Wal-Mart, Same-Ol’, Same-Ol

They gathered by the thousands earlier this month (2013.06.06) at the Walton arena on the University of Arkansas campus in Fayetteville. It was the annual meeting of the world’s largest retailer, Wal-Mart. The crowd was largely made up of employees who had earned a trip to Fayetteville from their remote corner of the wonderful world of Wal-Mart through some display of loyalty. There were a few shareholders and high profile performers including Hugh Jackman, who was the meeting’s host. 

Unlike the Wal-Mart employees at the meeting, Jackman and the other celebs were not there at company expense, at least not Wal-Mart’s expense. Given the revenues generated for major motion picture and music companies by Wal-Mart –reportedly as much as 40% of their total income– we’ll guess that the stars were well compensated for their visit to Arkansas by someone.  

The affair was not all glitz, glitter, and company presentations. Time was set aside for participation by the shareholders, fifteen minutes out of the four hours, about 6%. That despite the fact that the shareholders had some serious beefs. Like what have you done about the rampant bribery, the deaths in Bangladesh factories and declining year to year store sales, things like that? Management’s answers? Less than satisfying. Easy for them knowing that the Walton family controls more than half the votes. As long as the family is happy, the management can ignore the rest of the world. 

A shareholder/employee commented on CEO Michael Duke’s nearly $21 million 2012 paycheck: “Times are tough for many Wal-Mart associates. We are stretching our paychecks to support our families.” Considering our low wages, she added, “I don’t think that’s right.” A considerable number of those in the audience cheered and applauded her comment. You can bet those folks won’t get a free ride to next year’s annual meeting, assuming they even keep their jobs.

For his part Duke said, "You operate with integrity, our company was founded on integrity. For Wal-Mart, compliance is an absolute. Make no mistake about it; we will do the right thing." It’s easy to see the disconnect right there. Duke obviously doesn’t understand that the “Right Thing” is not compliance. "The “Right Thing” is the ethical business model. “Compliance” is the letter of the law, working right at the edge of the law; Compliance is what you can get away with.

Compare this annual meeting with one held a month earlier in Omaha, Nebraska, the annual Berkshire Hathaway bash thrown by Warren Buffett. “Buffettpalooza,” as it’s called, attracted more than twice as many people, 35,000, all shareholders, all happily paying their own way. But those are just the surface differences when compared to the Wal-Mart annual meeting. The real difference lies in a culture of transparency at the core of Buffettpalooza, a culture that’s nowhere in sight at Wal-Mart.

Walmart, Ethics & the Law

Walmart announced that Daniel Trujillo came on board last week (2012.10.29) as SVP and Chief Compliance Officer for Walmart International. It’s a new post and part of a restructuring of the retail giant’s legal structure. General Counsel Jeff Gearhart now heads compliance, legal, ethics, and investigations ops, according to published reports. They also added Jay Jorgensen, an attorney, as Global Chief Compliance Officer and FBI veteran Tracy Reinhold, as VP Global Investigations.

This reflects a flurry of activity triggered by the exposure of what looks like their widespread use of bribery in Mexico. If true it would open Walmart to charges under the Foreign Corrupt Practices Act (FCPA). Earlier this year (2012.02.21) in an in-depth investigative piece, The New York Times painted a picture of bribery fueling Walmart’s growth in Mexico. Tens of millions were paid to overcome any obstacle in their effort to fast-track new store construction across the country. It worked; twenty percent of the world’s Walmart stores are now in Mexico.

Walmart employees in Mexico who tried to alert headquarters “Carpet-Landers” were ignored or marginalized. When the top leaders could no longer turn a blind eye to the problem they did their best to minimize the issue. Their Investigations Unit was rebuked for being “overly aggressive” by then Walmart CEO, H. Lee Scott Jr., who is still on their Board of Directors. A few days later their report was shipped to Walmart’s Mexican headquarters never to be mentioned again.

These new hires and this consolidation in the headquarters legal office looks like an extension of the cover-up that has been at the core of Walmart’s response to the bribery scandal. Looking at their newly minted SVP, and Chief Compliance Officer for Wal-Mart International, Daniel Trujillo’s chief qualification for the job is pretty obvious. He was Chief Compliance Officer at oilfield services company Schlumberger Ltd. Our Justice Department just bailed on a bribery investigation involving Schlumberger, an outcome Walmart is probably hoping for.

There are a couple things wrong here. Compliance and ethics don’t belong in the same basket. Compliance has to do with the law; ethics falls way outside what’s legal. It’s about corporate culture and reputation. The corporate communications folks deal in that arena. Were Walmart really interested in fixing this problem, they would be focused on new hires to create a culture to repair their reputation.

You would think that the 2006 Hewlett-Packard Board of Directors spying case would burn that into the minds of every major corporation. Kevin Hunsaker, HP Senior Counsel and Director of Ethics and Standards of Business Conduct, green-lighted a stupid telephone spying operation. He thought it was legal, it wasn’t. Hunsaker and several others were charged with a felony; he pleaded no contest. From an ethics viewpoint this plan wasn’t even close to being OK, but that’s not the viewpoint lawyers work from. Ethics and reputation are not in their skill set.

