Tragedy strikes Wal-Mart family: decisions on board pending

DSN Retailing Today, July 11, 2005 by Mike Troy

JACKSON, WYO. -- The structure and composition of the Wal-Mart board of directors is likely to undergo changes in the coming months following the recent death of Walton family member and Wal-Mart director John Walton.

Walton, 58, a decorated Vietnam War veteran who contributed generously to educational causes, died June 27 when the single-engine airplane he was piloting crashed shortly after takeoff from the Jackson Hole Airport. Walton served on the Wal-Mart board since 1992 along with his older brother job, who joined the board in 1978 and was named chairman in 1992 following the death of their father, Wal-Mart founder Sam Walton.

While Walton's death is expected to have implications for the board of directors, a Wal-Mart spokesman declined to comment on what those might be. "We simply view it as inappropriate to discuss the matter of board of directors succession so soon after this tragedy," said spokesman Marty Heires.

Nevertheless, Walton's untimely death will prompt the board to address a number of substantial issues of concern to shareholders. Chief among them is the board's size and the need to appoint additional members. Walton's death and the forced resignation of former Wal-Mart executive and board member Tom Coughlin on March 25 has left the board with 13 members from a high of 17 in the early '90s

At its current size, Wal-Mart's board is near the low end of the major corporations atop the Fortune 500 list. Firms such as GE, Ford and AIG each have 15 board members while Citigroup has 18.

Heires declined to comment at press time on when the board is scheduled to meet again, whether the issue of additional members would be discussed and whether the Walton family would seek additional representation given its substantial ownership position in the company. The family, through Walton Enterprises LLC, owns 1,680,506,739 shares, or approximately 40% of the 4,182,021,601 Wal-Mart shares that were outstanding as of May 23, according to proxy materials and a quarterly statement filed with the Securities and Exchange Commission. In addition, the family's ownership position is likely to increase further this year as Wal-Mart has approximately $6.9 billion remaining in share repurchase authorization. As those funds are spent to repurchase shares in the open market the effect is to increase the family's ownership percentage. If the full amount of the remaining authorization is exercised at current share price levels the Walton family's ownership percent could reach as high as 41.5%.

With such a large stake in the company and only Rob Walton representing the family's interests as chairman, it would be reasonable to assume the family would desire additional representation, although it is unclear who that individual might be. John Walton is survived by his wife Christy, son Lukas, mother Helen, brother Rob and younger brother Jim, sister Alice and their families. The family is notoriously press shy, but a Nov. 15, 2004, issue of Fortune that contained an articled titled, "inside America's richest family," indicated both Jim, 56, and Alice, 55, have substantial interests and business experience outside of Wal-Mart that more than qualify them to serve.

Jim oversees Walton Enterprises, Arvest Bank and Community Publishers which publishes Wal-Mart's hometown newspaper, the Benton County Record. Alice Walton was instrumental in the development of the Northwest Arkansas Regional Airport that enabled jets to serve the region and her bust sits in the airport's lobby. She also played a major role in the development of the 1-540 highway in Northwest Arkansas. Both are residents of Northwest Arkansas, whereas their older brother John had lived in Jackson Hole since 1999.

Whether either of John Walton's siblings has the desire or the family deems it necessary to have additional representation on the board is an issue, along with several others that will be resolved over time. However, even if they were to eventually join the board, that doesn't rule out the possibility that an additional Wal-Mart executive could be added. Currently, president and ceo Lee Scott is the only company executive on the board.

In addition to the issue of potential new board members and whether those members might include a Walton family member, another issue the Wal-Mart board is likely to address soon is the status of its Strategic Planning and Finance committee. John Walton served on this committee along with former vice chairman and board member Tom Coughlin. The committee's substantial responsibilities include the review and analysis of financial matters, long-range strategic planning and the review and recommendation to the full board of a dividend policy and annual budget.

Wal-Mart's proxy materials indicate only two board members currently serve on the committee, including James Breyer, 43, managing partner of Accel Partners. He joined the Wal-Mart board in 2001 following the venture capital firm's involvement in a joint venture with Wal-Mart's online business. Also serving on the committee is Jack Shewmaker, 67, a former Wal-Mart executive who joined the board in 1977 and retired from the company in 1988.