Search

Editors

Richard L. Cassin Publisher and Editor

Andy Spalding Senior Editor

Jessica Tillipman Senior Editor

Michael Scher
Senior Editor

Elizabeth K. Spahn Contributing Editor

Julie DiMauro Contributing Editor

Eric Carlson Contributing Editor

Michael Kuria Contributing Editor

Thomas Fox Contributing Editor

Philip Fitzgerald Contributing Editor

Marc Alain Bohn Contributing Editor

Bill Waite Contributing Editor

Shruti J. Shah Contributing Editor

Russell A. Stamets Contributing Editor

Brook Horowitz Contributing Editor

Connect

Subscribe to receive the free FCPA Blog daily

Close
FCPA Blog Daily News

« Doesn't the SEC watch Mad Men? | Main | Indonesia petro-graft scandal deepens »
Wednesday
Aug212013

Wal-Mart is no numbers game (Part One)

Wal-Mart is the largest retail organization on the planet. Indeed its nickname among financial analysts is “Planet Wal-Mart.” Repeatedly ranked Number One on the Fortune 500 list, Wal-Mart has more revenue than Apple, IBM, Microsoft, Amazon and Pepsi - COMBINED.

How did Wal-Mart become so big? “International Growth” -- opening stores all over the globe ahead of the competition. At the same time, the global norm is non-participation in local bribery (as is the law laid down by the FCPA). Thus, at the center of the Wal-Mart scandal is a collision between the FCPA’s norm of non-participation and an historic opportunity for a gold-rush of global store openings.

The New York Times talked about the collision this way:

Wal-Mart de Mexico was not the reluctant victim of a corrupt culture that insisted on bribes as the cost of doing business. Nor did it pay bribes merely to speed up routine approvals. Rather, Wal-Mart de Mexico was an aggressive and creative corrupter, offering large payoffs to get what the law otherwise prohibited. It used bribes to subvert democratic governance — public votes, open debates, transparent procedures. It used bribes to circumvent regulatory safeguards that protect Mexican citizens from unsafe construction. It used bribes to outflank rivals.

What apparently happened at Wal-Mart is not a “numbers game” or any kind of game. It’s serious business for the public and for Wal-Mart’s stakeholders, both inside the company and outside. Ultimately the Wal-Mart story is about a small group of people and whether they followed the rules or not, and another very big group of people who may have been victimized by what happened.

While it's not a story about numbers, a few of them can be useful to iluminate Planet Wal-Mart’s historic clash with the FCPA:

10 (A Decade In Question) - In 2002, Eduardo Castro-Wright, became Wal-Mart’s chief operating officer in Mexico. According to the New York Times, the whistleblowing in-house attorney said that while bribes were occasionally paid before Mr. Castro-Wright’s arrival, their use soared after he ascended to the top job in 2002. The Times questioned the reasons why Wal-Mart promoted Mr. Castro-Wright and other executives into senior management positions. Did alleged bribery in Mexico undermine Wal-Mart's corporate culture, and spread from Mexico to Brazil and China? If so, will Wal-Mart’s Hall of Fame ten-year earnings record be tainted by a decade of steroid-like corruption from 2002 until 2012?

7 (Seven Fat Years, Seven Lean Years?) – If Wal-Mart had taken the advice of its compliance professionals in 2005 to pursue indications of serious trouble in Mexico, we would not be having this discussion. The $300 million downpayment on FCPA compliance may look small in comparison to a settlement, if its proven that Wal-Mart continued to ignore and sideline its compliance professionals from 2005 to 2012. Those seven lean years of compliance are in contrast to Wal-Mart's overlapping seven fat years of international growth. The contrast begs the question of how the strategy for international growth was conceived. And did anyone involved knowingly or with willful blindness decide to exploit local opportunities for bribery as part of a strategic plan for massive international growth?

0 (Zero Is Not Even One) – An FCPA cover up by executive management in the manner suggested by the New York Times would be an historic event. More than a year has elapsed since the DOJ and SEC launched their invesgitation. Yet the number of executives publically known to be facing charges is still zero.

                                                      *     *     *

Next time we'll consider a few more numbers that should be on the minds of those who may have a hand in Wal-Mart's immediate future.

  ______________

Michael Scher is a contributing editor of the FCPA Blog. He has over three decades of experience as a senior compliance officer and attorney. His work for major companies in New York and the Middle East includes military procurements, international trade contracting, supervision of national sales forces and trainings for compliance with related laws, like the FCPA or AML. Miami-based, he assists companies in trainings and work shops and FCPA-related projects or investigations. In addition to English, he speaks French and Hebrew. Contact him here.