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[24 comments]

Walmart Faces Fallout From Mexican Bribery Allegations

April 24, 2012

A New York Times report that Walmart paid $24 million to obtain building permits and gain market dominance in Mexico in violation of that country's laws and those of the U.S., and then covered up the activity after it was brought to the attention of top corporate officials, has brought the retailer a lot of negative attention from investors, the press and legal officials in the U.S.

Yesterday, Walmart's stock price dropped nearly five percent as the news and its implications for the company spread.

The Washington Post reported that the Justice Department has been investigating the matter since December to determine if Walmart was in violation of the U.S. Foreign Corrupt Practices Act, which prohibits companies paying foreign officials to obtain business. Critics have labeled the law as too broad and detrimental to American business interests.

What is particularly worrisome in this case is that Walmart, upon learning of the bribery campaign, is alleged to have launched an internal investigation into the matter only to have top officials at the company quash it.

According to the Times, then Walmart CEO H. Lee Scott Jr. criticized the company's investigators for being too aggressive. The investigation files were then sent to Walmart de Mexico to "the same general counsel [who] was alleged to have authorized bribes." It was at that point that no wrongdoing was found and the investigation was dropped without the company ever having notified either Mexican or U.S. officials. Mexico is not investigating Walmart, regarding the bribes as a local matter.

Upon reading the results of the Walmart de Mexico probe, the retailer's director of corporate investigations described the findings as "truly lacking" in an email to a superior.

"We take compliance with the U.S. Foreign Corrupt Practices Act very seriously and are committed to having a strong and effective global anti-corruption program in every country in which we operate," David Tovar, vice president of corporate communications at Walmart, said in a statement. "Many of the alleged activities in The New York Times article are more than six years old. If these allegations are true, it is not a reflection of who we are or what we stand for."

FINANCIALS:     [NYSE:WMT]

Discussion Questions:

Discussion Questions: What is your take on the bribery and cover up allegations made about Walmart in The New York Times article? What should the company be doing now to deal with the situation? Do you believe U.S. anti-bribery laws are unrealistic and detrimental to American business interests in countries where bribery is a way of life?

While we value unfettered opinion, we urge you to show respect and courtesy for people or companies about whom you comment. Keep in mind that this is a public, professional business discussion. RetailWire reserves the right to edit or refuse the publication of remarks that we deem unsuitable. We may also correct for unintended spelling and grammatical errors.

Instant Poll:

How much will the allegations published in the Times affect Walmart's ability to attract investors?

Comments:

Oh my, yes. You could not possibly do business to any extent in Mexico or many other countries without bribery. Often bribery is just factored into the cost of doing business. Yes the laws are unrealistic in countries where bribery is considered an acceptable business practice. Really, is it any different than a campaign contribution in the US? If Walmart gets any grief from this in Mexico, they are just one bribe away from having it go away.

David Livingston, Principal, DJL Research

Many people believe speed limits are unrealistic but that doesn't give them permission to violate them at will.

The issue here seems to be threefold: first, if the allegations are correct then Walmart de Mexico executives seem to have erred in favor of the expedient over the legal; two, Walmart has touted their success in Mexico, especially to the analysts and there is bound to be blowback; and, finally, third the alleged coverup almost mandates that somebody -- and somebody pretty far up the tree at that -- take a very public fall. In fact, given the alleged frequency of the violations it may be that jail time accompanies, "taking one for the team."

As to what the company should be doing, I think Walmart needs to hire the best crisis communication firm on earth and make sure their internal investigation is as rigorous and transparent as possible. By the same token they should fully cooperate in any and all public inquiries.

They really don't have another play here.

As to whether the laws are unrealistic or not, who knows? Corruption in contracting is a problem on both sides of the border and corporations have long histories of cutting corners to get what they want. It's jingoistic to sit near the Javitz Center, for example, and talk about, "... countries where bribery is a way of life." It's a way of life here too.

Walmart needs to get this behind it and hope the analysts don't hit them as hard as the U.S. and Mexican governments are likely to. Punta!