Collapse of an Empire

The ethical cesspool at the center of the media colossus Rupert Murdoch created over the years since he arrived on London’s Fleet Street, is beginning to suck him into its vortex. Last week (05.01.12) a Parliamentary Committee released a 121 page report detailing some of the smarmy activities and behaviors the Murdoch culture has spawned. As widely trumpeted in the media, it branded Murdoch “not a fit person” to run an enterprise like his.

Apologists for the Murdoch clan are quick to point out that the “not-a-fit-person” phrase was opposed by four of the nine members of the Committee, all members of Prime Minister David Cameron’s Conservative Party. While the Conservative members of the Committee dissented on the fit-person wordage, they agreed with most of the report. Cameron is connected to Murdoch’s organization in a number of aspects. Foremost is his former Communications Director, Andy Coulson, who moved directly to 21 Downing Street from one of Murdoch’s London newspapers. Coulson has been arrested but not charged. Prime Minister Cameron described his own ties to the Murdoch organization as “too cozy.”

Phone hacking, police bribery, and who knows what else were unearthed by the inquiry. “Who knows,” because many areas in the report are left untouched. The Committee did not venture into the domain of Scotland Yard and the prosecutors who are still building the criminal cases. As a result they did not explore the role of more than forty Murdoch editors, private investigators, and reporters, along with police officers who have been arrested so far. That group includes Murdoch darling Rebecca Brooks and ten others whose connections to the hacking scandal were reportedly referred to prosecutors last month by Scotland Yard.

All of this and the disclosures unfolding before a separate British judicial inquiry, raises the question, why are there no similar queries into the Murdoch Oligarchy in the United States? Rupert Murdoch and his clan are all US citizens; News Corp is a US corporation. While his trashy newspapers in the UK are often seen as the face of his holdings, they’re but a tiny segment. In America he has a couple dozen television licenses, so where is the FCC? Combined, these stations, Fox News, The New York Post, The Wall Street Journal and his entertainment entities dwarf any similar organization.

Where are the Congressional investigations? Given the detailed bribery charges in the UK, where are the FCPA (Foreign Corrupt Practices Act) concerns? If the SEC is hot on Walmart’s tail (properly) for spreading the wealth among Mexican officials, how about Murdoch’s minions greatly enriching Scotland Yard types? If a parliamentary investigation in the UK finds Murdoch “not a fit person” to run a handful of newspapers, what does that say about the television properties our FCC has awarded him? Are the bureaucrats and the political types in Washington afraid of his attack dogs at The New York Post and Fox News?

So, What Else Is New?

What starts out as a straight forward ethical issue can sometimes turn quickly into a legal problem. Saturday (04.21.12) the New York Times laid out in detail (nearly 7,600 words and a baker’s dozen photos) the slide down the proverbial slippery slope that Walmart has taken over the last decade in Mexico. And maybe in other nations as well.

One in every five Walmart stores is in Mexico. The company is very popular south of the border and very profitable. Under the leadership of Eduardo Castro-Wright Walmart exploded in Mexico, opening new stores by the hundreds. This dazzling pace left their competitors in the dust. According to the Times account growth fueled by millions in bribes to local officials. Building permits, zoning and environmental issues, all the bureaucratic paperwork that normally takes weeks and months to clear, melted away in days. 

Castro-Wright was hailed for his success, promoted into a senior position in the United States and rumored to be a candidate for the top post at Walmart. There is, however, strong evidence that Castro-Wright encouraged the use of bribery to achieve the spectacular growth of Walmart de Mexico. So how could this happen without the knowledge of folks at headquarters? It couldn’t, it didn’t, they knew; in fact it appears it was decided at the highest levels to sweep it under the rug. 

When evidence surfaces that some individual or organization has strayed from the straight and narrow, invariably the number one response is, “everybody does it.” While that’s not what Walmart is saying now, it seems to have played a major role in overlooking the use of bribes in Mexico. 

Walmart headquarters’ rationale followed the “that’s just the way they do business down there” line of thinking. The most disturbing aspect of this mess is that it seems to have permeated every level at Walmart. That makes it part of the company culture. 

While Walmart has made positive moves on many fronts, it seems every time something big like this scenario rises, they fall short. That’s culture. The Times report isolates one of the moments in this scenario when Walmart lost their way big time. Their internal investigation had exposed the bribery in Mexico. Instead of putting an end to the misconduct and firing those responsible, they turned on their own investigators, “accusing them of being overbearing, disruptive and naïve about the moral ambiguities of doing business abroad,” AKA, everybody does it.

There is nothing morally or ethically ambiguous about what went on in this case. If their code of ethics amounts to anything more than words on paper, the first mention of a bribe should have been rejected out of hand. It seems inconceivable –given the jobs and taxes that a Walmart store offers a community– that bribes would have to be paid to local officials to get them built. So once again the culture doesn’t live up to the words in the Walmart Code of Ethics; surprise, surprise, surprise.