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Mexico Bribery Scandal Challenges Walmart on Corporate Ethics

Posted by Sheila Shayon on April 23, 2012 11:53 AM

Walmart, the world’s largest private employer, with 2011 sales of $421.85 billion, is dealing with a major blow to its reputation after being accused over the weekend of a far-reaching bribery campaign carried out by executives in Mexico eager to boost the company's growth in that market.

The New York Times described the Mexican scandal as “a prolonged struggle within the company that pitted its much publicized commitment to the highest moral and ethical standards against its relentless pursuit of growth.”

According to the Times report, the mega-retailer “became aware of the situation in Mexico from a former executive, who explained how the company’s Mexican division had orchestrated a campaign of bribery to win market dominance. But instead of deciding to expand an internal investigation, Wal-Mart’s leaders decided to shut it down.” In an additional twist, one of those leaders — former Walmart CEO H. Lee Scott Jr. — now works at a private equity fund with connections to presidential contender Mitt Romney.

Walmart responded to the allegations that it's in possible violation of the U.S. Foreign Corrupt Practices Act with a video (at top) and a statement that it's cooperating with authorities to "get to the bottom of" the allegations (which are "six years old," the company added) while acknowledging it should have had stronger oversight of its executives: “In a large global enterprise such as Walmart, sometimes issues arise despite our best efforts and intentions.”

The NYT expose chronicles the seven-year campaign of unethical behavior, totaling more than $24 million in “suspect payments” and corporate aggression that has made Walmart the largest private employer in Mexico with one of every five stores and 209,000 employees. 

"If these allegations are true, it is not a reflection of who we are or what we stand for," Walmart spokesman David Tovar said in the Times, "We are deeply concerned by these allegations and are working aggressively to determine what happened."

As the Los Angeles Times comments, the Mexico crisis hits at the heart of the Walmart brand:

The huge retailer has been making a big to-do in recent years over its transformation into a conscientious global citizen, touting its eco-friendly efforts and commitment to healthful, justifiably-sourced products. At the same time, the chain has continued to pursue ever-more growth while fending off persistent controversy. Sales across the company were up 5.9% in the last fiscal quarter to $443.8 billion. That’s a 42% increase from the $312.4 billion Wal-Mart said it earned in the 2005 fiscal year, when much of the Mexican bribery was said to be occurring.

The Mexico investigation is the latest concern for the beleaguered but highly profitable retail giant when it comes to public scrutiny over balancing profits and growth with sustainability and ethical business practices. 

Walmart just released its fifth annual Global Responsibility Report, "Beyond 50 Years: Building a Sustainable Future," highlighting its top 10 global achievements in sustainability and reducing its impact on the environment.

"We set ambitious goals to challenge ourselves but are committed to making change in a way that will be meaningful and long-term. Understandably, in some areas our progress is slower than we would like and sometimes we hit temporary roadblocks. Our commitment is clear and our resolve to lead is stronger than ever," stated Mike Duke, Walmart's president and CEO.

The company highlighted sustainability achievements to date including:

Reduced waste by 80% 

Expanded locally grown produce by 97% 

A women's economic empowerment initiative committing to source $20 billion from women-owned U.S. businesses in the next five years

Saved Customers $1 Billion on fresh fruits and vegetables by reducing or eliminating the price premium on more than 350 better-for-you items 

‘Great for You’ icon to help consumers identify healthier food options 

Utilized 1.1 billion kilowatt hours (kWh) of renewable energy and adopted an Integrated Sustainability Index.

Activists like Jeffrey Hollender, founder of the Seventh Generation brand of eco-conscious household products, as well as United Food and Commercial Workers union (which started the Wake Up Wal-Mart campaign) and the Service Employees International Union (the organization behind Walmart Watch) have all been keeping a close eye on Walmart's sustainability efforts.

A counter-response to Walmart’s 2012 sustainability report from the Food & Water Watch and the Institute for Local Self-Reliance (ILSR) — titled "Top 10 Ways Walmart Fails on Sustainability" — notes, “No amount of greenwash can conceal the fact that Walmart perpetuates an industrialized food system that diminishes our natural resources, causes excessive pollution, and forces smaller farmers and companies to get big or get out of business.”

Other criticisms: barely 1% of Walmart’s Chinese suppliers have implemented waste reduction programs; most of its products are so shoddy they actually increase waste; the company sources just 4% of its energy from renewable sources and its energy use has increased greenhouse gas emissions 14% since 2005.

Activists further maintain that Walmart has created 1,100 new stores since 2005, paving over land that’s home to endangered species and the company’s “organic” milk comes from cows housed in factory farms fed grain, not grass. “Once again, Walmart is using sustainability as a marketing tool to improve its public image and propel its growth," said Stacy Mitchell, senior researcher at ILSR. 

In defense of Walmart’s evolving enterprise-scale process for incorporating sustainability, Walmart SVP of Sustainability, Andrea Thomas, gave a lengthy interview with Triple Pundit that noted, among other areas, how Walmart is expanding the application of its Sustainability Index Scorecards from nine product categories to 100. “This is the tipping point toward realizing Walmart’s sustainability goal of making every product sold by Walmart more sustainable,” she argued.

Comments

Sara Kaderly United States says:

As the article states, Walmart is the world’s largest private employer.  Due to its size, as well as always being in the public eye, Walmart must keep corporate social responsibility (CSR) in the forefront of all company actions.  CSR can be difficult, especially in such a large, global company.  Corporations like Walmart need to avoid CSR hypocrisy, develop a proactive approach, as well as create an adequate crisis management system.

According to Wagner, Lutz and Wietz, “the importance for firms to communicate their social responsibility not only has risen substantially over the last few years but also continues to increase dramatically as a result of current worldwide economic conditions and the resultant skepticism of how corporate practices affect the well-being of societies” (2009, p.1).  Furthermore, media and technology advances allow for immediate dissemination of both positive and negative messages about a company.  When company actions are different that CSR statements, the firms’ image and sales suffer (Wagner et al., 2009).

In Walmart’s case, it seems that the CSR strategy in Mexico is more reactive than proactive.  This may help increase negative perceptions of the firm to the public.  “Reactive CSR strategies, which are frequently employed in the corporate world to combat the negative consequences of initially reported negative CSR behaviors, can create a scenario of information inconsistency, which leads to perceptions of corporate hypocrisy and a negative influence on firm evaluations” (Wagner et al., 2009, p. 13).  Walmart may benefit from a more proactive strategy in the future, as well as a detailed crisis management system.

Thanks,
Sara Kaderly, Graduate Student
Drury, University.

Wagner, T., Lutz, R. J., & Weitz, B. A. (2009, Nov). Corporate hypocrisy: overcoming the threat of inconsistent corporate social responsibility perceptions. Journal of Marketing, 73(6), 15.

April 27, 2012 12:03 PM #

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April 27, 2012 12:45 PM #

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