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Walmart: Final thoughts on a missing witness, and settlement

I've been talking this week about Indiana Electrical Workers Pension Trust Fund IBEW v. Wal-Mart Stores Inc., CA No. 7779-CS, Delaware Chancery Court (Wilmington). My prior posts are here and here.

This may be my final post for a while about the civil shareholder action against Walmart, and the company's appeal against a Delaware court order to produce files and documents from its internal FCPA investigation. Although the Delaware Supreme Court heard oral arguments Thursday, the justices could take several months to issue an opinion.

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The future of this case, so important to all compliance professionals, may depend on the return of Maritza Munich, a former Walmart lawyer and compliance officer.

No one other than Walmart and perhaps the DOJ knows what's in her file about the investigation and her abrupt resignation.

Despite the request of a congressional committee, Walmart has refused to allow her to testify in public. Now Walmart contends the Delaware Supreme Court should keep her files secret. She wrote many reports and emails concerning the progress of the investigation and then its abrupt termination. Did she also keep notes of conversations with directors including the audit committee? Why did she resign?

There has been no indication that she did anything other than an excellent job as a compliance professional. Was her abrupt resignation itself a red flag ignored by Walmart's board? And what about the reports of her investigators (former FBI veterans), and why did they leave Walmart?

And a point rarely discussed -- who knew of or suspected alleged false accounting to hide bribe payments and disguise illegal profits, and who had enough suspicions or information that they should not have certified the accuracy of company books and records for all of the years after the prematurely closed investigation?

Maritza Munich was shut out of the compliance investigation. But if the Delaware justices believe her files contain indications of wrongdoing or ignored red flags, she'll have the last word through her files or her deposition.

The world has changed over the past decade. Now at Walmart and many companies, the chief ethics and compliance officer (CECO) meets directly with the board. If the 2005 Walmart audit committee had invited Maritza Munich to complete the picture coming from senior management, the board's final decisions might have been different.

All that history at Walmart has resulted in this one question for the Delaware Supreme Court: What are boards obligated to do with information received directly from the CECO? Can the directors say "Thank you for that information" and close the file. Or is something more required?

If compliance information in any company indicates serious misconduct by senior officers, what should the board do when those same officers obstruct a compliance investigation or retaliate against the compliance officers, effectively cancelling out the very "information and monitoring system" contemplated by Caremark rules?

Showdowns between a C-Suite gone wrong and the compliance staff are a systemic problem. The confrontations are found at the heart of nearly all big scandals (see the troubling 2013 report from the RAND Center.)

What boards should do when a confrontation happens is an unsettled question for the courts. It’s also critical to the effectiveness of any new chief ethics and compliance officer, whose mission is to protect the company, fellow employees, and the public from breakdowns in business integrity.

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A cautionary note: This opinion may be the last chance in this case for the Delaware courts to provide critical instruction and precedent for future boards and compliance professionals.

For many reasons, I believe Indiana Electrical Workers Pension Trust Fund IBEW v. Wal-Mart Stores Inc. will be settled long before it reaches the final stages of proof and evidence of alleged misconduct by officers and directors.

It has taken over two years for the case to get to this point, still only the initial stages of a shareholder derivative action. During that time, Walmart has rolled out a global state-of-the-art compliance program and is moving forward. How long until there's a settlement of the DOJ and SEC investigations?

Walmart might settle this litigation in order to clear the decks and preserve the reputation of the company and its directors. Before that happens, the company's appeal to the Delaware Supreme Court could be the right forum for landmark changes to guide executives, directors, and compliance professionals for decades.

For the good of all, I hope the Delaware justices will seize the opportunity to paint on the largest canvas possible, to illuminate new roles for those we've put in charge of compliance.

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Video of the oral argument from Walmart's appeal is available at the Delaware Supreme Court website here.


Michael Scher is a contributing editor of the FCPA Blog. He has over three decades of experience as a senior compliance officer and attorney for international transactions. He can be contacted here.