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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Monday, January 30, 2017

Strategic CSR - Walmart + bribery

The article in the url below revisits Walmart's bribery scandal in Mexico (see Strategic CSR – Walmart in Mexico and Strategic CSR – Walmart), which I thought had wrapped-up a long time ago:
 
"Wal-Mart Stores Inc. tried and failed to settle a foreign-bribery probe that has stretched for five years and cost the company more than $820 million, according to people familiar with the federal investigation."
 
Since its original focus on operations in Mexico, the scope of the investigation has broadened considerably, which explains the growing cost to Walmart:
 
"The Justice Department and SEC investigations were largely driven by a 2012 series of articles in the New York Times portraying details of possible misconduct at Wal-Mart in Mexico. The investigation spread to other regions where Wal-Mart does business, including Brazil, India, and China. A final settlement is expected to cover multiple countries, the people said."
 
Apparently, towards the end of a presidential administration, firms with outstanding investigations push to settle them with the team they know (and who are familiar with the history of the case), rather than wait for the incoming team that may impose different and more burdensome terms. In this case, Walmart was unable to reach agreement with the DoJ and SEC before Obama left office:
 
"'Wal-Mart and the government are very far apart in terms of a settlement,' one of the people [familiar with the federal investigation] said Thursday."
 
Apart from learning that this investigation was still ongoing, however, I was more interested to see what appears to be the main obstacle to a conclusion:
 
"The people familiar with the probe said one major sticking point has been Wal-Mart's eligibility to continue accepting food stamps in its 5,300 Wal-Mart and Sam's Club stores in the U.S. after a settlement is reached. A company that pleads guilty to a federal crime can lose its right to win government contracts -- a penalty that could block Wal-Mart from the $71 billion food-stamp program. The retailer, one of the largest sellers of groceries, is also one of the biggest beneficiaries of food-stamp spending."
 
How important, exactly, are food stamp customers to Walmart?
 
"The loss of food-stamp shoppers would be a blow to Wal-Mart, which each year receives some 18% of the money spent through the Supplemental Nutrition Assistance Program, or SNAP. That represented about $13 billion in sales last year."
 
Although this is a small percentage of the firm's almost $500 billion annual revenues, it still represents a significant transfer of funds from the government. As such, this amount represents a subsidy that allows the firm to operate at a much lower cost than competitors. And I would guess that a similarly large number is involved in terms of Medicare and Medicaid healthcare payments for employees who do not receive insurance directly from the firm. Tax breaks to locate stores in particular geographic, economically-deprived regions also no doubt help pad Walmart's bottom-line. There are good arguments on both sides for these payments to exist and continue. What I find funny, though, is the widespread belief that the U.S. economy is a free market. The inefficiencies introduced by the various political biases on both sides of the fence reduce competition and support firms that would otherwise struggle or even fail, preventing the creative destruction that is so fundamental to the effective functioning of the capitalist system.
 
Take care
David
 
 
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Wal-Mart Stuck in Probe Limbo
By Joann S. Lublin, Aruna Viswanatha, and Sarah Nassauer
January 28-29, 2017
The Wall Street Journal
Late Edition – Final
B1