1'(.i i..: i.:5os3.documentcloud.org/documents/351655/correspondence-between … · july 25,...
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Mr. Roland A. H~rnandcz Ma} 25, ~OOj Page J
Vt!ry truly yours,
William C. Thompson. Jr.
Karina Li IV(lck
F.dward M. Smith Chainnan, Illinois Slate Board or" [n\"o.!$tmcnl
Director. Head ofUo\'crnance &. Socially K<:!-iponsibk: II1 \"c!.tJnenl F&C Asset Manago..:tn<:nt pit
Jason Fktchcr Amc:ricas Equi ties ~d anag<:r llnin:r:-;itics Supcr;! !1!1u:H iOTl Sch',:il1c LIJ
cc: J~)S l: II. Vill.mcaL Prc sid in~ Dill.:..:tM
WAL*MART'BOARD OF DIRECTORS
,\UDIT COM MrlTEI,
/(o/(llId A, JlenUil1de=
Chairll/al/, A IIdil COli/millet'
JIIly 25, 2005
Mr. William C. Thompson, Jr. Comptroller orlhe Ci ty orNew York
Mr. Edward M. Smi th Chairman, lliin ois Slate Board of Investment
Ms. Karina Lil vack Director, I lead of Governance & Socially Responsible Invesllnent F&C Asset Management pIc
Mr. Jason Fletcher Americas Equities Manager Universities SupcralllHwtioll Scheme I.td,
clo Mr. William C. Thompson Comptroller orlhe Cit y of New York 1 Centre Street NcwVork, NY 10007-2341
Dear Messrs. Thompson. Smith, & Fletcher and Ms, Litvack:
COIporatc Offices 702 S.W. 8T
! SlI\:ct Ikmnnvilk, Al'kansus 727 J6-0215 Phone: (479) 277-2345
Fa~ : (479) 271-5991
Thank yOll for your letler of May 25 ,2005 and your interest as shareholders orwal-Mart Stores. Inc. It was my desir-!! to alTange a face- to-face meeting in advance of sending this IClter. but since we havc been unsucccssful in coordinating a time with Mr. Thompson's office. I determined it was besl 10 go ahead and provide a written respon se now with an opportunity for follow-up discussions later. If you would like [0 schedule a lime 10 meet or have <I conference cali, plcase contact Mike Rmdshaw, \Val-Mart's Board Liaison, at 479-204-R055 ( email: lIIikl·.lmul.\·hall@II·ld-lIIlII.l.Com).
My le llow Audit Comllliuee members and I havc discussed and considered your request. While we appreciate the concerns that YOll as W,Il-Marl shareholders might have about the ll1aller~ outlined in yOll!' lett!!r. we do not believe it is either necessary or appropriate
July 25, 2005 Page 2 DO
to foml a spccinl cOllllllinec to review the Company's legal, reglll atory and inlemal COJl troLs. In our vicw, the formation of such a special committee would not benefit the Company or its shareholders and would likely delay the implementation of important compliance and inlemal control initiatives that have been thought fu ll y designed, evaluated and approved and that arc now being implemented throughou t the Company.
As disclosed in the Audit Commillcc's Charier and in the Company's annual proxy statement filed wilh the Securities and Exchange Commission, the Audit Committee is responsibl e for, among other things, monitoring issues of inlemal cOl1 lrols, legal compliance and et hics. In addition 10 myself, the Audit Commitlee is comprised of three individuals - M. Michele Bums, Chri slOpher J. Williams and J. Paul Reason - all ofwho111 have the highest standards of personal integrity and professional responsibility. Each bri ngs his or her own specia l skills and experience to the Audit Committee. Michele and Chris have significant financial expertise, devcloped through their positions as a public company cro and as a seasoned investment banker, respective ly. Paul's distingllished 34-year career in the U.S. Navy, where he rose to the position offollr-star Admiral and cOlllmander of the U.S. Atlantic Fleet, makes him uniquely qual ifi ed to offer important insight on matters in volving compliance and ethics. All of llS have significant experience serving 011 other public company boards and as senior managers of public or private organizations. Most importantly. we are all "independent" board members as prescribed by the Sarbanes-Oxley Act of 2002, the li sting requirements of the New York Stock Exchange and wi thin the mcaning of Wal-Mart's own more restrictive categorical standards.
