The CSR Newsletters are a freely-available resource generated as a dynamic complement to the textbook, Strategic Corporate Social Responsibility: Sustainable Value Creation.

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Wednesday, April 25, 2012

Strategic CSR - Walmart in Mexico

The fallout from the Walmart bribery investigation in Mexico is interesting on many levels. Principally, why would a company that is so process- and control-oriented allow things to get to this point? Of course, the key questions directly related to the case are: How much did Walmart know, when did they know it, and did they disclose their knowledge to the correct authorities? The initial media reports do not appear to bode well for the firm and its senior executives. As we know from Watergate, it is not the original crime, but the cover-up that does most of the damage.

The fact that reaction to these allegations has been so swift and the prospective consequences so extreme (Walmart shares were down nearly 5% on Monday, alone: http://www.msnbc.msn.com/id/31260763/ns/business-markets?q=wmt), however, speaks to the particular nature of the ethics transgression—bribery.

This phenomenon struck a chord with me because it is related directly to the research I did for my dissertation. Part of my study involved constructing a comprehensive list of all the actions a firm can commit that an Ethics & Compliance Officer (ECO) would consider to be an ethics transgression. The list was created in close consultation with the Directors of the Ethics & Compliance Officers Association (ECOA, http://www.theecoa.org/), all of whom are senior ECOs in their respective firms. In addition to creating the list, I also asked the ECOs to score each transgression in terms of severity from 1 to 5 (with five being most severe). The ethics transgression at the top of the list in terms of severity is “bribery (in the U.S. or overseas).” The complete list of all the transgressions is below FYI.

The increased vigilance with which the U.S. government is prosecuting Foreign Corrupt Practice Act (FCPA) cases (e.g., http://www.nytimes.com/2012/03/11/business/corporate-bribery-war-has-hits-and-a-few-misses.html) may well be a driver of the heightened attention being given to bribery; it would also explain the market’s reaction to the allegations against Walmart:

Enacted in 1977, the Foreign Corrupt Practices Act prohibits American companies and foreign companies whose securities are traded on exchanges here from bribing foreign officials to attract or keep business. For many years, there were few prosecutions under the act. In 2003, for instance, not a single person was charged. But in the last four years, a total of 58 companies have paid a combined $3.74 billion to settle such corruption charges. Since 2009, some 67 people have been charged, 20 are still awaiting trial or are at large, and 42 have been convicted, some from charges prior to 2009. A total of 22 have been acquitted or had charges dismissed.

For an interesting interactive map detailing FCPA prosecutions regarding corporate actions in countries all over the world, see: http://fcpamap.com/