Looks like Wal-Mart could have used one of those lie detectors.
Ten years ago Wal-Mart was looking to expand in Mexico and ran into some bureaucratic trouble. Opening new stores was difficult. Zoning permits, impact statements, building permits, traffic studies—they were all taking too long. So they hired local lawyers to “fix” things, which in the developing world means that probably graft was involved.
Soon, a familiar story ensued: an employee involved in the expansion was passed over for a promotion, so he went to the senior brass in the US with allegations of bribery and corruption. The brass investigated, but the people they sent down there had lots of experience in law enforcement and little in Wal-Mart’s corporate culture and a few feathers got ruffled. A new investigator was put in charge—one who might have been implicated in the first place. His report was far from adequate, but the payments to local “fixers” stopped. Headquarters let the matter drop.
What happened next is atypical: the whistleblower also dropped the matter. He didn’t carry on his crusade to the next level. It wasn’t until late last year—six years later—that the issue surfaced again. Indeed, the company disclosed in their annual report two months ago that they were reviewing their compliance with the Foreign Corrupt Practices Act.
Working in other cultures is different than in the US. A tip one place might be a bribe somewhere else, and it’s often hard to tell the difference. But Federal Justice Officials are involved now, and they will take a hard look at both the events and the investigations. Wal-Mart is a tough competitor in a rough business with a big target on its back. They can’t afford this kind of distraction, and they’ll probably settle the charges.
Douglas R. Tengdin, CFA
Chief Investment Officer
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