The second-largest U.S. public pension fund said that allegations of bribery in Mexico and a cover-up by top management at Wal-Mart Stores Inc raise the question of whether top leadership should remain in place at the company.

Photo: Wal-Mart Stores Inc

But officials with the California State Teachers' Retirement System, which sued current and former Wal-Mart executives on Thursday, stopped short of calling for CEO Mike Duke to step down.

"The leadership question is on the table," Jack Ehnes, CEO of CalSTRS, said when asked Friday whether Duke, a defendant in the lawsuit, should step down.

Ehnes, however, said that the purpose of the lawsuit was to determine whether the alleged actions occurred and declined to say specifically whether Duke should leave the CEO post.

Ehnes spoke during a conference call with reporters. His fund holds more than 5.3 million Wal-Mart shares.

A Wal-Mart spokesman declined to comment on Ehnes' statement about Wal-Mart's leadership.

The New York Times reported last month that Wal-Mart de Mexico, which is 69 percent owned by Wal-Mart, orchestrated a widespread bribery campaign to win market dominance in the last decade.

The article alleged that senior Wal-Mart executives knew about the matter and tried to cover it up. Duke was head of Wal-Mart's international business during part of the time covered by the article.

"This could well be the Fortune 100 version of Watergate," Ehnes said.

The world's largest retailer has shed billions of dollars in market value since the allegations surfaced. The company's shares, which lost almost 4 percent in April, were down 10 cents at $58.89 on Friday on the New York Stock Exchange.

If the allegations are true, Wal-Mart may have violated the U.S. Foreign Corrupt Practices Act (FCPA), which forbids bribes to foreign government officials, and run afoul of Sarbanes-Oxley rules that require corporate gatekeepers to report material violations of securities laws.

CalSTRS, a $153 billion pension fund, said it is an index investor and as a result is required to hold shares of the retailer, which is a component of the Dow Jones Industrials Average as well as many other indexes.

Generally, CalSTRS tries to work with corporate boards and executives on corporate governance issues, Ehnes said. But given the allegations in the Wal-Mart case, the board and management would be adversaries to CalSTRS in the process, he said.

CalSTRS brought a type of shareholder action known as a derivative lawsuit, which seeks a recovery for the company, not shareholders. The pension fund is seeking to essentially stand in the shoes of Wal-Mart and sue the company's executives and directors for damage they have done to the retailer. Such lawsuits often result in changes in corporate governance.

It filed the case in Delaware's Chancery Court.

Earlier this week, New York city's comptroller said its pension funds would vote their 4.7 million shares against five Wal-Mart directors standing for reelection at the annual shareholders meeting on June 1, including Duke.

Ehnes said that "it wouldn't be hard to infer" that CalSTRS intends "to withhold our votes on those directors." But he said the retirement plan would leave any organized "vote no" campaign to New York pension funds.

The case is California State Teachers' Retirement System v Aida M. Alvarez, Delaware Court of Chancery, no. 7490.