The weird thing about being a lawyer and an ethics professor is that bad news is great news for me. So today, when splashed across the New York Times was the headline, “Vast Mexico Bribery Case Hushed Up by Wal-Mart After Top-Level Struggle”, I was giddy for a split second. Then I felt guilty for being giddy about another example of ethical failures and illegal conduct by top executives, so I stopped smiling and started reading. But truly, this story has something for every one of my students.
This is a long article, but worth the time. Basically, in 2005 a former executive at Wal-Mart’s Mexican subsidiary sent an email to a top Wal-Mart lawyer describing how Wal-Mart de Mexico had engaged in widespread bribery of local officials in order to fuel Wal-Mart’s rapid growth in Mexico. My LA245 students should know that paying bribes in Mexico is a violation of the Foreign Corrupt Practices Act, if true. This is too bad, but this case is more about what Wal-Mart didn‘t do, than what it did do.
After hearing from this whistleblower, who was well positioned to be credible because he was the attorney that obtained construction permits for Wal-Mart de Mexico for years, Wal-Mart rejected the advice of its outside counsel to engage in a widespread investigation of its operations in Mexico. Instead it conducted its own internal investigation of a few pieces of its business in Mexico. When its lead investigator found evidence of violations of Mexican and American laws, and recommended further investigation, Wal-Mart shut down the investigation. No one was fired, nothing was reported to the authorities in either country. In fact, several executives involved were promoted. No one knew anything about it until the New York Times started its investigation that led to this article in 2012.
For my ethics students (which is really everyone), you should be able to easily identify several of the pitfalls we have discussed in class. Increasing pressure from labor critics, a sagging stock price, and unrelenting pressure to grow led to a focus on outcomes rather than the process. I am sure the Wal-Mart executives in Arkansas had motivated blindness due to these pressures, and the desire to build in Mexico. Wal-Mart executives relied on others to do their dirty work, another ethical pitfall. In Mexico they were called gestores, which are people commonly employed to do things ranging from waiting in line for you to get a drivers license to quasi-lobbying.
I am not naive enough to believe that bribery doesn’t occur, or that the FCPA will stop American companies from bribing foreign officials. The thing that really scares me is Wal-Mart’s attempt to hide it all. Any company the size of Wal-Mart is going to have corrupt pockets, no matter how healthy the corporate governance, ethics, or audit functions are at the company. How you deal with it is the true test of an organization’s values, a test that, if this investigation is to be believed, Wal-Mart has failed miserably.
13 Comments
Nick Li posted on April 22, 2012 at 5:43 pm
What does this mean for Wal-Mart? I’m assuming heavy fines and having some of their executives sent to jail, but the deed has already been done and they’ve already unfairly established their presence in Mexico. Are they going to tear down the Wal-Marts and revoke their permits?
Rafael Grados posted on April 22, 2012 at 6:11 pm
A company as big as Wal-Mart will probably walk unharmed from this incident. If public opinion continues to rise, they will punish a couple of escape goats, while still continuing to grow unhindered by the laws that limit citizens or normal business owners as such.
Hans Gulrajani posted on April 23, 2012 at 2:23 pm
If Wal-Mart is involved in foreign bribery, then I wonder how many other big retail corporations that have subsidiaries outside the US that have used bribery to obtain permits and other advantages. I feel like it could be an ongoing situation that is common throughout the retail world. As my mother is from Panama, I have seen first hand how big corporations bribe not only policemen but inspection officials to be lenient with their reports.
rspooner posted on April 24, 2012 at 7:00 am
Turns out someone is worried:
Shareholders: http://www.nytimes.com/2012/04/24/business/wal-mart-stock-falls-nearly-5-after-report-of-quashed-bribery-inquiry.html?_r=1
rspooner posted on April 24, 2012 at 7:01 am
P.S. Think about what lawsuits the shareholders could bring against the Board. Definitely fodder for exam questions.