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Ryan Mathews, Founder, ceo, Black Monk Consulting

What Walmart allegedly did was totally wrong by our American standards, but "when in Rome you do what the Romans do." We are in an one global economy but many countries have different business and social cultures.

Whether U.S. anti-bribery laws are realistic or not today there should be hearings on how to properly exist in a world full of different mores and integrities.

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Gene Hoffman, President/CEO, Corporate Strategies International

I'm no expert on the FCPA but I believe it allows for some wiggle room. I'm sure Walmart's lawyers will want to argue that they used money to expedite the zoning and regulatory process, not for bribes. Not making excuses, but nobody should be shocked that it's necessary to "grease the wheels" in Mexico and elsewhere in order to get things done.

All this being said, the real question is how and why Walmart tried to sweep its internal findings under the rug until they were aggressively reported. (This is coming from a company that wears its ethics policy on its sleeve, to the point where vendors cannot buy a can of Coke for their buyers.) As they say in the case of most political scandals ... it's not the deed, it's the coverup.

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Dick Seesel, Principal, Retailing In Focus LLC

It's difficult to get a good read on what actually happened with so few details and information presented through the somewhat biased prism of the New York Times.

Bribery and Baksheesh are a fundamental cost of doing business in other countries. Like many things, however, many in America want to project our value systems onto other cultures. Depending on your point of view, this is either noble or naive. Regardless, there's no question that these laws inhibit American competitiveness overseas.

Bill Emerson, President, Emerson Advisors

Americans have always had a difficult time dealing with other cultures. We expect everyone to play the game the way we do. This is unrealistic. Bribes in some form are common in other countries. In the Middle East, they call it baksheesh and the tradition is as old as time. We wouldn't go to a restaurant and fail to tip the waiter. That is a tradition in our culture.

This does not excuse Walmart from being culpable for violating U.S. law. They should have anticipated the delays in Mexico and planned accordingly. However, there is always a temptation to do the expedient rather than the wise.

Walmart needs to come clean, not just in Mexico, but in any other countries where this occurred. They have already lost more in stock value than any fines they would receive.

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Raymond D. Jones, Managing Director, Dechert-Hampe & Co.

Whatever else I may think about Walmart, I do believe the company currently makes every attempt to be completely above board on legal issues. I tend to believe what their Corporate Communications guy said.

Still, Walmart is going to have to pay for the sins of those in power at that time.

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Paula Rosenblum, Managing Partner, RSR Research

David, you stole my thunder!!! There is no difference between this and a campaign contribution in the U.S.

Let's stop being naive. This is capitalism. The return on investment for those bribes was probably outrageously high. And, if they didn't do it, and didn't establish market position in Mexico, would the investors be equally outraged?

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Gene Detroyer, Professor, Independent

What worries me more than the crime that's been committed is the abject lack of shame on the part of Walmart. In a statement on the issue Walmart said, "If these allegations are true, it is not a reflection of who we are." Excuse me? What is it, if not a reflection of who the company is?

The only thing scarier than business corruption and crime is a culture that is okay with blowing off any responsibility or shame.

Doug Stephens, President, Retail Prophet

The American people have the right to decide how our U.S. Government -- which represents them and operates on their money -- behaves abroad. Whether you call it "nation building" or "armed conflict" or "war," and whether or not you agree with how any given administration exercises that power, there is no disputing that our Constitution confirms the right of the people to confer that power on the federal government.

The FCPA infers that the people have the right to direct how U.S. corporations act on foreign soil as well. We haven't seen a strong legal challenge to the Constitutionality of the FCPA yet, but I think we may be about to.

Until that time, we have decided that it is a good thing to impose our own business ethics on our U.S. companies, regardless of where in the world they operate. Having spent considerable time in the international business arena, I can attest that this position is very much "in step" with some cultures and very much out of step with others. In fact, adhering to these laws to the exclusion of local customs is to condemn these businesses to failure in many countries.

