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Tuesday
May132014

Walmart: It’s not the company, it's the compliance system

The Pulitzer-prize winning NY Times reporter David Barstow famously wrote in 2012 that Walmart 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.”

The final resolution of the allegations lies ahead. There is reason to hope that Walmart will finally reveal the full details of its internal investigation of a half-decade of world-wide business, make an ethically-necessary, public apology for any past misconduct, and forge a scaled-up, historic settlement with the DOJ and SEC that makes Walmart an advocate.

Meanwhile, Walmart has just released a report describing its new compliance program, remarkable for its comprehensive approach.

How did Walmart get to this point?

The company's C-Suite and Board did not suddenly do an about face. Walmart was led to this moment by dynamics at work since 2005. It’s the compliance system that moves companies to reconsider what they are doing, no matter how big they are. At Walmart, the compliance system is working and that is a real cause for celebration.

A compliance program has to contain internal checks and balances (noted by pioneering compliance expert Donna Boehme) especially between the C-Suite and the Board, and among the CEO and advisory functions like HR, Legal and Compliance -- essentially a ‘power sharing” redistribution, according to commentator Michael Volkov.

The Rand Center’s 2013 report concerning the C-Suite as a  Crucible of Misconduct explores some of these internal checks and balances.

In addition, there are many outside forces, such as the media and public opinion, that sanction or incentivize company decisions.

It’s easiest to see these dynamics at work by taking Walmart as an example of a company responding eventually to the compliance system of checks and balances. Here are some of the important influences on Walmart from 2005- 2014. 

(Note that Walmart and its executives have not admitted nor been found guilty or liable for any misconduct. They are all entitled to due process, including the continuing presumption of innocence.)

  • Compliance Program - Back in 2005, Walmart had a compliance program that was good for its time, including ex-FBI investigators and committed professionals like Maritza Munich. However, they lacked protections from retaliation and may have been pressured to resign, an example of a major gap in the compliance system.
  • Boards and Corporate Governance – It is not clear yet what happened at the Board level, but the Board’s engagement changed radically from 2005 to 2014, after public and judicial scrutiny.
  • Whistleblowers and Internal Reporting – Most headline cases involve a tip, a crucial part of the compliance system, that alerts the company it has something to investigate. Walmart's compliance officers, tipped by an internal officer, could have ended the whole matter in 2005 but allegedly they were obstructed and a cover-up ensued by some senior executives and directors. In 2011 the same or another whistleblower apparently gave the story to the New York Times.
  • Media and Freedom of the Press - The media broke the story to the public in 2012, ending the alleged cover up. The story set off public scrutiny and also changed the political climate. The FCPA had been under political attack as bad for business and unworkable. New political will favored strong investigation and enforcement of FCPA cases. Anti-corruption blogs and professional organizations like the SCCE are created and gain influence during 2005-2014.
  • Enforcement Authorities – In 2012-14, the DOJ and SEC's strong enforcement policy, including an unprecedented number of senior executives under criminal investigation, pushed the company to self-disclose, investigate, remediate and build a scaled-up, updated compliance program.
  • Sanctions and Incentives Matrix - Incentives for cooperation are available due to laws or DOJ and SEC policy for reduced fines or for deferred prosecution without a monitor. Accordingly, the norm is for a company to undertake an internal global investigation in cooperation with the DOJ and SEC, avoiding a formal, subpoena-driven prosecution. Walmart seems to have taken this path.
  • Judicial Review - The Delaware Courts are reviewing allegations that self-dealing directors may have misled the Board about the obstructed compliance investigation. A shareholder suit alleges misrepresentation to shareholders about the events.
  • Business Leadership - A consensus has formed since the 1990s that companies must use collective action to stop bribery. Companies that continue to bribe are cheating on the consensus and must be sanctioned in order to preserve the collective action.
  • Ethical Business Culture – Based on federal sentencing guidelines and business laws like SOX, companies must have policies and programs to maintain an ethical business culture. The relatively recent compliance officer professional organization, the Society for Corporate Compliance and Ethics, trains COs to beware of Lawful but Awful business. There is growing support for tasking CECOs with board-level ethics leadership. 
  • Global Stakeholders - A "court of public opinion" around the globe is opposed to impunity and backs companies and political parties that fight corruption. As President Lincoln said, “With public sentiment, nothing can fail; without it nothing can succeed.”

The compliance system of checks and balances is the bedrock of compliance work. This is a moment to be proud of what has been created.

___________

Michael Scher is a contributing editor of the FCPA Blog. He has over three decades of experience as a senior compliance officer and attorney for international transactions. He is affiliated with ethiXbase, the owner of the FCPA Blog. He can be contacted here.

Reader Comments (1)

Its the company culture not the system. The culture defines the system and sets the tone.
May 14, 2014 | Unregistered CommenterJ Farrow
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