April 26, 2012
Walmart is reeling from a New York Times report that outlines a massive bribery scheme that allegedly allowed the company to grease its way to the top spot in Mexico's retail industry. Worse still, the report alleges that top executives in the U.S. covered up the bribes when a whistleblower brought them to light in 2005, instead of coming clean to U.S. and Mexican authorities. Some of the executives involved have since risen to the top of the Walmart ladder, including CEO Michael Duke, who in 2005 was named the head of Walmart's international divisions. Here, a look at what Walmart faces in the future:
1. U.S. authorities will go after Walmart aggressively
The Justice Department may treat the Walmart scandal as "a prominent case to demonstrate the need for vigorous enforcement of the Foreign Corrupt Practices Act," which prohibits U.S. corporations from bribing foreign officials, says Peter J. Henning at The New York Times. The government encourages American companies to disclose possible violations of the law, and rewards their honesty by reducing fines and dropping criminal charges. If the Justice Department finds that Walmart did cover up the scheme, it could come down even harder on the retailer.
2. The investigation could spread to other countries
Walmart "faces an uphill battle to convince U.S. regulators that its problems are confined to Mexico," say Jessica Wohl and Carlyn Kolker at Reuters. Walmart has major operations in Brazil and China, and is banking on emerging markets in India and Africa to boost its profits in the coming decades. A wide-ranging global investigation, which could last as long as four years, will likely hamper its overseas growth.
3. Executives could face dismissal and even prison
Walmart will likely face "pressure from shareholders to take action against any executives who didn't act on the bribery allegations sooner," say David Welch and Thom Weidlich at Bloomberg News. Indeed, cleaning house could be a prerequisite for any out-of-court settlement with the U.S. authorities. And experts aren't ruling out "potential jail time for Walmart executives," says Roland Jones at MSNBC.
4. Congress will get involved
Reps. Elijah Cummings (D-Md.) and Henry Waxman (D-Calif.) have already announced that they are launching an investigation into the scandal, requesting a face-to-face meeting with CEO Duke and other Walmart officials so that they "can respond to these allegations."
5. Walmart stocks are being hammered…
Walmart's share price fell by 5 percent the day after the story broke, as investors weighed the numerous factors that could hurt Walmart in the future, such as large legal fees and stunted international growth.
6. …And so is its reputation
Perhaps most damaging of all is the public-relations hit the company is taking. This is a "huge black eye" for Walmart, "which prides itself on its reputation for integrity and transparency," says Henry Blodget at Business Insider. The report undermines a years-long "campaign to improve its reputation as a good corporate citizen by changing its practices in such areas as labor relations," says Ben W. Heneman Jr. at The Atlantic.
7. Still, Walmart could fight back with legal technicalities
The retail giant could argue that the bribes were "facilitating payments," which, for example, are made to speed up the approval of permits, says Nathan Vardi at Forbes, and that such payments are technically legal under the Foreign Corrupt Practices Act (FCPA). Because the alleged bribery scheme unfolded in the mid-2000s, Walmart could also foil the Justice Department's efforts to prosecute, by invoking the FCPA's five-year statute of limitations.
Sources: The Atlantic, Bloomberg News, Business Insider, Forbes, MSNBC, The New York Times (2), Reuters, Talking Points Memo
This story originally appeared at TheWeek.com.
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