I can assure you thai the Audit Commillcc takes its responsibilities at Wal-Mart very seriously. Indeed. I am confident that if you interviewed the numerous members of management who routincly report to 0 1' interact with the Audit Committce, they would confirm the Committee's autonomy, its cxacting stlUldnrds and high expcctations, and its resolve 10 hold lll<lnagement accountable.
AI the dircction of the Audit Commillee. the Company continues to engage in a disciplined, ongoing review of Wal-Mart 's compliancc systems and controls. That review includes the Company's integration of its control processes and compliance and ethics programs on a global basis. Changes, additions and refincments are implemented on a regular basis, and the overall quality o f the compliance process continues to improve fit lIll accelerated rate. Some aspects of our compliance process havc been implemented in response to the requi rements of Snrbancs-Oxiey. inciuding munagement's comprchensive ,lssessment of intemai controls over finllncial reporting (which detcrmined such systems of intcmal controls to be effective with no material weaknesses being idcntified). However, many of Ollr compliance initiatives are the dir~c t resuh of the Audit Committee's and managements' determination to lI11prove Ollr Company. strcngthen contro ls and climin<llc future incidents of non-compliance.
July 25,2005 Page 3 all
J Ilote tiull the Comp<my has more than 1.6 million Associates, 70,000 members of manag.cmcn t and 300 offi<.:ers, and that its business is complex and global. We bel ieve we have in place robust compliance programs and arc commincd to continuous improvement of those systems. I also note that as Rob Walton said at our most recent annual shareholders' meeting, our Company is made lip of human beings, and fi·om time to time human beings are going to ma ke mistakes. However, when the Company is wron g, it wi\! Cldmi l so and take appropriate aclion 10 correct the error. You have my commitmen t, as sllared by my fellow Aud it Committee members, that the Company wi ll remain commiUcd 10 compliance and will conti nue to take appropriate ac tion to improve its compliance programs.
I hope this leucr he lps you betl cr understand our point of vicw and the high standards we usc to evaluate management's progress in improving \Val-Mart's compliance systems and internal COil troi s. As fsald-;"l-the outset, I am happy to discllss these matters with you further, either in person or by phont!.
Again, thank you for your inqu iry and in terest.
Sincerely,
/V/10 Roland A. Hernandez
cc: M. Michele Bums Christophcr J. Williams 1. Paul Reason Jose 1-1 . Villarreal
WILLIAM e. lHOMPSON JR. COMPI'IOUEH
BY fACSIMILE & MAI L
July 2f.:, 2005
Roland A Hermmde~
Chai rman. Audit Committee 8o;mJ of Directors \Val-Marl
Siores, Inc. 702 S. W. 8th Street
COMPTROl.l.ER OF THE CITY OF NEW YORI< 1
CENTRE STREET
NEW YORK. NY taaa7-2341
(2 12) 669-35.0.0
Bentonville. Arkansas 72716-0215
Dear Mr. Hernandc-/.:
Thank you fur your letter of July 25. :2005 n::plying to the May 25, 2005 letter that Edward M . Smith, Jason Fletcher. Karina Li tvac k and I sent to you.
I was surpris~d to karn lhat you had dilTicu ity schedu ling 11 meeting with my office. Nonetheless, while I appreciate your responsivcness. I believe a face-to-face meeting is neceSsa!)'. Therefore. I hav~ asked Assistant Comptroller Ken Sylvester to contact Mike Bradshaw immr.::diately to schedule a meeting.
