What happened at Wal-Mart de Mexico can only be described as a failure of ‘tone at the top’.
An investigative report by the New York Times has revealed a culture of corruption at one of Wal-Mart’s largest and most profitable business units, suggesting internal controls could not withstand the force of top executives, who included former CEO H Lee Scott Jr.
According to the report, more than $24 million worth of bribes were paid to help the company expand its footprint in Mexico so fast that the competition would be able to respond. Hundreds of payments were made in a scheme that involved Wal-Mart de Mexico CEO Eduardo Castro-Wright, who became vice chairman of Wal-Mart in 2008 based on his results. He was the ‘driving force’ behind the payments, the Times reports, and the local unit’s general counsel allegedly ‘authorized’ the bribes and helped halt subsequent investigations.
The allegations are reported to have begun with Sergio Cicero Zapata, who had spent nearly a decade in Wal-Mart de Mexico’s real estate department, but left the company in 2004, due to what he claimed was the stress of working in such a corrupt environment. Cicero is said to have been heavily involved in the activity over which he blew the whistle: he recruited local gestores (‘fixers’) and dispatched them with payments to bribe officials to help speed the expansion. These actions also helped keep senior executives at company headquarters in Bentonville, Arkansas in the dark.
The next year, 2005, Cicero took his concerns to the general counsel of Wal-Mart International, Maritza I Munich, who pushed for a deeper investigation. She left the company in 2006, however, when her efforts were thwarted. Interestingly, in 2004 Munich had spearheaded a push for Wal-Mart’s board of directors to adopt a strict anticorruption policy forbidding employees from ‘offering anything of value to a government official on behalf of Wal-Mart.’ Cicero’s allegations were raised the next year.
The problem at Wal-Mart was not the absence of corporate governance frameworks. In fact, the company’s internal controls appear, at least superficially, to be robust. In addition to channels for escalating both ethical and legal breaches, it boasts a 70-person internal investigations unit headed by a former FBI official. Yet, Bentonville routinely interfered in the unit’s efforts, according to the New York Times, because of complaints from across the company.
During the internal investigation of Wal-Mart de Mexico, the scope and mission of the operation was changed by Scott, who considered the investigation team ‘overly aggressive.’ Those actions sidelined the investigation and instead, responsibility was given to Wal-Mart de Mexico’s general counsel, who is alleged to have been actively involved in the bribery.
Additionally, the company knew of ethical shortfalls in Wal-Mart de Mexico because of a report prepared by Kroll in 2003 as part of an investigation into the regional business unit. During the investigation of Cicero’s allegations, outside counsel and investigators were hired, but their areas of responsibility were constrained, rendering them unable to perform their duties effectively.
Wal-Mart is reportedly looking into this colossal scandal now, and spokesman David W Tovar told the Times, ‘If these allegations are true, it is not a reflection of who we are or what we stand for.’ He said the company is working to strengthen its FCPA compliance in Mexico, adding, ‘We do not and will not tolerate non-compliance with FCPA anywhere or at any level of the company.’
The enduring lesson, it seems, is that frameworks and policies do not make for good governance. Yes, they are doubtless necessary to ensure and track compliance, but they do not compensate for the absence of an ethical tone at the top. Without the C-suite’s commitment to ethics and compliance, governance processes, systems and policies are destined to fail.