The temptation to extend our "rights" to our "ethics" -- and to apply them by extension to our corporations, is both strong and understandable. It feels right and it feels good. It probably reflects how most of us believe we would do business ourselves.

But is it wise? Is it legal? Is it based on the experience of having actually had to compete in cultures very different than our own? I think the answer is quite possibly "no" on all counts.

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Ben Ball, Senior Vice President, Dechert-Hampe

Walmart is probably no different than many other large corporation wanting to do business in a foreign country. I will bet there are many executive suites taking hard looks at their foreign practices as well as hoping they will not be caught with the same hands in the same cookie jars.

One of the problems is cultural. Because it is not legal in the U.S. does not mean it can't be legal elsewhere. Once again I ask, are we attempting to paint others with our belief systems?

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Ed Rosenbaum, CEO, The Customer Service Rainmaker, Rainmaker Solutions

The reason I don't buy the "when in Rome" argument is that it hasn't been shown that these bribes were absolutely essential to do a respectable business in Mexico. More so, they were essential to getting an unfair advantage over competition. Laws are there to attempt to maintain a level playing field. Walmart gains ground in the U.S. by going through proper channels (one presumes). I believe they saw the opportunity to take advantage of a corrupt system in Mexico; they were not victims of the corrupt system. That would be a naive interpretation, IMO.

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Rick Moss, President, Founder, RetailWire LLC

I think the most ironic part is that two politicians (in the US House of Representatives) are going to investigate this. Hmmm.

'donkirk'

The other problem with the, "When in Rome," argument is that it totally absolves you of any shred of moral responsibility.

In Afghanistan it's O.K. to grow and sell opium as long as you pay off the local officials and the army. Does that mean U.S. companies should, overtly, enter the drug trade?

What about those other quaint local business customs like child labor, kidnapping people into the sex trade, slavery, blood debt, smuggling and good old fashioned theft by force?

All of these are, "business as usual," practices in some parts of the world. Does this mean that U.S. companies have a right to engage in such practices as long as they keep the activities offshore?

Wait ... I know, I know ... a "harmless" bribe to get a store built isn't the same thing as the child sex traffic ... or is it? Where do you draw the line? Are U.S. "travel" companies that sell tickets to sex tours of Thailand not guilty of abetting a crime just because they don't own the brothel?

I'm not saying a bribe is the same crime as slavery, but I am saying it gets really sticky to start drawing lines once you've crossed that first big one.

So how about this? How about, "When in Rome act like an American, or at least how you hope an American would act?"

If there's no moral difference between "us" and "them" then maybe we should go back to the "good old days" of commerce by conquest. Then we wouldn't have to waste time talking about permits at all.

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Ryan Mathews, Founder, ceo, Black Monk Consulting

In the United States it would generally be considered unacceptable to offer monetary support for consideration and acceptance in doing business. This is simply not the case in most of the rest of the world. What we see as a bribe they may be considered as homage. It may be easy to now note that a rose is a rose by any other name, but the issue here is not a tangible item, it is an intangible abstract observance and exchange of traditions.

Another important consideration is that when you are a guest in another person's home or country the onus is on the visitor to conduct themselves in a manner acceptable to the host. In most cases here in the United States this and other similar traditions will be repulsive. Nevertheless, it just may as well be a new part of the cost of doing business in "one world." At least for a while, while the rest of the world grows into accepting the rights of the individual as a legitimate right of all the people.

'gjarnoldjr'

My comments have nothing to do with Walmart, rather they are focused on the responses that I've read in today's discussion.

I'm somewhat shocked to read that there is a belief expressed within this discussion that bribery is an acceptable form of doing business. It is not, and in fact it is illegal. I do not accept the concept that because other countries or cultures engage in unethical and unfair behavior, that it is okay for American business interests to do so. It is not "okay."

This is a very slippery slope, the rule of law ensures that everyone has equal and free access to markets. When this access is subverted through bribery, then access is narrowed to those who can and will pay. If bribery were a legitimate form of doing business in Mexico, it wouldn't be illegal there and it would be sanctioned by law.

