The Waltons Are Really Worrying Wal-Mart Investors

The Waltons are moving on up. And while they don’t see it as a problem, others disagree.

The family has been fielding shareholder criticism since 2011, when it started approaching the 50 percent ownership threshold of Wal-Mart Stores (NYSE:WMT) shares. Now, the Waltons have officially crossed that threshold, owning at least 50.9 percent of shares, up from 39 percent a decade ago, Bloomberg reported Thursday. This new progress officially makes Wal-Mart a controlled company — a status the Waltons can benefit from should they choose to do so.

Many investors are concerned about what this new status affords the Waltons, as Wal-Mart is now no longer mandated to have a majority of independent directors. The world’s largest retailer joins a small minority of companies who are also considered controlled. As of October 2012, fewer than 10 of the companies in the Standard & Poor’s 500 Composite Index with a single stock had ownership greater than 50 percent. Wal-Mart is now the party’s newest member.

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The company’s board of directors is currently comprised of 17 members, but three independent directors were not renominated so that number will soon shrink to 14. Now, only 64 percent of the directors are independent, and with Wal-Mart’s new controlled company standing comes the ability to shrink that number even more.

Though Wal-Mart maintains that it doesn’t intend to take advantage of this new license, the option represents a significant concern for analysts who believe the company needs more independent board members — and definitely not less. Mike Garland, the director of the corporate governance program for the office of New York City Comptroller, explains: “Last year shareholders delivered a clear message that board change was needed. Rather than move to increase independence on the board, the board has done exactly the opposite.”

Wal-Mart has not noted if it will replace the three independent directors, but others contend that this new status change won’t give the Waltons more influence than they already have, believing that they’ve effectively controlled the business for a long time, regardless of whether or not it was considered a controlled company. Brian Yarbrough, an Edward Jones & Co. analyst contended, “Whether it’s 51 percent or 45, they’ve still got huge influence.”

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And that influence has been slowly creeping up for a while now. Walton Enterprises LLC has held about 1.6 billion shares for at least a decade, but its control over the company increased as a result of buybacks. The Waltons’ growing influence has also brought with it growing resistance from within the company. Last year, one-third of non-Walton shareholders voted against Wal-Mart’s four directors, while all four were initially re-elected with 99 percent or more of vote. That opposition has the power to grow.

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