One of the world’s most successful and respected companies, Walmart, has just been caught in a massive bribery scandal that extends to the highest levels of the organisation.Just as bad, Walmart’s senior management appears to have long known about the scandal and has deliberately tried to cover it up.
In an investigation that could lead to the humiliation and firing of several senior Walmart executives–if not criminal charges–the New York Times’s David Barstow reveals the following:
- Walmart de Mexico, a highly successful business for Walmart (1/5th of Walmart’s stores worldwide are in Mexico), systematically bribed Mexican government officials for years.
- The bribes, which may have totaled more than $24 million, were paid to win permission to open new stories vastly more quickly than would have been possible had the company adhered to Mexican laws.
- The bribes were initially hidden from Walmart’s global headquarters in Bentonville, Arkansas, by disguising them as normal legal bills (a.k.a., accounting fraud).
- One of the key executives in charge of the bribery payments quit the company in 2005 after being passed over for promotion. He then detailed his behaviour to some of Walmart’s lawyers, implicating many senior Walmart executives in the process. This executive, Sergio Cicero Zapata, conducted 15 hours of on-the-record interviews with the New York Times.
- Walmart’s global headquarters immediately launched an investigation of the practice. But, despite finding much evidence of at least suspicious behaviour (and, at worst, clear violations of Mexican and US laws), Walmart effectively shut the investigation down.
- The CEO of Walmart de Mexico during the period of the bribery scandal, Eduardo Castro-Wright, is said to have personally approved of the bribes. Soon thereafter, Castro-Wright was praised by Walmart’s senior team for his astonishing success in Mexico and promoted to run the company’s US business. Castro-Wright is currently the vice-chairman of Walmart. He declined comment for the NYT’s article.
- Documents show that Walmart’s senior executives were terrified about what the bribery scandal would do to Walmart’s reputation for high ethical standards if it were ever made public. Instead of hiring an outside legal firm to perform a detailed investigation, the firm assigned the investigation to Walmart de Mexico (!) and then quickly discontinued it.
- Walmart’s then-CEO, H. Lee Scott, Jr., was briefed on the investigation. He reportedly rebuked the company’s investigators for being too aggressive.
- Walmart’s current CEO, Michael Duke, was chairman of Walmart International at the time of the scandal. He received frequent briefings about the bribery allegations and progress of the investigation.
In response to the NYT’s story, Walmart says it has begun a new investigation into the bribery scandal, which may have violated Mexican and U.S. laws. (The primary US law covering such behaviour would be the “Foreign Corrupt Practices Act.”)
Now, one question that will no doubt be asked about this behaviour is whether, laws or no, paying bribes is or was just business-as-usual in Mexico. Certainly that will be the first reaction of many who hear about this story–and these folks will also presumably point to US lobbying laws and corporate donations as just forms of legalized bribery. And on the latter charge, at least, they’ll have a point.
But there’s a difference between lobbying and campaign donations and direct payments to government officials, which is what Walmart is accused of making. And the fact that Walmart itself was as concerned about this as it appears to have been and the practice involved accounting fraud suggests that Walmart was well aware of the standards of conduct that it is supposed to uphold. And it is preposterous to think that Walmart could ever condone breaking laws, regardless of how common this might be in the regions in which it is doing business.
If the reality of what happened proves as damning as the NYT’s investigation makes it sound, it is hard to see how the company and its executives will survive the scandal unscathed.
At the very least, based on the evidence the NYT has described, vice-chairman Eduardo Castro-Wright and current CEO Michael Duke will probably be sent packing. And criminal charges for some Walmart executives would not seem to be out of the question.
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