Very truly yours,
William C. Thompson, Jr.
weTlpI
cc: Edward M. Smith Jason Fletcher Karina Litvack Ken Sylvester
W'LLIAM C THO MPSON . .J R. COMPT~OL I.£R
November 30. 2005
Roland A. Hernandez
C O MPTRO LLER OF THE C ITY OF NEW YO RK
I C ENTR E STREET
N EW YO RK , NY 10007· 2341
(2121 669·3 500
EV556015089US Chair, Audit Committee of the Board of Directors
Chri stopher J. Williams Director EV556015092US c/o J. Michael Bradshaw Liaison to the Board of Directors Wal·Mart Stores, Inc. 702 Southwest 8th Street Bentonville, Arkansas 72716-0215
Dear Messrs. Hernandez and Williams:
We thank you for meeting with us in New York City on September 14th, and appreciate your
sincere effort to respond to our concerns regarding the Audit Committee' s oversight of WalMart 's legal and regulatory compliance. While your review of the Committee 's progress over the past three years was usefu l, we remain serious ly concerned about reported legal and regulatory non-compliance at Wal-Mart. In fact, the recently rcleased memo to the board of directors on Wal-Mart ' s benefits strategy, which an attorney quoted in the Los Angeles Times called "a cesspool of legal violations," and the certification of a class action lawsuit accusing Wal-Mart of serious labor law vio lations at its Missouri stores have only he ightened our concerns. Both circumstances suggest a cavalier attitude toward legal compl iance at the highest leve ls of management.
We therefore write to reiterate our request that the Audit Committee immediately appoint a special committee of independent directors to review Wal-Mart's legal and regulatory controls, as ...... ell a<; its internal systems to ensure compliance with \Val-Mart' s own po li cies and standards. As requested in our May 25, 2005 leiter to you, we ask again that the special committee retain outside counsel to ass ist in its examination and issue a report to shareholders on its findings and recommendations.
Made From 100% Accycled Pace<
Messrs. Hernandez and Williams Page 2
The need to protec t Wal-Mart and its shareholders from the kinds of legal and regulatory compliance failures detailed in our May 25th letter has emerged as one of the board' s most significant challenges, and onc that places particular responsib ility upon the board ' s independent directors. The nature of these failures- including those that led Wal-Mart to settle charges that it exploited undocumented workers and violated child labor laws- strongly suggest a management cu lture of indifference to the company' s legal obligations.
The memorandum to the board from Susan Chambcrs, Wal-Mart ' s Executi ve Vice Presiden t of Bencfits, is particularly di sturbing because it suggests that this culture originates at the highest levels of management. As YOli know, the Cham bers memo proposes ways to reducc the company's health care costs, including attracting a healthier workforce by "designlingJ all jobs to include some physical act ivi ty." Accord ing to the Chambers memo, "These moves wou ld al so dissuade unhcalthy people from coming to work at Wal-Mart," a practi ce that could place WalMart in violation of state and federal law, including the Americans with Disabilities Act.
The recent certitication by a Missouri judge of a 2001 class action lawsuit accusing Wal-Mart of underpaying workers at its Missouri stores, forcing hourly wage-earners to work off the clock, refusing to pay overtime and denying them rest or lunch breaks raises a similar concern . According to an attorney for the plaintifTs quoted by the Associated Press, "One of the interesting things about the judge 's opinion is that she bases it on the systematic policy and management direction out of 13entonville."
During our September 14th meeting you noted that the Audit Committee has made significant progress over the past three years strengthening Wal-Mart's internal controls over fi nancial reporting by fos tering a cu lture of compliance, among other measures. We were disappointed, however, by the lack of spec ifics, particularly in the areas oflegal and regulatory compliance and controls. Wal-Mart' s repeated compl iance fail ures, and the related management concerns highlighted by the Chambers memo and Missouri class action case, underscore the urgent need for a thorough board review of internal controls in thi s arca . We have enclosed a list of specific questions and issues that we bel ieve the board should address as part of this review.
At a time when repeated compliance breakdowns arc erod ing Wal-Mart's share value and reputation, we believe it is incumbent upon the independent directors to take the steps necessary to protect long-term shareholder value. In our view, conducting a spec ial review of Wal-Mart ' s legal and re gulatory contro ls, and issu ing a report to shareholders \ .. 1i1h the findings and recommendations, is an essential step the board should take to meet thi s chall enge. (iiven the Audi t Committee's already busy agenda, we believe the creation of a special committee, or a new standing committee on legal and regulatory compliance, would address these issues in a thorough and timely manner.
Messrs. Ilcrnandcz and Williams Page 3
Wc appreciatc your consideration and look rorward to a timely responsc.
Very truly yours,
Wi ll iam C. Thompson, Jr.