Ryan Gee posted on April 25, 2012 at 8:10 pm
Speaking about bribery, here is another article that concerns a government official in the UK who is in charge of the Olympics. He is accused of secretly backing Murdoch’s multi billion dollar bid for full control of the UK satellite broadcaster. Take a look:
http://www.forbes.com/sites/johnclarke/2012/04/25/head-of-london-olympics-caught-in-murdoch-bribery-scandal/
James T. Curtis posted on April 26, 2012 at 12:26 am
This incident fits perfectly with what we just learned about for corporations because that shareholders could bring lawsuits against the board as Professor Spooner mentioned. I think the really shocking thing here is the attempt at a cover up. Whenever it was that the higher ups in Wal-Mart “found out” about the bribery, they tried to cover it up. And the really interesting thing to think about is how high up were the people who were covering up this issue. If the top management of a company that I believed in or publicly owned was involved in covering up a scheme like this, I would probably sell my shares as well. Or maybe try to sue the company.
rspooner posted on April 26, 2012 at 7:42 am
Rupert Murdoch could be the subject of an entire law and ethics course.
My favorite thing in this article is where Hunt’s aide sends an email and puts in brackets that what he has just done is [totally illegal, of course!].
Idiot.
Yuchen Qin posted on April 26, 2012 at 8:53 pm
Actually in my SM299 class, I studied this company for my team project, and the conclusion was that Wal-mart is, and will be the leading retailer in the general merchandising industry. It shocked me because I didn’t expect a company as large as Wal-mart would bribe. I have seen and heard of so many cases of bribery in China, among business and government, and I take it as a hidden rule for business. It is sort of a culture in China. However, it is not a common phenomenon in the states and other countries. Bribery breaks the fairness of trading and the market mechanism, which should be firmly forbidden.
Jinfeng Cai posted on April 27, 2012 at 10:31 am
I would not be very surprised that huge companies like Wal-mart would bribe. Besides, I would like to mention that bribe is a big issue in China now. It does not only exist in business, there are many bribe issues relate to the government. I assume that people who bribed was trying to bring benefits to the company. However, in the long term, it will ultimately hurt the company dramatically.
Renee Schwacke posted on May 1, 2012 at 1:44 am
Although the bribery does not align with the conservative values of Wal Mart, I don’t think this event will impact the company’s success or profits in the long run. Although looking at there recent stock prices we can obviously see that this has hurt the company, Wal Mart has created such an empire for itself that this bribery lawsuit may end up not impacting it in the long run at all. Although shareholders are currently upset about this crime and stock prices are hurting, others who have recognized the stability and overall success of the company may eventually be enticed to buy wal mart stock at these lower prices. Either way I don’t think that the success of Wal Mart will be going away anytime soon.
Stephanie Nowak posted on May 1, 2012 at 10:21 pm
As stated above, Wal Mart has created such a empire with a vast group of consistent supporters. In class when we discussed this, not too many people expressed interest in Wal Mart. I guess this can be attributed to the discrepancies in economic status of those who frequent Wal Mart and those who don’t. Beyond that, Wal Mart offers a quick, reduced price stop for multiple needs ranging from groceries to clothing. That being said, families that live on a tight budget will never stop shopping at Wal Mart. On a more pertinent note, one of my person favorite aspect of Wal Mart is the friendly welcomer at the entrance of Wal Mart. I dont notice this as much now as I used to when I was little, but there was always a greeter at the door with smiley face stickers. I loved this! and I still do! The person handing out the stickers is your very average Joe, therefore able to relate just by appearance to everyone that walks in. What stuns me is that Wal Mart was able to have a policy that was so friendly and inviting in their culture while maintaining a less than ideal respect for ethics. With this in mind it makes me not so much question the ethical tendencies of other corporations (lets be honest, everyone has participated in some sort of unethical transaction) but rather make me rethink my love for the small culture aspects of companies like Wal Mart.
Hope Blalock posted on May 4, 2012 at 4:49 pm
It is amazing to me that a company as successful as Wal-Mart (or at least officials within the company) still feels the need to employ bribery in order to do even better. I guess this is just another example of some of the sad realities of human nature. This article seems to go well with “The Burden of Success” post that was posted earlier in the semester. Regardless, I think this will lead to some interesting cases from the shareholders, who (as we discussed in class) usually have very few rights in terms of the operations of the company.