Don't Be Fooled by Wal-Mart's Rosy Proxy Vote Numbers

After Wal-Mart's (NYSE: WMT  ) annual meeting last week, a spokesman said the voting results reflected shareholders' confidence in "the board's leadership, strong governance principles and diversity of experience."

Not so fast.

A close examination of the proxy voting results suggests that a significant percentage of average outside shareholders are unhappy with the performance of key Wal-Mart leaders.

Interpreting the results
A significant number of Wal-Mart shareholders expressed dissatisfaction with a number of issues at the company. Here are a few highlights:

  • 12.11% of shares withheld support from CEO Mike Duke.
  • 10.07% of voting shares were cast against board chairman S. Robson Walton.
  • More than 12.23% of voting shares were cast against audit committee chair Christopher Williams
  • A shareholder proposal seeking to give shareholders with at least a 10% ownership stake the right to call a special shareholder meeting won about 17.5% of share votes.
  • A shareholder proposal calling for an independent chair won about 14.4% of the vote.

When examining these numbers, investors should keep in mind that the Walton family controls more than half of Wal-Mart's shares. And according to The Wall Street Journal, the Waltons followed the company's recommendation to vote for all board members. I believe we can also safely assume that the Waltons followed management recommendations on the rest of the matters up for a vote.

If this is true, then the number of average outside shareholders who are unhappy with the performance of top Wal-Mart leadership is much higher than it looks, with more than 24% of non-Walton shareholders voting against Duke and Williams, and more than 20% voting against Walton.

Also, assuming the Waltons followed management recommendations, then about 33% of non-Walton shares supported the shareholder proposal pushing for shareholders with a 10% stake to have the right to call a special shareholder meeting, and nearly 29% of non-Walton shares voted in favor of an independent chair.

In other words, it appears that a significant percentage of outside shareholders want to see key leadership and governance changes occur at Wal-Mart. Unfortunately, I don't have high hopes that the board will listen, which is a major part of the reason I don't own any shares.

Shut up, shareholders!
In addition to the fact that Wal-Mart seemed to play down shareholder dissatisfaction with key leadership and its existing governance structures during the meeting, I'm concerned that the company gave investors only about 15 minutes to speak during an annual meeting that lasted nearly four hours. The New York Times also reports that executives dedicated little time to discussing key scandals that have recently generated negative PR and attracted the attention of regulators, including Wal-Mart's alleged violations of the Foreign Corrupt Practices Act.

Contrast this with businesses that have a reputation for being transparent with their investors and that see dissent as an opportunity to improve. For example, Warren Buffett solicited investors who were critical of Berkshire Hathaway's ability to perform well in the future to ask questions at the 2013 annual meeting. In the end, he invited hedge fund manager Doug Kass, who was shorting the stock.

Foolish takeaway
As a general rule, I believe investors should seek out transparent companies that are willing to offer a candid picture of the business' risks, and who welcome questions and challenges from investors. Unfortunately, Wal-Mart's behavior surrounding this year's annual meeting and its dismissal of the dissenting proxy votes suggest that it still doesn't make the cut.

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