The Board of Directors
While day-to-day management responsibilities fall to our chief executive officer and the rest of the senior executive management team, the business and affairs of our company are managed under the direction of our board of directors. The board is ultimately responsible for setting our strategy, appointing and overseeing company executives, establishing priorities and managing the overall business. The board of directors has general oversight responsibility for the company’s business and affairs. Although the senior executive team, and not the board, is responsible for day-to-day management of the company, the board stays informed about the business and provides guidance to management. The board meets periodically and oversees the company’s strategic planning process, executive development and succession planning. In an effort to more clearly define the responsibilities of the board and its members to the company, its shareholders and to one another, the board has adopted Corporate Governance Guidelines. They include:
Eleven of our 15 directors are independent from the management of the company. In determining whether each of our directors is independent, we apply the standards set forth by the New York Stock Exchange’s Listed Company Manual. The Listed Company Manual requires that, in order for a director to be independent, the board must affirmatively determine that the director does not have any material relationships with the company. As permitted by the listed company manual, the board has adopted a set of categorical standards describing the types of relationships to the company that the board has determined do not impact a director’s independence. Our independent directors meet separately at least four times each year.
The board has also established various committees and charged these committees with primary responsibility over various areas of board oversight. Each committee has a written charter adopted by the board describing the committee’s primary duties and responsibilities. The committees of the board are as follows:
- Audit Committee – Four directors, each independent of the company, serve on our Audit Committee. The Audit Committee is charged with: assisting the board in monitoring the integrity of the financial reporting process, systems of internal controls, financial statements and reports of the company; overseeing the company’s internal audit function and the compliance by the company with legal and regulatory requirements; and appointing, approving the compensation of and overseeing our independent auditor and the review of related-party transactions. Three of the four members of our Audit Committee are “audit committee financial experts” as defined by the rules of the Securities and Exchange Commission.
- Compensation, Nominating and Governance Committee (CNGC) – Three directors, each independent from the company, serve on our CNGC. The CNGC’s responsibilities include: evaluating and approving the compensation of the company’s executive officers; reviewing and making recommendations to the board regarding director compensation; and evaluating other matters relating to the overall compensation structure of the company. With respect to its nominating and governance function, the CNGC: assists the board in identifying and recommending qualified individuals for nomination to the board; periodically reviews the composition of the board and its committees and recommends any appropriate changes to the board; develops and oversees the company’s corporate governance principles; and conducts annual reviews of the performance of the board and the company’s senior management.
- Strategic Planning and Finance Committee – The Strategic Planning and Finance Committee is composed of six members, four of whom are independent. The committee is responsible for reviewing and analyzing financial matters and assisting the board in long-range strategic planning.
- Executive Committee – The Executive Committee of the board is composed of three directors, one of whom is independent. The committee exercises the powers and duties of the board between board meetings and while the board is not in session, and implements the policy decisions of the board.
- Stock Option Committee – The Stock Option Committee is composed of two directors and is charged with administering certain of the company’s equity-based compensation plans with respect to equity awards granted to Associates who are not directors or executive officers.
Mechanisms for Communication with the Board
The board welcomes communications from shareholders and other interested parties. Shareholders and other interested parties may write or send e-mails to the board, the independent directors, the non-management directors or any individual director in the manner described in our annual proxy statement sent to our shareholders and filed with the Securities and Exchange Commission. Letters and e-mails directed to the board are reviewed by management to determine whether a response on behalf of the board is appropriate. Responses to letters and e-mails by the company on behalf of the board or individual directors are maintained by the company and are available for any director’s review.
If a response on behalf of the board or a subset of the board is appropriate, the company gathers any information and documentation necessary for answering the inquiry and provides the information and documentation, as well as a proposed response to an appropriate director. The appropriate director reviews and approves responses on behalf of the board or may respond directly to a shareholder’s inquiry. We will depart from these procedures on occasion for circumstances such as the receipt of threatening communications or voluminous inquiries with respect to the same subject matter.
Qualifying shareholders also have the opportunity to submit resolutions for inclusion with topics considered at the company’s annual meeting of shareholders. If the resolution relates to a topic appropriate for shareholder action and procedural requirements are met, we will include it in voting materials among the other items to be voted upon at the next annual meeting. The rules for shareholder access to this agenda are governed by Delaware law and the rules of the Securities and Exchange Commission.
