How can you operate successfully in another country without respecting their traditions, and following their customs? If you say that you can't, well, how about Walmart's current problems with their operations in Mexico? Starting with a NYT article, Walmart has been skewered in the press amidst bribery and corruption accusations in Mexico. Technically, Walmart's Mexico operation is only 69% owned by Walmart in the US, but it is a substantial slice of the Walmart's pie (keep in mind as you read this column that they opened 365 stores in 2011 -- one new store per day in the region!) And they are now under scrutiny owing to allegations of extensive bribery.
But isn't this the Mexican way of life? It is. So, why all the hubbub?
Of course, Mexico isn't the only country where bribes have become institutionalized -- look up the Middle Eastern equivalent "baksheesh" -- but the Mordida, or the "bite", as it's called in Mexican Spanish, has been an established way of life since the days of Spanish rule. Lately, Mexico has tried to clean up its act, but it isn't easy. President Salinas tried to get serious about this some 20 years ago, and today it is better than before, but nowhere near US levels. From what I hear from friends in the cross-border supply chain trade, for the right amount, border crossings open up, cargo is not inspected, and various local administrative favors can be had, expedited, etc.
You can dig up examples of bribery in the US too, but the scale is miniscule compared to south of the border. We also have our Foreign Corrupt Practices Act (FCPA) that essentially makes bribery a crime when it involves foreign officials and is committed by US citizens and/or by companies required to report with the SEC. President Jimmy Carter added that one to the Federal Register right before Christmas back in 1977.
Walmart isn't the first (nor will it be the last) large retailer to employ bribery as an "expediting" technique. In the 90s, Kmart was caught in a similar activity where their head of development and marketing plus several others pled guilty to conspiracy and bribery related charges. The serious discount on the Kmart real estate portfolio when it went under the bankruptcy gavel is considered an indicator by some of just how unsound those deals were -- i.e. that "other" factors had led to the final inking. Maybe there is something to the "MART" moniker -- "Money All Round the Table"?
Speculatively, if Walmart could open 365 stores in Mexico in 2011, a country infamous for its timetable challenges, it shouldn't come as a surprise if some hands had to be greased to keep those development wheels turning. Interestingly, a certain amount of hand greasing is not prohibited by the FCPA. There are allowances made for informal "speed-it-up" type of payments that get officials to do their jobs on time, assuming this is not prohibited in the country in question. So all isn't lost, even if it smells very bad. There are also Sarbanes-Oxley implications to consider. We expect lots of attorneys will pad their retirement accounts on this.
Apparently the financial markets came to the same conclusion about the rotten smell. WMT (Wal-Mart Stores, the formal Walmart name) saw a complete discontinuity event take place over the weekend: the stock closed well above $62 on Friday and opened $3 lower on Monday, and is currently trading right below $58 at the time I penned this. This drop translates into a market cap loss of $16 billion! There you have a proxy number for what (lack of) corporate social responsibility (and compliance and oversight of course) activities costs. Since Walmart de Mexico delivered $27 billion in total sales last year and $1.5 billion in net income, that's a stiff Wall Street penalty.
To fix this problem, Walmart's top brass must have been busy at work over the past few days. Earlier in the week, they announced that a new position was created: a Compliance Officer office, with a handful of compliance director reports. Probably a good start, possibly also a requirement to placate the SEC -- we'll see how many teeth the position will have.
At Spend Matters we aren't naïve about this issue. The world doesn't march to the Star-Spangled Banner, if you get the metaphor. And for smaller companies it can come down to "do as the Romans" or be forced to shut down operations -- a tough call. Do you try to go local short term to be able to make a difference over the longer haul? A difficult topic to get anyone to go on the record about!
It's clear that a firm of Walmart's size should be held to a higher standard, since they have the size and political clout to keep business clean. Of greater concern than the actual bribery is that their Mexican operations were allowed to get themselves this deep into this mess. It shows a lack of oversight no matter how you look at it -- ineptitude even. It shouldn't come as a surprise to a firm of Walmart's caliber (having undoubtedly done business in shadier corners of the world than Mexico) that business deals there probably need more supervision than opening another store in Kansas.
I'll end on a humorous note about bribing the police: yes, I'm guilty of that! I once successfully made my way out of a Polish police shakedown activity while driving through Poland during my university days -- and the cop in question was appeased with a banana. Yep, I had stocked up on fruit prior to entering Poland, and the cop's face lit up when I offered him a banana. He quickly put it inside his leather jacket and then gladly waved me on. The "beauty" of communism -- a shortage of basic supplies. In Mexico, alas, the true cost of this plantain (in addition to the unit cost itself) appears to be a $16 billion market cap "bite."