It would be a dangerous precedent to say that American business should not be constrained by laws and that because bribery (or in Mexico "La Mordida" as it is known) is a way of life that we should accept and adopt it. Bribery can only weaken individual and corporation's rights and increase the cost of doing business, and therefore the cost of goods and services, to those who can least afford it.

Charles P. Walsh, President, OmniQuest Resources, Inc

I can't speak from a legal or cultural standpoint having no experience or expertise in either. What I can tell you is that this plays into Walmart's brand narrative here in the U.S. These actions only reinforce Walmart's image as the "evil empire" of retailers, doing everything they can to use their muscle to take advantage of local governments, employees, vendors, and suppliers.

Whether it's true or not, that's how this information will be used by those who are proponents of the shop local, small retail movement.

Harvey Briggs, Director of Disruption, OBX Thinking

Interesting that our discussion here hasn't yet touched on another essential question: Did Walmart break Mexican law, then cover that up too?

We Americans have a vested interest in helping our neighbor to the south become more prosperous and stable and less corrupt. Walmart counts Mexico as its second largest market and it is the largest retail entity in that market. To the extent that it remains a safe and economically vibrant country, that is good for business and our national security.

So, did Walmart help perpetuate lawlessness in Mexico by handing illegal cash incentives to local authorities? This may be a carryover from past norms, but that doesn't make it acceptable or wise.

If the allegations are true, I'd say the Walmart officials involved were lazy at best, self-serving careerists at worst. Corporate leaders here at home who tried to cover it up are culpable too. Un pescado apesta desde la cabeza.

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James Tenser, Principal, VSN Strategies

Laws control the lesser man. Right conduct controls the greater one. ~Chinese Proverb

'GMROI'

Doing business with Mexico is a very different mindset, and different standards are in play. It's a very tough game.

What will come back to haunt Walmart is the perception of a possible cover up. This situation requires more than corporate vision statements to convince investors. Trying to distance the company from the allegations at this late date is not the corporate citizenship that the world expects from Walmart. Time to own it, not hide investigation results.

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Anne Bieler, Sr. Associate, Packaging and Technology Integrated Solutions

It's not the crime, but the cover-up -- if any -- that's problematic here. "Expeditors" are a fact of doing business in many countries, especially Latin America. In Brazil you pay someone to stand in line for you. Why not call it that?

Veronica Kraushaar, President, Viva Global Marketing, LLC

My own take on this (specific) issue is that it's overblown: despite the claim that it "has brought the retailer a lot of negative attention," I doubt few outside of the narrow Wall Street/DC axis know or even care about it ... even fewer will next week.

As for the broader question, it's the age-old "level playing field" argument. To me, the main issue is was it (what might be called) a "good" bribe -- where one is simply attempting to attain what one is legally entitled to, or a "bad" bribe -- where one is seeking something that is inherently wrong. No legal difference, perhaps, but a big moral one (in my mind at least).

'notcom'

I'll just add that India has long had this kind of problem, but one way they are tackling it is very interesting -- a site where someone can report that they paid a bribe. I think bribery is inescapable, and a clear quandary for US companies. To me, the solution is transparency. If everyone reported what bribes they paid and to whom, it has the potential to rapidly turn on the bribe solicitors.

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Nikki Baird, Managing Partner, RSR Research

I have a problem with trying to rationalize this away. The law is the law, regardless of how inconvenient it might be. That's why Walmart went to great pains to cover this up.

If U.S. law puts U.S. companies at a disadvantage globally, then the thing to do is change the law, not break it. But let's be clear, what was going on in Mexico with Walmart was also a violation of Mexican law.

I think this has the potential to be a real problem for Walmart. As implied in the NYT story, this could be the tip of the iceberg. You know that the SEC and the Justice Department are now going to be looking into the books on Walmart's operations around the world.

Walmart's business model almost compels them to push the envelop. Negative publicity seems to follow them around. I don't see this as a story that's going to go away quickly or easily.

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Ted Hurlbut, Principal, Hurlbut & Associates

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