Edward M. Smith C hairman, Illinois State Board of Investment
Steve Westly California Slate Contro ller
William af Sandeberg President and CEO Forsla AP-fondcn First Swedish National Pension Fund
Eli zabeth Elliott McGeveran Vice President, Governance & Sociall y Responsible Investment F&C Asset Management
Made F,om l C1O"1> Req<led Pape'
Messrs. Hernandez and Williams Page 4
Ian Jones Head of Responsib le Investment Co-operative Insurance Society
j(tu~ lIz {jp/ Meredith Miller Assistant Treasurer for Policy Office of the Connecticut State Treasurer
Pau l Munn Director, Governance & Engagement Hermes Focus Asset Management Ltd
Dr. Daniel Summerfield Adviser, Responsible Investment Un iversities Superannuation Scheme (USS) Ltd
cc: Wal-Mart Board of Directors
Enclosure
Maoo From 1C1O'M> Recycted Paper
Questions and Requests from Wal-Mart Shareholders (the "Institutional Investors Croup") to Wal-Mart's Audit Committee
The Institutional Investor Group (the "Investors") submits the following questions and requests for disclosure to Wal~Mart's Audit Committee. These questions provide the Committee a better understanding of the specifics and the scope of the review and report regarding the company's lega l and regulatory controls, as well as the its internal systems to ensure compliance with its own policies and standards, which the Investors' requested in the May 25, 2005 letter to Mr. Roland A. Hernandez, Chair, Audit Committee of the Board of Directors.
Compliance Systems
1. What operational areas of the company's compliance and regulatory controls have been identified by the Audit Committee as having a significant material weakness or deficiency and requiring correctional actions?
2. Please disclose the company' s internal controls for ensuring that individual and regional store performance targets and aggressive growth targets are not driving non-compliance throughout the system. Please disclose, if available, any findings of linkages between perfomlance and aggressive growth targets and incidences of non~compliance. In addition, please disclose how the Audit Committee receives rcports on these issues, how it assures compliance systems arc in place, and how it evaluates their effecti veness.
Workforce-Management System
I. Has the company estab li shed a workforce learning and training~management system to ensure employee understanding of, and compliance with, its legal , regulatory and internal control s? If so, pi case disclose the system's organizational structure, e.g. leadership, strategic responses, measurable actions, i .c. perfonnance and compliance management and measurement, vision, values, rewards, etc., and the Audit Committee's oversight of thi s system.
2. Does the company require its employees, management and Board of Directors to certify compl iance with the Company' s polic ies on an annual basis?
3. Please disclose how the company's technological capabilities are utilized to prevent the exploitation of workers, such as denial of overtime pay; and where information technology systems are not in use, how management and the Audit Comm ittee moni tor compliance with the company's codcs and policies on workers rights.
4. In li ght of reported allegations of legal and regulatory non-compliance within Wal~Mart, and increasing re lated invcstor concern, has the company provided any additional training for employees? I f so, fully disclose the training program,
implementation, scope, indications of effectiveness, weaknesses, etc. Please disclose how the Aud it Committee is informed of, and evaluates, the effectiveness of these programs.
Whistle Blowing
I. Does the Company use an outside independent third party to which employees may report allegations of noncompliance with applicable company policies, laws and regulations?
2. Does the Audit Committee rece ive a report at each of its meetings regarding both the nature of such a ll egations and their resolution?
3. Who resolves such allegations and makes a report on that resolution to the Audit Committee?
4. App licable auditing standards require that the independent audi tors communica te to the Audit Committee rega rding any allegations of fraud or ill ega l acts un less clearly inconsequential. Have the independent auditors reported any such instances to the audit commi ttee in any of the last three yea rs?
5. In light of recent allegations that Wal-Mart has fired whist le blowers , has the company taken any steps to ensure that such allegations are 110t precipitating a chilling effect on its whistle blowing system? If yes, please disclose ful ly the actions taken , including the role of the Audit Committee.
6. Has the company conduc ted recent employee surveys to find ou t how its whistle blowing systems are perceived and used by ran k-and- file employees? If yes, please disclose the findings, how are such findings reported to the Audi t Committee, and how thi s information informs the Committee's oversight.
