarks to the Second Annual
Corporate Governance Summit, "Nothing is more important to investors'
understanding of the governance climate at their company than the description of
the philosophy and the practice of compensating management.... Without question,
getting investors the information they need, in a form they can use, is the most
basic ingredient of insuring good corporate governance." Unless and until
Wal-Mart reveals the information requested in the Proposal, shareholders will
have no way to fully assess Consultants' independence and be certain that their
assets will not be subject to executive pay decisions influenced by individuals
with a personal financial interest in the decisions.
If you have any questions or need additional information, please do not hesitate
to call me at 202-637-3953. I have enclosed six copies of this letter for the
Staff and I am sending a copy to Counsel for the Company.
Sincerely,
/s/
Damon Silvers, Esq.
Associate General Counsel
DS/me
opeiu #2, afl-cio
-----FOOTNOTES-----
1 Union, Wal-Mart Spar Over Executive Pay. By Judith Burns. Wall Street Journal.
Feb. 28, 2007. Page C8.
2 AFL-CIO Targets Wal-Mart in Executive-Pay Campaign (Update2). By Kim Chipman,
Feb. 28 (Bloomberg).
[STAFF REPLY LETTER]
May 14, 2007
Damon Silvers
Associate General Counsel
AFL-CIO Reserve Fund
815 Sixteenth Street, N.W.
Washington, DC 20006
Re: Wal-Mart Stores, Inc.
Incoming letter dated April 19, 2007
Dear Mr. Silvers:
This is in response to your letter dated April 19, 2007. In that letter, you
requested that the Commission review the Division of Corporation Finance's March
28, 2007 no-action letter regarding a shareholder proposal submitted to Wal-Mart
by the AFL-CIO Reserve Fund.
Under Part 202.1(d) of Section 17 of the Code of Federal Regulations, the
Division may present a request for Commission review of a Division no-action
response relating to rule 14a-8 if it concludes that the request involves
"matters of substantial importance and where the issues are novel or highly
complex." We have applied this standard to your request and determined not to
present your request to the Commission.
Sincerely,
/s/
Martin P. Dunn
Deputy Director
cc: Samuel A. Guess
Associate General Counsel and Assistant Secretary
Legal Department, Corporate Division
Wal-Mart Stores, Inc.
Corporate Offices
702 S.W. 8th Street
Bentonville, AR 72716-0215
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