Wal-Mart replaces its CEO with company insider

Wal-Mart Stores replaced CEO and President Mike Duke and named Doug McMillon, another company insider, as its new leader after a rough period for the world's largest retailer in which it became embroiled in a bribery scandal.

The 63-year-old Duke will stay on as chairman of the executive committee of the board and advise McMillon for a year.

The appointment of McMillon, 47, is effective Feb. 1, 2014. He was previously CEO of Walmart International and will join the company's board of directors immediately.

The announcement came just days before the kickoff of the holiday shopping season, when retailers generate a large portion of their annual revenue.

Wal-Mart shares rose 62 cents to close at $80.43 on Monday. The stock has trailed the broader market this year, but it is still at or close to records.

McMillon is known as a pleasant and capable leader on Wall Street and has been a favorite of the founding Walton family, which still owns a lot of Wal-Mart shares.

"He's a Wal-Mart guy from Arkansas, so I would be shocked to see dramatic changes in how the company is run," said Faye Landes, an analyst at Cowen & Co. "He's not a person who is going to shake things up."

Wal-Mart has already replaced several executives of its international division as the company struggles to increase traffic and same-store sales growth in the face of weak economies and nimble local competitors overseas.

"He's definitely capable of running a huge company, but I'm not sure that anyone is capable of driving massive growth off this huge base that they have," Landes said.

McMillon will also have to deal with a scandal that has yet to fully play out. Wal-Mart paid bribes in Mexico to speed building permits and gain other favors, The New York Times reported last year. After starting an internal investigation into the allegations, senior Wal-Mart officials halted the probe in 2006 despite having found lots of evidence, the newspaper said.

After initially denying that company directors knew of the bribes paid to Mexican officials, e-mails released earlier this year by U.S. lawmakers appeared to show that Duke learned about the payments as early as 2005. In May, a U.S. judge ordered Wal-Mart attorneys to turn over more documents to shareholders trying to find out what, and when, directors knew about the Mexico payments.

The U.S. Department of Justice and the Securities and Exchange Commission are investigating potential evidence of bribery, Wal-Mart disclosed in a November 2012 regulatory filing. The company widened its internal examination of the issue to include "a number of foreign markets where we operate, including but not limited to Brazil, China and India," the filing also stated.

The bribery allegations erupted three years after McMillon's January 2009 appointment as head of Walmart International, the company's second largest operating segment. He succeeded Duke in that post as well.

However, McMillon was running Wal-Mart's U.S.-based Sam's Club segment during the years The New York Times identified as the period with evidence of potential bribery payments in Mexico.

During a Wal-Mart meeting with investors last month, McMillon said the company now has a chief compliance officer and anti-corruption leader in each market around the world.

"One of the things we're doing right now as we speak is making sure that we've got all the right resources to make this a world-class compliance effort within Wal-Mart," he said. "We've hired new people, and we've realigned people into this global structure. And we now have through those efforts over 1,000 people that work full time on compliance."

Originally from Jonesboro, Ark., McMillon started his career in 1984 as a summer associate at a Wal-Mart distribution center. He got a B.S. in business administration from the University of Arkansas and an MBA from the University of Tulsa. While pursuing the MBA, he rejoined the company in a Tulsa Walmart store.

A lot of McMillon's 22 years at the company were spent in merchandising in the Walmart U.S. division, giving him experience with food, apparel and general goods. From 2006 to February 2009, he ran Sam's Club and then took over Walmart International.

When asked in a 2008 interview what the biggest factor was in his success, McMillon said it was what he learned during his first few months working at the world's largest retailer.

"Unless you're there, you don't really understand it, and when you're big, people may assume that you've got bad intentions," he said. "I learned more in the first six months at Wal-Mart than I learned in 5½ years of post-secondary education."

That deep Wal-Mart experience and loyalty likely gave him leg up vs. other candidates like Bill Simon, who runs Walmart U.S.

"Bill Simon was more of an outsider," said Sucharita Mulpuru, a retail analyst at Forrester Research. "It was going to be one of them."

McMillon's appointment may trigger more executive changes at the company. Wal-Mart did not say who would replace him as head of the International business.

"Cathy Smith, the division's CFO and COO, is an obvious candidate," Cowen's Landes said. "If she doesn't get the job, she might leave the company, which we would view as a meaningful loss."

Simon, the head of Walmart U.S., may also depart after missing out on the top job, the analyst added.

"At age 54, he is unlikely to wait around to succeed McMillon, who is only 47," Landes said. "Given Simon's many successes at Wal-Mart, he is likely to be on every headhunter's short list."