Major Pension Plan Sues Wal-Mart Over Bribery Case

Stephanie Clifford

One of the nation’s largest pension plans filed a lawsuit Thursday accusing Wal-Mart’s leadership of breaching its fiduciary duty in connection with a bribery scandal at the retailer’s Mexican subsidiary.

Nicholas Kamm | Getty Images

The pension plan, the California State Teachers’ Retirement System, owns about 5.3 million shares in Wal-Mart , worth about $313 million. Though that is a small stake — far less than 1 percent — the suit was filed on behalf of Wal-Mart itself against people the pension plan identified as having failed their duties to the company.

The suit names the company’s board and several current or former executives or board members as defendants.

The type of lawsuit, called a derivative suit, is not uncommon after accusations of corporate misdeeds. But the pension plan, known as CalSTRS, does not usually bring lawsuits.

The suit, filed in Delaware, asks that damages from the result of any violations be awarded to Wal-Mart, and that the company reform and improve its corporate governance and internal procedures.

“It’s unusual that CalSTRS would bring something like this — it signals that they’re very upset,” said Charles Elson, a professor specializing in corporate governance at the University of Delaware. “For Wal-Mart, it’s a problem.”

Mr. Elson said that such suits are often settled.

The charges in the suit are largely based on an article published in The New York Times last month that reported Wal-Mart investigators had found credible evidence that the Mexican subsidiary had bribed officials in Mexico and that executives at corporate headquarters in Arkansas subsequently shut down the investigation.

“Our connection to this stems from ensuring that there is a responsible board of directors representing our interests day in and day out, overseeing compliance, overseeing a code of ethics,” said Jack Ehnes, the chief executive of CalSTRS. “We all need to understand what was going on in the boardroom, and what was going on in the corporate culture.”

The suit is believed to be the first by a big and established institutional investor in the aftermath of the bribery accusations. Earlier, leaders of New York City’s pension funds said they would vote their shares against the five directors standing for re-election at the company’s shareholder meeting in June.

Activist pension funds occasionally use derivative suits to get corporate-governance changes made — for example, a Massachusetts pension fund filed a derivative suit against Hewlett-Packard in 2010.

The New York Times reported last month that some Wal-Mart executives, in 2005 and 2006, knew about the bribery accusations and chose to ignore them. It is not clear whether Wal-Mart’s directors were made aware of the accusations.

Since late 2011, prosecutors at the Justice Department have been monitoring Wal-Mart’s internal investigation of the bribery allegations. Wal-Mart began its inquiry and informed the Justice Department after learning of The Times’s reporting. Officials of the Securities and Exchange Commission have also met with Wal-Mart officials about the matter.

Under the Foreign Corrupt Practices Act, American companies are prohibited from bribing foreign officials.

There are also multiple investigations under way in Mexico.

The lawsuit names all of Wal-Mart’s current directors, along with several executives and some former board members. They include Michael T. Duke, Wal-Mart’s chief executive and a board member; H. Lee Scott Jr., also a board member and Mr. Duke’s predecessor as chief executive; Eduardo Castro-Wright, vice chairman of Wal-Mart, and Thomas A. Mars, chief administrative officer.

A Wal-Mart spokesman was not aware of the lawsuit, filed late Thursday afternoon, so did not have an immediate comment.