7. Docs the company have a clear and specific "amnesty policy" fo r dealing with whistle blowers who were involved in wrongdoing? If yes, please di sclose the program.
S. Are there country-specific adaptations in the company's whistle blowing programs designed to accommodate legal and cultura l di fferences?
9. How is information abo ut the company's whistl e blowing systems communicated to all employees?
10. How does the Audit Committee eval uate the effectiveness of the whistle blowing program? What percentage of complaints were investigated and detennined to have merit , and what percentage resulted in disciplinary action, system refo rms, and employee termination?
Company's Policy/Process/Procedure fo r Addressing Allegations of Wrongdoing and Public Criticism
I. Plcase disclose the company's pol icy, processes, and procedures for addressing a ll egations of wrongdo ing and public critic ism made aga inst the company.
2
Company's Policy/Process/Procedures for Establishing and Monitoring Its Suppliers' Compliance with Conventions on Workers' Rights.
I . Please disclose the company's policy, processes, and procedures for determining whether supp li ers are in compliance with the company's Code of Conduct, and universally accepted conventions and norms on the rights of workers. Please disclose the policies and procedures for remediation and termination of suppliers found to be in violation. How does the Audit Committee evaluate the effectiveness of the company's policy and procedures for ensuring compliance with the Code of Conduct?
Performance and Compensation System
I . Were any modifications made to the company's performance and compensation system to encourage worker compliance with regulatory and lega l controls? If yes, please disclose.
2. Please disclose the company's management systems, policies, processes, procedures, technological structu re, and compliance and monitoring controls for ensuring equa l pay and equal opportun ity for female employees and other minority groups.
3 . Have all employees, including members of mana gem em that have been found by management or the Aud it Committee to have failed to comply with the Company's ethical policies, had their compensation adjusted accordingly? If so, how many such adjustments were made in each of the last three years?
Environmental Management
I. How is environmentalmanagemem integrated into the Aud it Committee's internal control systems? Please disclose how compliance is monitored and performance measured, and whether compliance and performance are audited and verified. If by externa l, independent bodies, please identify them .
3
WAL*MARr BOARD OF DIRECTORS
AIJ.DIT CQMlUTTEE
Roland A. Hernandez Cha;m:an, Au/lit Comllli/me
F,bruary 8,2006
William C. Thompson, Jr. Comptroller.oflbe City ofNc:w York
Edward M. Smith Chairman, Illinois Slate Hoard of Investment
Sieve Weslly CaJifomill State Controller
William afSandebcrg Pres ident and CEO F01Sta AP.ronden First Swedish National Pension Fund
Elizabeth Elliott McGe\'cran Vice rICSident, Governance & Socially Responsible Iuvestmcnl P&C Asset Managemeut
clo WiJUam C. Thompson Comptroller ofthc City ofNe", York 1 Centre Street New York, NY 10007-2341
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Ian Jones
Corporate Offim 1Gls'W.!i1N StT!!t
B~pl"", illc, Arlou~1 n 11 '·OlLS PhOM: (479) nHO~5
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Head of Responsible Investment Co-operative Insurance Soclety
Meredith Miller Assistant Treasurer for Policy Office orthe Connecticut Slate Treasurer
PaulMunn Director, Governance & Engagement Hermes FOCU5 Asset Management Ud.
Dr. Daniel Summerfield Adviser, Responsible Inve~tment Universities SupernMuation Scheme Ltd.
Thank you for yOllr letter of Novemhcr 30, 2005. J have shared il with my fellow Audit Couunitlcc members and wilh SCniuI management. We appreciate your tllking the time to share yoor thoughts on these imllOrtanl matters.
F, bruary 8. 2006 Pal' 2 on
As I indicatc:d in Illy leiter of July 25, 2005 and at the follow-up meeting in New York OD September 14.2005, the Audit Conunittce, the Board lIud senior management flIe an conunilted 10 developing best practices in the areas of internal conlrols, legal compliance, corporate responsibility and ethics. We have taken a proactive approach to these issues which includes an ougoing review of Wal-Mart's compliance systems and controls. As part of this review, we are actively considering and implementing continuous improvements to the compliance oversight structUie at Wlll·Mart (including. but nol limited to, whether the Audit Committee or oilier board conuniltee should provide primary oversight in this area). The Audit Comminee, its counsel, the Board and senior Illanagement are devoting cOIlsiderable time, ilttelltioll and resources to these matters, ineludmg many of the issues you raise in the list 3uached 10 your November JOlh leiter.
