| April 22
April 22 Allegations that Wal-Mart Stores Inc
stymied an internal investigation into extensive bribery
at its Mexican subsidiary is likely to lead to years of
regulatory scrutiny and could eventually cost some top
executives their jobs, analysts said.
The New York Times said that in September 2005, a senior
Wal-Mart lawyer received an email from Sergio Cicero Zapata, a
former executive at the company's largest foreign unit, Wal-Mart
de Mexico, describing how the subsidiary had paid
bribes to obtain permits to build stores in the country.
Wal-Mart sent investigators to Mexico City and found a paper
trail of hundreds of suspect payments totaling more than $24
million, but the company's leaders shut down the investigation
and neglected to notify U.S. or Mexican law enforcement
officials, the Times reported.
According to the Times, current Wal-Mart Chief Executive
Mike Duke and former CEO Lee Scott, who still sits on the
company's board, were among senior executives allegedly aware of
"Ultimately, it falls under his watch," Brian Sozzi, chief
equity analyst at NBG, a firm that does investment research,
said of Scott. "It falls under Mike Duke, too."
Other analysts said that Wal-Mart's structure means any
drastic action, such as firings of top executives, may not
"In many companies people would be asked to step down," said
Consumer Edge Research analyst Faye Landes. "Two complicating
factors here are the ongoing nature of the investigation and the
composition of the board and the shareholder base."
The shareholder base includes the family of founder Sam
Walton, which owns nearly 50 percent of Wal-Mart's shares,
making it difficult for any activist shareholders to push for
any immediate changes. Walton's eldest son, Chairman S. Robson
Walton, known as Rob, and his younger brother Jim are also on
Wal-Mart said in a statement on Saturday it was "deeply
concerned" about the allegations in the Times report and began
an investigation into its compliance with anti-bribery laws last
autumn. It declined to make any executives available for
comment, and said the investigation was continuing.
Even if there are no immediate management changes, experts
in bribery laws said Wal-Mart will be forced to devote millions
of dollars and enormous amounts of manpower to the
"The New York Times article paints a troubling picture for
Wal-Mart that will likely occupy the company for years to come,"
said Michael Koehler, a professor at Butler University and an
expert on the Foreign Corrupt Practices Act (FCPA), a 1970s U.S.
law that bars bribes to officials of foreign governments.
Wal-Mart said it had disclosed its probe to the U.S.
Department of Justice and the Securities and Exchange
Commission. The company also said it had taken steps in Mexico
to boost internal controls for FCPA compliance.
Richard Cassin, an FCPA lawyer, said Wal-Mart faces an
uphill battle to convince the U.S. regulators that its problems
are confined to Mexico.
"Before any resolution with U.S. authorities is possible,
the company has to look under every stone for possible
corruption. Are there any similar issues in China or other
countries? That's what U.S. authorities will want to know.
Wal-Mart's shareholders will be asking the same question," he
Cicero identified Eduardo Castro-Wright as the driving force
behind years of bribery, according to the Times, adding that no
Walmex leaders were disciplined.
Castro-Wright became CEO of Walmex in 2003 and was named CEO
of Walmart US in 2005. He became a vice chairman in 2008 and led
e-commerce from 2010 until January this year, and was set to
retire July 1. He could not be reached for a comment.
ALL ABOUT IMAGE
The company has been working on its image for years. In
2006, Leslie Dach joined as executive vice president of
corporate affairs. Before he joined Wal-Mart, Dach served as
vice chairman of public relations firm Edelman, where he ran the
Washington, D.C., office, among other areas. He was also
previously a strategist in Democratic politics, worked on a
number of presidential campaigns and served in Bill Clinton's
Wal-Mart, which employs 2.2 million people and runs more
than 10,000 stores around the world, is often targeted by
activists who argue that it underpays its workers and its
sprawling stores undercut smaller shops, often putting them out
of business, among other concerns.
The bribery allegations have given those critics new fodder.
"It's going to have huge implications for the current
leadership. Frankly it's hard to image how Mike Duke can remain
a credible CEO given the report in the Times," said John
Marshall, a senior markets analyst for the United Food and
Commercial Workers capital stewardship program. "It appears that
during key moments he was aware of what was going on and
apparently may have participated in the cover up."
UFCW funds own Wal-Mart shares through broad equity indexes
that they participate in on behalf of 1.3 million members.
Duke joined Wal-Mart in 1995, has been on its board since
2008 and has been its CEO since 2009. He succeeded Scott, who
served as CEO from 2000 until 2009 and has been on the board
The New York Times reported on Saturday that Wal-Mart
squelched the internal investigation instead of broadening the
Meanwhile, the company generally has tried to present a
squeaky clean image. A global ethics office page on its
corporate website highlights a quote attributed to founder Sam
Walton: "Personal and moral integrity is one of our basic
fundamentals, and it has to start with each of us."