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Walmart's Criminal Problems - Much Bigger Than NewsCorp's

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OK, we now know that Walmart's meteoric rise to Mexico's biggest retailer and employer appears to have been fueled by a massive bribery scheme. We know that millions of dollars were apparently paid to "gestores," fixers whose job was to ensure that local zoning and environmental laws didn't slow the approval of new stores. We know that when a whistleblower brought the scandal to the attention of Walmart headquarters in Arkansas, the company's general counsel and compliance officers called for a full-fledged investigation. And we know that company's senior leadership allegedly not only refused to allow such an investigation but strategically and intentionally defanged the ability of its investigative units to pursue such problems in the future.

As the New York Times investigation that brought all this light summarized, it found "credible evidence that bribery played a significant and persistent role in the Wal-Mart's rapid growth in Mexico."

We know in short that Walmart's much heralded commitment to ethical behavior has once again proven to be a pathetically flimsy shield against the driving imperative of its "grow at any cost" business model. And we can see that even when grow at any cost means "break the law" the company is not only willing to overlook, but actually to reward, success purchased at that price.

We know all this, incidentally, even if it should turn out (almost tooth fairy implausibly) that every peso of the fees Walmart paid its fixers were stolen by those agents and none actually passed along as intended to bribe Mexican officials -- because either way, whoever was paid off, Walmart knew that company funds had been used illegally, did nothing about it, and concealed the evidence from shareholders and law enforcement officials in both Mexico and the US.

The scale of this potential bribery dwarfs the fears that have been expressed that Rupert Murdoch's NewsCorp's reliance on bribing the police and hacking cell-phones to obtain stories in Britain might entail violations of the US Corrupt Practices Act by its US operations. Based on the Times' investigation, Walmart's greatest recent business success, the explosive growth of Walmex, was overwhelmingly empowered by a strategy of rushing new locations through Mexico's permitting processes so quickly that Walmart's opponents could not compete -- the entire enterprise was based not on better service or prices, but on obtaining, if necessary through illegal means, a monopoly.

These revelations come on the heels of a series of previous scandals in which Walmart's growth at any cost mandate led its leadership to abuse its workers, violate its ethical standard, and taken the company far too often out of the gray zone and into the black. It's faced criminal charges for employing illegal workers, and outraged communities when it adopted the practice of locking its workers into some US stores overnight, so they could not even leave if they had medical needs. Recently workers at Walmart's seafood processing facilities in Asia were subjected to human rights violations. Even in Mexico five years earlier, Walmart had been implicated in a massive scheme to avoid sales taxes, eventually paying $34.3 million in back taxes, but along the way refusing to take corrective action when the problem was flagged for its leaders. EXAMPLES EXAMPLES.

What does this tell us? It's not surprising to learn that local zoning processes in Mexico are corrupt, or that in any fast growing enterprise in that country the issue of how to avoid bribery while building a business is challenging. It's not remarkable that Walmart, discovering its problem, felt threatened and tried to deal with the issue internally first.

What is most telling about the Times investigation is that Walmart had on its staff capable and competent leadership which had dealt with these issues before. Walmart International's general counsel, Maritz I. Munich, had spent 12 years in Mexico and Latin America as a lawyer for Procter & Gamble. Ronald Halter, one of the company's special investigators, had 21 years of experience with the FBI. And these staff vigorously and persistently flagged for Walmart's top leadership that the company had a serious problem, that the allegations of violations of US and Mexican law were credible, and that Walmart's senior leadership in Mexico, including Walmex's CEO Eduardo Castro-Wright, were potentially implicated.

What happened? The professionals were ignored, the investigation was shut down. But instead of doing what many companies would have done, keeping the problems out of the public eye and away from the authorities while doing a thorough internal job of cleaning house, Walmart both covered up and rewarded its own rotten apples -- including the most senior official implicated. Castro-Wright was promoted to his present role as Vice-Chairman -- a reward for his success in growing Walmex so fast, using a monopoly building strategy which both past and present Walmart CEOs, Lee Scott and Michael Duke, knew had been based on extraordinarily dubious and probably illegal methods.

Walmmart's business model -- profit through growth, whatever the cost -- has not served communities, its workers or, ultimately, its average shareholders, well. It makes less money per store than its chief US competitor, Costco, while paying its workers less and treating them poorly, locating its stories in sites which contribute to sprawl and pollution. It's employee-shareholders this year filed a proxy resolution complaining that "recent decisions...may overemphasize sales growth even when that growth is resulting in declining rates of return ... and does not ...cover the costs of capital." Its tactics to compel its suppliers to reduce their prices in turn requires them to be less good employers and neighbors, encourage safety, health and environmental abuses, and make a mockery of the ethical goals the company sets in its formal policies.

But the business model is sacred -- the company simply refuses to question it. When I became Executive Director of the Sierra Club Walmart reached out to me on a number of occasions to talk about its sustainability initiatives. I thought -- and think -- that these initiatives were important, significant and serious. The company has had mixed success in implementing them, but they are ambitious, so failures are not surprising. But when Walmart asked to meet, I always made it clear that I was only willing to have a conversation in which not only those activities which the company defined as "sustainability" would be discussed, but the entire implications of Walmart's business model. I wanted to look at the environmental footprint not only of Walmart's store floors, but of its locational choices; not just at the standards it set for its suppliers, but what its pricing did to environmental quality in their communities. No one from Walmart, apparently, felt qualified or empowered to have such a broad discussion. I suspected, and suspect more strongly after reading the Times story, this reluctance was because growth at any cost is holy writ in Bentonville, and holy writ is not something you sit down to debate with outsiders -- even, when it appears to involve committing massive criminal violations of US and Mexican law.