You have told us thai we need 10 continue our efforts 10 enhance our disclosures to shareholders. Toward that end, we issued a comprehensive suppliers' report last year and haw been more proactive in making information available on our public website. And over the next fourteen months, we have eommilled to make a comprc!lctlSive suslamability report available to shareholders. While the eKactliming, scope and coment of that report have not been finally delennineJ, we will consider the issues listed in your leiter as the company works through the itnportant process of compiling that repOlt.
In the meantime, we remain mindful of, and we respect, your desire for relevant infonnation. I hope to conlinue our dialogue and interaction with you in a way that is both productive and beneficial to our Company and all of its shareholders, In particular, we would be bappy to meet with YOII again to discuss developmects in the complilUlcc area.
Agaio, !hank YOII for your inquiry and 11l1crCSt, and we look fOlward to this continued dialogue.
Sincerely,
Roland A. J-krnandez
cc: M. Michele Burns Christopher 1. Williams I. Paul Reason Jose H. Villarreal
W II.!.1AM C THOMPSON. JR C OMF'TRO LLE;R
May 10,2006
Mr. Roland A. Hernandez
COMPTROL L ER OF THE C ITY OF NEW YO RI<
1 CENTRE STREET
NEW YORK. NY 10007·234 1
(2 121669·3500
Chair, Audit Committee of the Board of Directors
c/o J. Michael Bradshaw Liaison to the Board of Directors Wal-Mart Stores, [nco 702 Southwest 8th Street Bentonville, Arkansas 72716-0215
Dear Mr. Hernandez,
Thank you for your letter of February 8, 2006. We appreciate your laking time to discuss our concerns with your fellow Audit Committee members, as well as senior management. Additionally, we arc encouraged that the Audit Committee, the Board and senior management arc considering improvements to the company's compliance oversight structure and enhancing disclosures to shareholders. Further, we recognize your attempt to enhance transparency by posting information on your website and preparing a sustainability report for shareholders.
However, in our letters and at our meeting. we have called for a dedicated, special committee of independent directors to review Wal-Mart's legal and regulatory controls, and to issue a report to all shareholders. In the absence of such a committee, we have posed a series of highly detailed questions to help assure us that the Audit Committee is taking reasonable and timely action to strengthen internal controls. To date. we do not feel we have received a meaningful response to this core concern. Rather, you have offered general statements regarding Wal-Mart's progress over the past three years with respect to improved legal and regulatory controls. Such assurances are insufficient when investors still have concerns regarding weak internal controls governing legal and regulatory compliance coupled with an inadequate response by senior management.
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Mr. Hernandez Page 2
We understand that di scuss ing these complex issues via leiter is challenging and would like 10 accept your proposal to organi ze another meeting. We would like to usc thi s meeting as an opportuni ty to di scuss specifically the lega l and regulatory compliance review process and the concrete and detailed steps the Board is currently taking to carry out this comprehensive review in a timely manner and issue a report on it s findings to shareholdt.:rs.
We appreciate your consideration and would appreciate a timely response.
Very trul y yours.
LvALQ.::J~ William C. Thompson, Jr.
IILa/ .s:...,/,/..-\ I ~
William afSandebcrg President and CEO Forsta AP-fonden First Swedish National Pension Fund
C'~E~)L~ Eli7..nbeth Elliott MeGeveran Vice President. Governance & Socially Responsible Investment F&C Asset Management
Jan Jones Head or Responsible Investment Co-operati ve Insurance Society
Meredith Miller Assistant Treasurer for Policy Officc orthe Connecticut State Treasurer
Mr. Hernandez Page J
Paul Munn Director, Governance & Engagement Ilermes Foeus Asset Management Ltd
Dr. Daniel Summerfield Adviser, Responsib le Investment Universities Superannuation Scheme (USS) Ltd