Tuesday, May 8, 2012

4 Lessons from Wal-Mart’s Bribery Scandal

Bribery, corruption, illegal activity and lawsuits may make for a great Hollywood movie or an exciting novel, but when it involves your business, it can be disastrous.  Wal-Mart has found itself in this position over the last several weeks as allegations of $24 million in bribes were paid to Mexican officials in order to expedite the building process for new stores.
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The bribes reportedly started several years ago.  At one point, an internal investigation was conducted and was terminated when the recommendations came out that possible violations had been made and the incident should be reported to both Mexican and U.S. officials.  Allegations now point that senior executives within Wal-Mart were aware of the bribery and legal issues, but chose to do nothing.

The initial fallout has included a drop in the U.S. stock price for Wal-Mart, threats of lawsuits by shareholders, plenty of negative publicity and even possible criminal charges for violations of the U.S. Foreign Corrupt Practices Act. 

Lessons Learned

With any situation like this, it is a good time for reflection and looking at what lessons can be learned.

1. Don’t get cocky.  The first key point is that this could happen to almost any organization.  If you take the outlook that your enterprise could be vulnerable, then that is a major first step for making sure that your company doesn’t end up on the front pages.  By realizing the potential, serious steps can be taken to remove both the temptation and the means to become involved in corrupt practices.  Fraud, embezzlement or corruption can come at the highest levels and the higher in a corporation the higher the loss amount.  No one is above suspicions.  Bernie Madoff was a well-known financier and well respected, but committed one of the largest Ponzi schemes in history. 

2. Be wary of justifications.  Police officers talk to crooks, thieves, violent offenders on a daily basis.  When asking a suspect why they did what they did, invariably the response will involve some kind of justification.  It was not as bad as what someone else did.  “I only took a joy-ride in a car; it’s not like I murdered anyone.”  “He was going to kill me if I didn’t get him first.”  “She was cheating on me, that’s why I beat her good.”  No matter the crime, crooks will try to downplay or come up with excuses to justify it.  When employees at any level start justifying their actions, be very wary.  This could be the first step down a path that should not be followed.  In the case of Wal-Mart, it would be very surprising if there were never conversations that mentioned all businesses are doing it (paying bribes).  Or, that is how that country operates.  It is the only way to succeed without wasting time.  It didn’t hurt anyone.  All are likely excuses that an executive turning a blind eye probably made and many times over.
Suspects commonly try to justify their crimes.

3. Leadership cannot be ignorant.  The mindset or culture of honesty starts at the highest levels.  If an organization’s leadership ignores or deliberately remains in the dark about business operations, then it is much more likely to have corruption or fraud running unchecked.  In the case of Wal-Mart, the amount of the bribes was relatively small compared to the company’s worth and budget.  However, it would be interesting to know what questions the board asked about the subsidiary's growth in Mexico.  The country has been listed on the State Department’s travel advisory list due to increasing violence, it is well known that bribery, and corruption, is commonplace.  Did the board ever question how the growth projections were being met and what steps were being taken to ensure that Wal-Mart followed all the requirements of the Foreign Corrupt Practices Act?  As some pension groups have already sued the directors, hopefully the answers will come out down the road (although there will almost certainly be a settlement tied to non-disclosure of the terms). 

4. Pay attention to the warning signs.  Some warning signs may be subtle, such as unexpected acceleration of growth plans (presumably, the bribes would have achieved that).  Some warnings are not so subtle, such as a whistle-blowing warning of violations or an internal investigation that identifies possible legal issues and is shut down.  Again, if the highest levels of the organization are left in the dark or do not take action, the enterprise is very likely to end up with problems.  The board should review all serious allegations and investigations and be kept advised of the outcome.

Wal-Mart will survive this scandal.  The stock price will recover, lawsuits will be discretely settled and eventually the PR dust up will blow away.  For most organizations, however, this kind of scenario would spell doomsday.  Take steps to avoid becoming embroiled in corruption through solid and ethical leadership, open communications and a clear eye on the potential risks.

Eric Smith, CPP is the leading authority on organizational self-defense.  He has extensive experience in law enforcement as well as security management.  Eric is available for staff education and security awareness training as well as business coaching to help organizations provide safe workplaces.  To learn more visit http://www.businesskarate.com. 





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