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6 Burning Questions on the Wal-Mart Corruption Scandal

A law professor and compliance consultant examines the scandal as a wake-up call for corruption and corporate culture.
 
 
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I've worked for many years as a compliance consultant, and no one I know in corporate America was surprised by the recent New York Times allegations that Wal-Mart de Mexico spent over twenty million dollars to bribe Mexican officials to fast track their store openings. Unfortunately, doing in business in Mexico, China, India, Brazil, Russia, Africa and a number of other places means that government officials are going to ask for bribes. Some - but not all - companies pay them as a cost of doing business. If the allegations against Wal-Mart prove to be true, the case is a wake-up call to companies and investors that there are more important things than profits and growth. A company's ethical reputation is priceless.

When I served as a compliance officer for a multinational company a few years ago, I trained a Chinese businessman on the US bribery laws. He asked why the United States focused so much on the small bribes that get things done while allowing American legislators to accept big checks from corporate donors who wanted favorable legislation and tax treatment. I admit that I had no good answer other than the fact that lobbying is not illegal in the US, but bribery is.

As a law professor who uses Wal-Mart as a case study on corporate responsibility, what surprised me was the reported coverup at the highest levels of the organization once executives at Wal-Mart’s headquarters learned of the alleged bribery from one of their own managers in Mexico in 2005. Ironically, on the last day of class last week, I assigned one group of students to propose five priorities out of 50 choices for Wal-Mart’s board to consider. They presciently chose beefing up global regulatory compliance and ensuring that the company had a social media and crisis management plan in place in the event of a corporate scandal.

Not surprisingly, the corporate social responsibility report that the company released this month using a globally accepted set of metrics failed to provide any information at all in the section related to bribery, including the information that wouldn’t necessarily put the company in legal jeopardy such as what percentage of employees have been trained in anticorruption or how many business units had been audited for potential bribery.

In fact, it appears that the company’s significant and laudable efforts at corporate social responsibility and sustainability around the world have not bought it any goodwill with legislators, the press or the public. Wal-Mart’s official response to the New York Times story rang hollow to many.

The appointment of a new global anticorruption officer and infrastructure may be too little too late to satisfy critics. At least three law firms are “investigating” the possibility of suing Wal-Mart and are soliciting “deceived” investors. To date, Wal-Mart has lost over $10 billion in value after its share price dropped. Anti-Wal-Mart crusaders feel vindicated and invigorated, and Congress has demanded answers. The company will face extra scrutiny as it tries to expand abroad. Wal-Mart should also expect tough questions from its shareholders at its annual meeting in June.

If past experience is any guide, Wal-Mart will likely pay over $100 million in legal fees to investigate and defend itself and could pay significant amounts in fines to both the Department of Justice and Securities and Exchange Commission. (For an excellent description of Wal-Mart’s potential legal woes, see " Wal-Mart's FCPA Scrutiny Grows.")

In December when Wal-Mart first disclosed its internal investigation to Wall Street after learning of the New York Times story, I compared the company to Massey Energy, which had just settled with the government after willfully violating the law and causing the deaths of 29 miners. I argued that the government should treat companies differently depending on their good-faith efforts to prevent criminal acts. I assumed that Wal-Mart’s alleged bribery was not widespread and involved a few rogue managers around the world who chose to ignore the training, policies and a strong tone at the top.

 
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