Ethical Performance
inside intelligence for responsible business


When ‘fessing up’ is by far the better option

June 2012

Walmart is the eighth-largest company in the US. It employs two million staff worldwide, and they serve customers more than 200 million times per week in 10,130 retail outlets in 27 countries. It has taken a laudable stance on sustainability and has worked hard to improve its reputation over the last few years.

But now the company faces something of a corporate earthquake over its management of the scandal surrounding alleged bribery in its Mexican offshoot. I say ‘management’, but this is probably misleading as its current predicament appears to be the result of not managing the situation at all.

Admittedly, the bribery was, if the allegations reported in the press are true, extensive: the New York Times reported in April that the company’s Mexican management orchestrated bribes of $24m, paid to Mexican officials for building permits and planning clearances to speed the development and opening of new stores. It is claimed they also falsified accounts to hide the payments, but that the company’s US lawyers were alerted to the matter when its general counsel in Mexico directly responsible for the payments decided to come clean.
The US lawyers’ call for an independent inquiry was rejected by Walmart’s senior management who, instead, opted for an internal investigation. When that also recommended a major inquiry, Walmart’s management simply referred the matter back to the company’s general counsel in Mexico, who promptly dropped the matter entirely. Taking ownership of this scandal would have taken guts and determination for any board, but certainly less than is required now as they would have at least been given some credit for coming clean. Trying to keep it quiet has made it an awful lot worse.

Of course, the facts of the case are still to be determined in law and all this is mere allegation. But, regardless, Walmart now faces battles on several fronts. In addition to the legal and other challenges from shareholders, it could also face criminal investigations in Mexico by the Justice Department, the Securities & Exchange Commission, both under the US Foreign Corrupt Practices Act, and by the Mexican authorities themselves. And the spotlight could spread beyond the company’s Mexico operation. Then there is a plethora of potential disciplinary and legal actions that various directors past and present could face, particularly if it is shown they could have taken corrective action years ago.

In the great scheme of things, $24m is not even a great deal of money, but the potential costs of the scandal to Walmart are huge. However, an unexpected but welcome consequence of Walmart’s troubles is that it has probably thwarted lobby group agitation to water down the Foreign Corrupt Practices Act – at least for now. This case is proof, if any were needed, that the act could serve a useful purpose in focusing corporate minds.

Peter Batt | Global | Corporate governance


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