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Evaluation of Walmart Corporate Strategy

Essay by   •  August 10, 2015  •  Case Study  •  1,596 Words (7 Pages)  •  1,718 Views

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EXECUTIVE SUMMARY

INTRODUCTION

Corporate governance is the relationship among shareholders, board of directors and top management in determining the direction and performance of a corporation (Thomas & David 2012)

Corporate governance became a pressing issue following the 2002 introduction of sarbanx-oxley act within the U.S, which marks the start of the process that will revive public confidence in corporations and markets after accounting fraud bankrupted high profile Corporations like Enron and WorldCom.

Walmart is an American multinational retail corporation that operates a chain of discount department’s stores and warehouses stores. Founded in rogers, Arkansas by Sam Watson whose visionary leadership along with generations of customers focused on helping customers and communities save money and live better.

In 2012 the company was alleged to be involved in corrupt practices after the New York Times published an article detailing an alleged systematic campaign of bribery plus an executive led company to cover it up.

Thus it is not enough for corporation to pursuit growth and profitability; it additionally has to demonstrate good corporate responsibility by upholding high moral and ethical integrity with sound corporate governance practices.

In view of the forgoing, this article will analyze and evaluate the current corporate guidelines of walmart stores as well as its current board and top management team In light of the best and ideal practices. The article will also evaluate the most recent corporate governance issues faced by the organization in light with the best and ideal practices.

EVALUATION OF CORPORATE GOVERNANCE GUIDELINES

Walmart board of directors consists of a 15 member director elected annually for one year term. The compensation, nomination and governance committee, composed of entirely independent director, selects potential candidates on the basis of outstanding achievement in their professional careers. The criteria for the selection includes; bold experience and wisdom; personal and professional integrity; ability to make independent analytical inquiries and experience with an understanding of the business environment; willingness and ability to devote adequate time to board duties. The use of the nominating committee for the nomination of directors and the longevity of the director’s tenure are in accordance with the best and ideal practices in corporate governance respectively. With The Company’s recognition of the importance of board independence and ensuring balance of objectivity and to minimize conflict of interest, 10 out of the elected directors are independent; which is an ideal practice in corporate governance. The board has 6 committees which includes; audit committee, compensation, nomination and governance committee, global compensation committee, executive committee, strategic planning and finance committee and technology and eCommerce committee. The company’s directors serve on one or more of the six committee of the board.

In making independence determinative and ensure ideal practices, the board complies with all new York stock exchange (NYSE) criteria and considers all relevant facts and circumstances under the NYSE listed company rules to be considered independence this includes directors not having any disqualifying relationship as defined in the NYSE rules and also to ensure that the board have it affirmatively that the director otherwise has no direct or indirect material relationship with the company. The company’s outsider directors receive the stock grant annually upon election to the board at annual shareholders meeting and each outsider director may elect to defer the receipt of this stock grant in form of stock units. This is an ideal practice in corporate governance.

Furthermore,  in accordance with ideal practice in corporate governance, the company have separate roles for the Ceo and chairman; this is to enable the Ceo focus his time and energy on managing walmart’s complex daily operations while the chairman who is an outside director focus his time and attention to the matters of board oversight.

With the company’s commitment to independent board oversight, it comply with the best practices in corporate governance by ensuring that the Independent directors upon recommendation of the CNGC, annually appoint a lead independence director who presides over executive sessions of the outsider directors and independent directors.

In alignment with the global trends, the company also carryout corporate social responsibility in a way of charitable giving and leading on social issues important to its customers and shareholders as a global corporation. The compensation, nominating and governance committee advises management regarding social, community and sustainability initiations as well as companies charitable given strategy and legislative affairs and public policy engagement.

RECENT CORPORATE GOVERNANCE ISSUES FACED BY THE COMPANY

In 2012 the company was alleged to be involved in corrupt practices after the New York Times published an article detailing an alleged systematic campaign of bribery plus an executive led company to cover it up.

The essential allegation in the times story as follows

For a substantial period before 2005, the Ceo of walmart in Mexico and his chief lieutenants, including the Mexican general counsel and chief auditor knowingly orchestrated bribes of Mexican officials to obtain building permit, zoning variances and environmental clearances, and also falsified record to hide these payments. When the lawyer in Mexico directly responsible for the bribery payment had a change of heart and reported the scheme to walmart lawyers in the united state, these lawyers hired an independent firm which after an initial look recommend a major enquiry.

This was reflected by senior walmart management, which instead told an internal walmart investigative unit to look into it, that unit too said, in early 2006, that a substantial inquiry was warranted but top walmart leaders in the US including the company’s general counsel Referred the matter back to walmart. General Counsel promptly closed the matter finding no problems and suggesting no disciplinary measures in senior walmarts leaders in Mexico.

Below are the most concerning governance issues

  • Whistle blower system: there appears to have been no integrity hotline or whistle blower system that worked, because the alleged bribery went on for years without anyone reporting to an independent company. This also shows that the board of director has derelict its oversight function.
  • General Counsel and key finance officers and the Ceo act as partners and not as guardians: this contradicts the ideal or best practices role of Ceo’s of protecting the shareholders interest and guaranteeing the management of the organization in accordance with the state laws and conflict of interest.
  • Governance failure: it appears that there was no established internal control system which would have checkmates the wrong doings.

With the forgoing bribery scandal incidence, the company has continued to strengthen its corporate governance policies and practices in accordance with the best and ideal corporate governance practices. This is evident in the company’s annual proxy statements from 2013 upward.

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