Wal-Mart's governance failure is a leadership failure

The Wal-Mart Mexican bribery scandal, assuming the allegations detailed by the New York Times are true, is a breathtaking failure of its American leadership. Wal-Mart had compliance systems in place to detect and effectively respond to the corruption. These looked good on paper, and they worked: the bribe paying was substantiated and management was told of the need for a comprehensive, independent investigation. The problem was US corporate management’s decisions to override the compliance systems and look the other way.

After being presented with credible evidence, a decision was taken not to hire independent outside counsel. That decision meant the company’s executives could try to influence the course of the investigation improperly. The in-house investigative team apparently tried hard to be thorough but rather than reward their diligence, the Times reports that then-CEO H Lee Scott Jr effectively shut the investigation down by putting it under the control of one of the implicated executives and telling the investigators not to be so aggressive.

The taint of the scandal at Wal-Mart’s top isn’t limited to Scott, however. Current CEO Michael Duke was kept informed about the allegations and the evidence. Tellingly, the Mexican executive at the heart of the allegations, Eduardo Castro-Wright, is currently vice chairman and head of Global eCommerce and Global Sourcing. Castro-Wright was promoted multiple times after the allegations surfaced and the scandal seems not to have prompted any change in Wal-Mart’s attitude to him: the company apparently intends to let him stay in his job until his previously scheduled July retirement.

As so often, the cover up seems worse than the crime. That’s especially true from a corporate governance standpoint. Unless Wal-Mart really comes clean, not just about the Mexican corruption but about its own failure to deal with it, and now holds senior executives accountable, how can shareholders have confidence in the board and the company’s executives? Are there other hushed-up scandals lurking in the shadows?