Our board members are compensated each year in amounts set by the board. Their compensation consists of a combination of cash and shares of the company’s stock. Other than changes in the value of equity-based compensation awards relating to the company’s overall market performance, board members’ compensation is not linked to Wal-Mart’s performance.
The compensation of senior management consists of salary, equity-based compensation and performance-based cash incentive payments. The value of equity-based compensation increases or decreases along with the company’s stock price and, therefore, is linked to the company’s performance. In addition, some of the equity-based compensation awards that have been granted to our executives will only vest if the company achieves specified performance goals. The awards of cash incentive payments are directly linked to performance goals. The awards are determined with reference to the company’s overall financial performance and, in the case of certain division heads, the performance of particular company divisions. The incentive awards may also be reduced if goals for diversity in hiring and promotion are not achieved.
Transaction Review Policy
The board has adopted a written Transaction Review Policy applicable to all executive officers, directors and shareholders beneficially owning more than 5 percent of the company’s shares and the immediate family members of each of the preceding persons. Any entity in which a person subject to the policy has a material financial interest, or in which he or she is an officer or holds a significant management position, is also covered by this policy. Under the policy, each person who is subject to the policy is responsible for reporting to the company’s chief audit executive any transactions involving the company having a value of more than $120,000. The company’s chief audit executive reviews each such transaction and submits the results of such review to the Audit Committee. The Audit Committee then reviews the transaction and either approves or disapproves it, based on defined procedural and substantive standards of fairness.
Statement of Ethics
The principles upon which our company operates on a daily basis are our “Three Basic Beliefs” to which we remain firmly committed:
- Respect for the Individual
- Service to our Customers
- Strive for Excellence
The Three Basic Beliefs go hand-in-hand with the integrity and ethical conduct that is the foundation of our business. They are the basis for the more detailed policies set forth in the company’s Statement of Ethics, which is applicable to all of our Associates, officers and directors.
The Statement of Ethics also contains our Guiding Ethical Principles. These principles are designed to assist our Associates and suppliers with making the right decision and doing the right thing. The principles enumerated in the policy include:
- Follow the law at all times;
- Be honest and fair;
- Never manipulate, misrepresent, abuse or conceal information;
- Avoid conflicts of interest between work and personal affairs;
- Never discriminate against anyone;
- Never act unethically – even if someone else instructs you to do so;
- Never ask someone to act unethically;
- Seek assistance if you have questions about the Statement of Ethics or if you face an ethical dilemma;
- Cooperate with any investigation of a possible ethics violation; and
- Report ethics violations or suspected violations.
Specific sections of the Statement of Ethics describe the company’s policies for dealing with ethical concerns; managing conflicts of interest; accepting gifts or gratuities; handling confidential and “inside” information; relations among Associates; relations with suppliers; observing responsible health, safety and environmental standards; and competing fairly. Our open door policy encourages Associates and suppliers to report ethical violations – whether they occur on a factory floor, in a store or in the home office. The Statement of Ethics provides for penalties for violations up to and including termination of employment. For reports of violations of the Statement of Ethics, we maintain a confidential and anonymous Ethics Helpline.
Our helpline is available 24 hours a day, seven days a week for Associates, customers or suppliers to contact the Wal-Mart Global Ethics Office with their concerns or allegations of observed wrong doing. It is staffed by a third-party vendor, Global Compliance Services (GCS), and is currently available in 45 countries and can handle more than 140 different languages.
GCS interviews the caller and then emails the Global Ethics Office the caller’s concerns or allegations. Once the Global Ethics Office determines that the caller is raising a legitimate concern, a formal case is opened. The Global Ethics Office does not perform investigations. Cases for investigation are assigned to various parties within Wal-Mart by a pre-determined schedule. The Global Ethics Office oversees the process to insure thoroughness and consistency in the investigation, and subsequent punishment – if any.
In addition, we maintain a separate Code of Ethics for our chief executive officer and senior financial officers, which supplements the Statement of Ethics and relates to the proper functioning of our financial reporting controls.