The California State Teachers' Retirement System (CalSTRS) on Friday sued Wal-Mart Stores Incorporated (NYSE: WMT), accusing leaders of the world's biggest retailer of not upholding the best interest of shareholders by quashing an investigation of bribery of public officials by its Mexican subsidiary.
The derivative action lawsuit names various current and former executives and board members in addition to the current board of directors as defendants, according to the New York Times.
By utilizing the derivative action, CalSTRS is seeking to remedy the damages sustained by Wal-Mart as a result of alleged gross misconduct by Wal-Mart's executive officers and directors, CalSTRS CEO Jack Ehnes said, according to Reuters.
CalSTRS, the largest teachers retirement fund in the U.S. and the world's eighth largest pension fund, owns roughly 5.3 million Wal-Mart shares valued at $313 million, just a fraction of one percent of the company's value.
The lawsuit was filed against all Wal-Mart directors as well as some executives and former board members and executives, according the New York Times. Defendants include Michael T. Duke; Wal-Mart CEO and board member, H. Lee Scott Jr.; board member and former CEO, Eduardo Castro-Wright, current vice chairman; and Thomas A. Mars, chief administrative officer.
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Under a derivative suit, damages are returned to the company and there isn't usually a monetary award for plaintiffs, although legal fees are frequently covered, according to the New York Times. CalSTRS isn't collaborating with other shareholders, but other shareholders may take action as well. The New York City pension fund's leaders have said that they'd vote against five Wal-Mart directors up for re-election in June.
Shares of Wal-Mart have fallen 5.6 percent, to $58.95 from $62.45, since the bribery allegations first came to light in a story published by the New York Times on April 21. In Friday trading, the shares fell 17 cents, or less than 1 percent, to $58.82.
The lawsuit is the first of its kind in the history of the $153 billion fund. The focus of this action, unprecedented in CalSTRS history, is corporate governance reform to ensure that similar misconduct is not repeated in the future, Ehnes, CalSTRS chief executive said, according to Reuters.
The lawsuit was filed in the Court of Chancery in Wilmington, Del. CalSTRS is represented by the law firms of Girard Gibbs LLP and Labaton Sucharow LLP. Wal-Mart has said that it is reviewing the lawsuit.
The New York Times reported last month that Wal-Mart executives knew about bribery accusations in 2005 and 2006; however, they quashed an internal investigation into the claims, the newspaper reported. The story said Wal-Mart de Mexico executives had carried out a bribery campaign to gain market dominance.
The Foreign Corrupt Practices Act prohibits U.S. companies from bribing foreign government officials.