Monday, June 13, 2005
Wal-Mart removed Thomas Coughlin, a recently retired long-time executive, from its board in March after discovering that he allegedly obtained improper reimbursements for expenses from the company in an amount up to $500,000. Coughlin, a long-time friend (and hunting buddy) of Wal-Mart founder Sam Walton, asserted that the reimbursements were really for secret payments he made to union officials to gather information about union organizing activity at the company, which is notoriously hostile to unions. Prior to his removal from the board, Wal-Mart had given Coughlin a substantial retirement package when he left his executive position. Now, the company announced on June 10 that it is rescinding the retirmement package and other stock options and deferred compensation because Coughlin failed to provide any evidence to support his assertions regarding the reimbursement of expenses for opposing union organizers (see letter to Coughlin's counsel (here). Wal-Mart's 8-K (here) states:
During the Company’s internal investigation, Mr. Coughlin maintained that his use of corporate money and property was related to what Mr. Coughlin described as “union activity” for which he was obtaining “reimbursement.” Mr. Coughlin declined, however, to provide the Company with any details of the alleged “union activity” or the alleged “reimbursements.”
In the Company’s ongoing internal investigation, the Company found no evidence supporting Mr. Coughlin’s “union activity reimbursement” explanation. The Company delivered a letter to Mr. Coughlin’s attorney on April 19, 2005, requesting that Mr. Coughlin come forward with “any documents or other information that would support his contention that the questioned transactions were ‘reimbursements’ for monies Mr. Coughlin spent in connection with union activities.” To date, Mr. Coughlin has not furnished any such information to the Company.
At the recommendation of the Company’s Legal Department and with the advice of outside counsel, on June 10, 2005, the [Compensation, Nominating, and Governance Committee of the Board] authorized management of the Company to take appropriate action to rescind the Retirement Agreement and to take other appropriate legal action in connection therewith. The grounds for rescission are based on Mr. Coughlin’s violation of his fiduciary duties to the Company and the concealment and failure to disclose to management that, for a period of several years and continuing until at least December 2004, Mr. Coughlin had been engaged in a scheme to misappropriate corporate funds and property for his own personal benefit.
Wal-Mart disclosed when it removed Coughlin from the board that it had notified the U.S. Attorney's Office of the alleged misappropriation, and this move certainly ups the ante. A Wall Street Journal article (here) estimates that the stock options and salary at issue in the $12 million range, so look for Coughlin to fight this quite vigorously, although he's in a difficult position because the ongoing grand jury investigation will make it hard to initiate litigation and subject himself to a deposition. I don't expect that the company will be paying his legal expenses in this matter, which probably will be the subject of even more litigation, no doubt. (ph)