Wal-Mart's Four "Most Worrisome" Governance Issues
Wal-Mart Stores Inc. took a double hit last week from both the legal and the business experts at Harvard University over the giant retailers Mexican bribery scandal. And now Ben Heineman Jr., the former general counsel of the General Electric Company, is calling on Wal-Marts board of directors to get to the bottom of the alleged scheme and cover-upand to possibly discipline or remove the past CEO (who still sits on the board) or the current CEO.
The company appeared to commit virtually every governance sin in its handling of the Mexican bribery case, if the long, carefully reported New York Times story is true, Heineman wrote in an article posted Saturday on the Harvard Law School Forum on Corporate Governance.
Heineman is a vocal supporter of the U.S. Foreign Corrupt Practices Act, which outlaws bribery of a foreign official for business purposes. He is now a senior fellow at both Harvards law school and its Kennedy School of Government.
His article goes on to recite the allegations laid out by the Times on April 21, including how Wal-Mart de Mexico leaders approved payments to government officials in exchange for such things as permits and licenses to open hundreds of new stores. And how corporate leaders in Arkansas, including the CEO and then-general counsel Thomas Mars, learned of the allegations in 2005 but failed to pursue them vigorouslyand may even have aided in a cover-up.
Among the most worrisome governance issues at Wal-Mart, Heineman cites four factors:
- The company had a culture of silence that allowed the Mexican subsidiary to hide the payments from the parent corporation for years. And that, in turn, let Wal-Mart executives apparently hide the matter from the board of directors. Wal-Mart appears to have operated like a compartmentalized criminal enterprise rather than a lawful global company, the article states.
- Mars, then the general counsel, and key finance officials acted as business partners and not corporate guardians, apparently knuckling under to the demands of an ambitious country CEO with no legal and moral compass by helping to direct and hide the bribery scheme. Heineman calls international counsel Maritza Munichwho received a whistleblowers initial report and sought in vain to have an independent, thorough investigationthe heroine of the tale.
- Then-CEO Lee Scott failed to perform with integrity. And serious questions remain about current CEO Michael Dukewho was head of Wal-Mart International and oversaw the subsidiary at the timeas to whether he acquiesced in the decision to suppress the investigation.
- Finally, where was the board in 2005did it know anything about the matter and failed to act? And what kind of discipline is appropriate for those who were involved and are still at the company, including senior legal staff?
Meanwhile, over at the Harvard Business Review, environmental guru Andrew Winston wrote about what he called Wal-Marts shades of gray in an article posted Thursday.
Winston, co-author of Green to Gold (Yale University Press, 2006) and author of Green Recovery (Harvard Business Review Press, 2009), began by praising Wal-Marts recent advances in social consciousness and environmental sustainability. In fact, the same week the Times story surfaced, the company released its 2012 Global Responsibility Report with what Winston calls a list of impressive accomplishments.
But then Winston turned his focus to the Mexico scandal.
Citing a drop in Wal-Marts stock price last week, he wrote, There's some understanding that a company's value in the market is connected to its values (of which sustainability efforts can be a good indication). Just as its not sustainable to over-consume natural resources, its not sustainable to alienate key stakeholders through ethical lapses.
Winston goes on to say that what matters is the totality of a company's actions. We should demand consistent, ethical behavior and a real commitment to doing what's good for people, planet, and profit, which includes not compromising on ethics, he concludes.
See also: "The In-House World According to Ben Heineman, Jr." and The Wal-Mart GC Who Resigned During the Mexico Bribery Scandal, CorpCounsel, April 2012.