Wal-Mart Stores Inc. is on the defensive again.
This story first appeared in the April 24, 2012 issue of WWD. Subscribe Today.
In the wake of a bribery scandal involving its subsidiary in Mexico, the retailer’s stock had its worst day in more than three years Monday, falling 4.7 percent to $59.54 — helping push the Dow Jones Industrial Average back below 13,000.
The scandal already threatens to ensnare the global giant’s top management. And the problems appear only to be multiplying, with two U.S. lawmakers on Monday launching an investigation and requesting an in-person meeting with company officials. Mexican politicians have also been calling for an investigation.
Wal-Mart revealed in December that it was looking into its compliance with anti-bribery laws. An exposé in the New York Times over the weekend claimed the retailer cleared the way to expand in Mexico by bribing officials to obtain building permits and that executives later sought to cover up the evidence. A spokesman for the Bentonville, Ark., firm noted that many of the allegations were more than six years old and added, “If these allegations are true, it is not a reflection of who we are or what we stand for.”
The bribery-fueled expansion was said to have happened when the Mexican unit was led by Eduardo Castro-Wright, who later became head of the namesake U.S. division. In what was seen as a demotion, Castro-Wright was later named head of e-commerce and sourcing and is set to retire in July. Mike Duke, chief executive officer of Wal-Mart, headed the firm’s international operations when the bribes were said to have taken place.
The company has been in touch with the Securities and Exchange Commission and the Justice Department about its internal probe. Neither the SEC nor the Justice Department would comment on Monday.
Wal-Mart — the industry heavyweight with $447 billion in annual revenues — has spent years trying to blunt criticism that it built its retail empire by unfairly pushing out main street competitors, squeezing its workers and pressuring vendors. The company has taken on massive environmental and women’s issues initiatives and stepped up with aid in times of natural disasters.
The specter of new scandal is a big setback.
“It hurts them with consumers,” said Jonathan Low, a partner and co-founder of consulting firm Predictiv. “They invested so much time and effort and money trying to improve their reputation. All of that is not wasted, but it’s a ‘Here we go again’ moment for Wal-Mart, it’s, ‘Is this who they really are?’”
Low said the spotlight on Wal-Mart would raise its cost of doing business as governments opposed to the retailer use the scandal “as a stick to beat them” and as people inclined to require bribes see this as a signal that the company will “pay to play.”
In their investigation, Reps. Elijah E. Cummings (D., Md.), ranking member of the House Oversight and Government Reform Committee, and Henry Waxman (D., Calif.), ranking member of the House Energy and Commerce Committee, plan to contact former Wal-Mart executives who may have documents or other information relating to the allegations. The two lawmakers said they plan to contact Joseph R. Lewis, Wal-Mart’s former director of corporate investigations; Maritza Munich, the former general counsel of Wal-Mart International, and Sergio Cicero Zapata, an attorney in Wal-Mart de Mexico’s real estate department.
“The New York Times report, which is based on the review of thousands of documents and interviews with multiple company officials, raises serious questions about potential violations of United States law, including the Foreign Corrupt Practices Act,” the lawmakers said in a letter to Duke. “It also raises significant questions about the actions of top company officials in the United States who reportedly tried to disregard substantial evidence of abuse.” The two lawmakers asked for a response from Duke by April 27.
Retail veteran Allen Questrom, who used to serve on Wal-Mart’s board, said he was surprised by the allegations against the company. “They were very ethical, they did everything above board,” said Questrom, who also praised Castro-Wright.
“I’m glad I’m not there now,” he said, describing the situation as “very complicated.”
“It’s an unfortunate time for something like this to come up, with Wal-Mart having turned its numbers around and showing some real progress,” said Carol Spieckerman, president of newmarketbuilders, a retail consultancy based in Bentonville. “It’s got to be pretty devastating. At this point it’s going to be really important for Wal-Mart to create the perception of complete transparency and cooperation. People will tie it into other past events that have [tainted] Wal-Mart. More than anything, it’s their international credibility that’s at stake. International is so critical to Wal-Mart’s success and is still a major point of differentiation between Wal-Mart and other U.S. players.”
With social media and the lightning speed of news dissemination, Spieckerman said it’s critical that Wal-Mart communicate its version of events clearly and quickly. “The next few days are going to be really telling,” she said. “Who will be held accountable? There’s a lot of Wal-Mart haters out there and something like this is fresh meat. Wal-Mart can’t afford to have any ambiguity about this.”