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Director's Ouster A Blow to Wal-Mart

Legal Woes Already Weigh on Retailer

By Michael Barbaro
Washington Post Staff Writer
Tuesday, March 29, 2005; Page E04

The ouster of a Wal-Mart board member after the alleged misuse of company funds will hurt the chain's image at a time when it is already smarting from several high-profile legal disputes and is trying to rebut its fiercest critics, according to an analyst who tracks the retailer.

The chain's chief executive, H. Lee Scott Jr., "has his hands full with issues that percolated under his tenure," said Bernard Sosnick, a retail analyst at Oppenheimer & Co. "It might take a while for Wal-Mart to burnish its somewhat tarnished" reputation.

Wal-Mart Vice Chairman Thomas M. Coughlin resigned after an internal company investigation. (File Photo)

Wal-Mart this month agreed to pay $11 million to settle federal allegations that illegal immigrants were used to clean its stores. And it still faces a class-action lawsuit, filed on behalf of 1.6 million current and former female employees, claiming gender discrimination.

Scott is expected to address the conduct of the former board member, Thomas M. Coughlin, today in a telecast that will be broadcast to Wal-Mart's 1.2 million U.S. employees. In that appearance, Scott "will encourage associates to always have the courage to come forward if they suspect wrongdoing," said company spokeswoman Mona Williams.

Coughlin, who was the No. 2 executive at the company until last December, was asked to step down from the board after a disagreement over the results of internal investigation into alleged financial improprieties that totaled $100,000 to $500,000, the company said Friday.

A six-week investigation prompted the company to fire three employees, including a company officer, Wal-Mart said. The probe focused on the alleged unauthorized use of corporate gift cards and suspect expense reports.

The company declined to offer more details and has turned the case over to the U.S. attorney for the Western District of Arkansas.

The significance of Coughlin's ouster stems from his commanding position within the company. As vice chairman of Wal-Mart Stores Inc., he was responsible for Wal-Mart, Sam's Club and Walmart.com. He was "presumably a guardian" of Wal-Mart founder Sam Walton's legacy, Sosnick wrote in a research note. "Any involvement in improprieties would indicate the ethos of the founder is waning."

Coughlin did not return a phone message yesterday.

Coughlin, who came to Wal-Mart in 1978 as a vice president of security, rose quickly through the company's ranks and, two decades later, was considered a strong candidate to succeed David Glass as chief executive -- a job that instead went to Scott in 1998.

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