FORTUNE — Wal-Mart’s 2014 annual voting materials are almost as cute as a basket of puppies. This year, each board member’s biography includes little icons representing the directors’ expertise, like a shopping basket for retail, a judge’s gavel for legal, along with icons for technology, marketing, finance, international, and leadership experience. The giant retailer knows how to communicate well — when it so chooses.
Wal-Mart has a policy to claw back bonuses from executives in the event of misconduct. UAW Retiree Medical Benefits Trust’s chief corporate governance officer Meredith Miller says shareholders think that policy is excellent.
But the board is opposed to a shareholder proposal that asks Wal-Mart
to let shareholders know how they’ve used that compensation policy to hold a wide range of executives accountable, including, for example, those who were involved in allegedly serious violations of the FCPA (Foreign Corrupt Practices Act). Law 360 reported in late March that “Wal-Mart Stores Inc. has shelled out $439 million over the past two years on investigations related to the retailer’s possible violations of the Foreign Corrupt Practices Act in Mexico, China, Brazil and India.” Shareholders supporting the proposal include Miller’s organization along with the Illinois State Board of Investment, the Connecticut Retirement Plans and Trust Funds, Amalgamated Bank’s LongView Funds, and F&C Management Ltd.
So why does Wal-Mart’s board want to keep its pay clawback practices secret? Wal-Mart declined to comment on its views on shareholder proposals up for debate at its annual meeting on June 6 or on its board operations in general.
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The board says that it already has to disclose recoupment related to named executive officers (and presumably doesn’t wish to do so for others) and that the report shareholders have requested would not be comprehensive on all the actions Wal-Mart could take in the event of misconduct. Wal-Mart could easily remedy the latter concern by simply sharing all relevant information to shareholders when it has to claw back compensation.
Miller says the clawback disclosure would not only help keep shareholders informed, it would also serve as an important signaling tool to other employees. The disclosure would demonstrate Wal-Mart’s seriousness in promoting ethical conduct and using its incentive programs to encourage proper employee actions. Given Wal-Mart’s increased business efforts in China, and the recent appointment of a new head of China operations, this appears to be a compelling aim.
It’s normal for boards to operate with three standing committees, all staffed with independent board members: an audit committee, a compensation committee, and a nominating and governance committee. But Wal-Mart’s board is organized differently. The retailer combines its board compensation and nominating and governance committees into a single group called the CNGC, which is responsible for activities like director selection, and director and officer compensation. The CNGC also has responsibility “for reviewing and overseeing the compensation and benefits structure applicable to our Associates generally, including any risks that may arise from our compensation program.”
In addition to the CNGC, the board has a global compensation committee (GCC) that oversees incentive programs for non-directors and officers. Wal-Mart CEO Doug McMillon, who earned $25.6 million last year, chairs the GCC. No independent director sits on this committee.
Wal-Mart’s GCC gives managers the ability to make their case to the board with the imprimatur of a board committee. The overlapping responsibilities of the CNGC and GCC could lead to disagreements on how Wal-Mart’s more than 2 million employees are paid. But does this ever come up, or does this unusual board structure effectively gag the independent directors?
Certainly, Wal-Mart is no stranger to controversies concerning employee or executive pay. Recently, Gretchen Morgenson at the New York Times addressed Wal-Mart’s practice of adjusting its reported results to remove costs like store closings, which led to higher executive payouts in 2014. Gary Strauss at USA Today reported that the company’s latest proxy showed that retired CEO Mike Duke had $140 million in deferred pay. And Andrew Bouve at Slate estimates that by raising prices a mere 1.4%, Wal-Mart could easily pay its workers enough so that the estimated 15% of its workforce that now relies on food stamps could free themselves from government support.
Wal-Mart’s shareholder voting materials state that the CNGC does “not believe that our compensation policies and practices for our Associates give rise to risks that are reasonably likely to have a material adverse effect on our company.”
Along with the proposal on compensation disclosure, this year, shareholders are voting on two other provisions that would strengthen the company’s governance: disclosures to provide shareholders more information on Wal-Mart’s lobbying activities and a proposal to increase the board’s independence by appointing an independent chair.
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In its opposition statement on lobbying disclosures, the board acknowledges that Wal-Mart does not disclose all the lobbying spending that shareholders have requested. The board also points to its presiding director as a worthy substitute for an independent chair. Shareholders supporting the proposal, however, quote Yale’s Millstein Center for Corporate Governance and Performance in their supporting statement: “The independent chair curbs conflicts of interest, promotes oversight of risk, [and] manages the relationship between the board and CEO …”
Unlike most boards, Wal-Mart has just two independent board committees: the audit committee and the CNGC. But the retailer has four committees with non-independent directors, one of which is the executive committee.
Board executive committees are a relic from days past, one that all boards would be wise to eliminate. Such committees often usurp the full board by placing power in the hands of a few directors. This can create a board hierarchy that undermines full discussion and independent thinking. In its brief description of the executive committee’s duties, Wal-Mart’s voting materials say the committee “Acts on the Board’s behalf between Board meetings.”
Former CEO Mike Duke chairs the executive committee at Wal-Mart. Current Wal-Mart CEO Doug McMillon is also a member and, in total, 80% of the committee is made up of non-independent directors. With that ratio, when a vote is taken, the independent voice would be drowned out.
Wal-Mart reports that the executive committee did not meet in its fiscal year 2014. Instead, it carried out board work through 14 unanimous written consents, another corporate governance no-no since unanimous written consents fail to ensure a fulsome discussion and the vetting of opposing views.
As with all corporate boards, Wal-Mart’s needs to demonstrate it is accountable to its shareholders, its employees, and its customers. And now doesn’t seem to be the best time for the company to thwart legitimate shareholder requests. Wal-Mart shoppers aren’t buying at their stores like they used to. Its stock is down. And the city of Portland, Ore. has begun a process to divest its Wal-Mart holdings because of concerns about its weak oversight and treatment of its employees.
So how far will Wal-Mart dive before it decides a spot of independence and two drops of disclosure might be just what the doctor ordered? Taking a few steps forward rather than fighting the inevitable shouldn’t be that hard.
Eleanor Bloxham is CEO of The Value Alliance and Corporate Governance Alliance (http://thevaluealliance.com), a board education and advisory firm.