How Badly Will Mexico Bribery Charges Tarnish Walmart?

Allegations that as much as $24 million in bribes were used to supercharge Walmart Mexico's store count in the middle of the last decade have been front-page news since the New York Times broke the story on April 22. Reports that top executives quashed an internal investigation in 2006, when the practices first came to light, caused a tumble in Walmart's stock price as well as announcements of investigations by the U.S. Congress and Mexico's Attorney General. Mexican president Felipe Calderon said last week that he was "indignant" about the company's behavior.

Now there's conjecture that the deepening scandal, which involves charges that Walmart Mexico officials bribed local officials to sidestep regulations and obtain construction permits for new stores, could stymie Walmart's U.S. expansion plans. Walmart's efforts to open stores in large U.S. cities have long met resistance from local businesses, labor unions and environmentalists.

Recent improvements to Walmart's corporate image, along with donations made to politicians and local non-profit groups, have helped overcome these obstacles, but these charges could be a major setback. Officials in Los Angeles, New York, San Diego and Boston have raised new questions about Walmart stores in their jurisdictions during the past week, according to published reports.

Walmart's current damage control efforts include the creation of a Global Compliance Officer position specifically for monitoring compliance with the U.S. Foreign Corrupt Practices Act (FCPA), and the installation of a new FCPA compliance director in Mexico "who reports directly to our new Global FCPA Compliance Officer in Bentonville," according to a statement from Walmart vice president of corporate communications David Tovar.

The retailer is also trying to create distance from the scandal: Tovar's statement notes that the alleged decisions about covering up the bribes were made more than six years ago; that Walmart launched its own internal investigation six months ago; and that the retailer is "continuing to cooperate with federal law enforcement authorities."

Along with the negative news reports, there's also been a general recognition that in some countries, including Mexico, bribery is a relatively common practice – almost a cost of doing business. According to USA Today, the watchdog group Transparency International ranks Mexico a low No. 100 on its 2011 ranking of 183 countries by the perception of their level of corruption.

Walmart allegedly used "gestores," local middlemen who grease the wheels for obtaining local and state permits, funneling $8.5 million through them. The remaining $16 million was allegedly paid directly to local governments in Mexico. Walmart Mexico currently operates more than 2,000 stores in the country.

As embarrassing as the allegations of both bribery and corporate cover-up are, it doesn't seem likely that they will have a long-term impact on Walmart, domestically or internationally. The world's largest retailer has a sophisticated communications and image control apparatus in place, in large part because it has already fought multiple battles in the court of public opinion. While negative press is never a good thing, it's unlikely that many shoppers would desert Walmart because of its overseas business practices.

Walmart may have a tougher time convincing local politicians that it's playing by the rules, which would have a negative impact on its long-term growth. Walmart certainly needs to demonstrate that it is cleaning up its act in order to repair the damage that has already been done.

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