The Walmart Bribery Saga: A Lesson In Risk Management

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Walmart Bribery

The ongoing investigation into bribery allegations at Walmart has all the makings of an episode of CNBC’s “American Greed”: There’s a multi-million-dollar motive, a colorful cast of characters and a substantial cover-up.

More than two years after the suspected $24 million in bribes were brought to light at Walmart’s subsidiary in Mexico, no formal charges have been filed.

The suspected bribes bought zoning approvals, reductions in environmental impact fees and the allegiance of neighborhood leaders, according to the New York Times report that first revealed the widespread allegations. 

Acting on a tip from a former executive in 2005, Walmart initially sent a team of investigators, who recommended the company expand its investigation. Instead, Walmart executives put a halt to it without notifying law enforcement.

 The fallout from all this is costly. If charges are filed, Department of Justice fines could be as much as 1 percent of the company’s annual sales, which would be about $4.7 billion, based on 2013 figures. Even without charges, the company has already spent more than half a billion dollars on an internal investigation and other changes it made to its global compliance protocol.

 Those changes, detailed in Walmart’s 2014 Global Compliance Report, are significant. They include:

  • Re-aligning its corporate structure to have the global compliance, ethics, investigations and legal functions under one organization that reports to the Executive Vice President, Global Governance and Corporate Secretary
  • Recruiting new compliance staff and appointing 14 global subject matter experts, including anti-corruption, anti-trust, anti-money laundering and consumer protection
  • A company-wide review of compliance programs and additional training for employees at every level
  • More detailed procedures for reporting allegations to the Global Ethics Office and better communication of ethics issues, including a “Five Minute Integrity Focus” discussion tool for managers
  • Spending more than $100 million to upgrade compliance software systems to address third-party due diligence, licenses, permits and monitoring

Whether or not company executives willingly covered up Foreign Corrupt Practices Act violations in the past, it’s clear Walmart intends to take them seriously moving forward.

Other companies should carefully consider the Walmart case as a study in the potential breakdown of global risk management systems and how these widespread failures can be avoided. Here are three key lessons we can all learn from the case.

The Importance of the Tone at the Top

Walmart’s ethics policy was clear. “Never cover up or ignore an ethics problem,” the policy states. But that didn’t mean the policy was being followed. In this case, the majority of those accused of perpetuating the problem were high-level executives who allegedly authorized bribes—or at least looked the other way.

Executives who were interviewed spoke about leaders who set “very aggressive growth goals” that required new stores to open in record times. This put Walmart de Mexico executives under pressure to do “whatever was necessary” to obtain permits. Any effective ethics and compliance program starts with strong, ongoing messages from senior management that such behavior will not be tolerated. Company goals must be realistic and aligned with compliance objectives so the motto does not become “profit at any cost.”

Seek Outside Counsel When Appropriate

Walmart’s initial investigation was turned over to the company’s general counsel, who was allegedly involved in approving the bribes. Not surprisingly, he cleared his fellow executives.

When there are suspicions of widespread violations that may span across a department or company, it’s time to seriously consider bringing in a third party to investigate, or at least oversee the investigation.

Make Compliance a Company-Wide Initiative

Walmart made significant structural changes to unify compliance efforts, eliminating what had been a more siloed approach. It also recognized the importance of fostering better communication with employees at every level, making them more aware of compliance and ethics concerns.

Compliance should never be confined to a single department; it requires a commitment from everyone. That’s why it’s crucial to have dynamic, highly competent compliance officers and corporate counsel capable of leading that charge.

To learn more about what four global companies are doing to manage risk on a global scale, download our guide, “How to Build a World-Class Compliance Department.” 

How to Build A World-Class Compliance Department

 

Topics: Compliance

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