Shoppers at WalmartExecutives at Walmart de Mexico facilitated more than $24 million in bribes to hasten approval of building permits and gain other political favors, according to a recent article in The New York Times. Instead of punishing those involved, high-level executives at parent company Walmart Stores (WMT) covered up the violations and even promoted some of those involved. You can find a concise summary of the scandal here.

Such behavior is in clear violation of the Foreign Corrupt Practices Act -- and consumers pay for these violations in at least two ways.
  • Businesses that violate the FCPA's anti-bribery conditions deprive consumers of opportunities to buy better products and services at a lower price.
  • Businesses that use bribes to dodge regulatory requirements avoid accountability for engaging in activities that impose costs on citizens later down the line.
Whistleblower Sergio Cicero Zapata suggested that the bribery activities at Walmart de Mexico, spearheaded by then-CEO Eduardo Castro-Wright, were motivated by the goal of achieving such rapid growth that competitors would not have time to react. Also, by using bribes to achieve changes in zoning laws, Walmart would have been able to gain a competitive edge over companies who do not engage in such practices.

This is bad news for consumers. It gives the corrupt companies more power to raise the prices of their products or cut costs by offering products of lesser quality. Also, development costs are lower for corrupt companies, as they don't have to comply with the same regulations, providing an unfair cost-saving advantage.

Dodging Regulations


In addition to discussing the use of bribes to promote rapid growth and broader store presence, Cicero claimed that executives at Walmart de Mexico used bribes to buy other political favors, helping the company avoid environmental objections, gain confidential information, and avoid fines. These advantages could also help Walmart gain a deeper competitive advantage over industry peers who will not or cannot buy such favors. However, the use of bribes to gain such political favors also imposes other costs on consumers.

For example, many environmental regulations are created to protect public health. Emissions standards in the U.S. are largely intended to protect citizens from contracting respiratory diseases resulting from air pollution or ingesting harmful chemicals that wind up in the soil or water -- and eventually the food we eat. When regulations like these are not properly enforced, individuals pay for corporate misconduct through reduced quality of life, increased medical expenses, and the cleanup of environmental wrongdoing, which is often funded with tax dollars.

It is not just Walmart's alleged violation of the FCPA that should concern consumers and stakeholders; it is the systematic cover-up of the scandal from the highest levels of the organization. This reflects executives' complicity in activities that impose costs on consumers and stakeholders like those outlined above.

Instead of conducting an independent investigation into the bribery scandal, Walmart executives ordered an internal investigation.

These activities violate one of the requirements outlined in Walmart's "Statement of Ethics," which states that employees should "never cover up or ignore any ethical conduct problem."

Given the public availability of Walmart's statement of ethics, it's fair to interpret the standards expressed in it as promises to the public. The failure of internal leaders to keep these promises raises questions about the company's commitment to the rights of consumers and the broader community -- and its willingness to make you pay for its corrupt practices.

Motley Fool contributor M. Joy Hayes, Ph.D., is the principal at ethics consulting firm Courageous Ethics. She doesn't own shares of any of the companies mentioned. Follow @JoyofEthics on Twitter. Motley Fool newsletter services have recommended creating a diagonal call position in Walmart Stores.



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120 Comments

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immyja

This sounds like more bashing of Walmart by Union orginizers I am amazed by the comments of some people commenting on walmart being high priced. Anyone that would make a comment like that is either stupid or has never compared prices. Walmart is always the lowest price merchant by at least 20%. The reason that stores go out of business when walmart comes to town is because your friendly local supermarket has been sticking it to you for years and can no longer do it. when they have to compete with walmart. Oh and has Walmart been convicted of bribery ? I didn't know they had gone to court or isn't that necessary now??????

May 31 2012 at 10:38 PM Report abuse rate up rate down Reply
Bob

the writer of this sure did not make their case that you and I are 'paying' for this. Instead he uses less than factual references and incomplete statements as to what the S end of the company actually did. Now, it is factual the Mexico part of the company did violate the company ethics and there is yet to see exactly what the affects will be. But this article just jumps out there and provides NOTHING of value to us in thisd situation. Looks like to me a 'let me get paid for an article' kind of journalism...boy am I surprised, can you tell !!!!!!

May 31 2012 at 1:14 PM Report abuse rate up rate down Reply
gerardcpc

141 comments? how few people are interested or care?
What the article forget to mention is what can be done to Walmart or companies like ( gas, electric, cables, telecomunications) that monpolize our lives and the world. To big to be fined. What about the corrupt politicians? There and here?
What can be done?
Are we already doomed?

May 31 2012 at 12:54 PM Report abuse rate up rate down Reply
ryanraymond321

Can someone give me one good reason other than their prices to shop at one of these stores?

May 31 2012 at 12:53 PM Report abuse rate up rate down Reply
1 reply to ryanraymond321's comment
TWRVA

Do you need another reason? Price drives behavior.

June 07 2012 at 8:41 AM Report abuse rate up rate down Reply
c21purcellville

Walmart, I don't shop there just on principle. They are a monoply, they squeeze smaller store out of business. I don't like the big box stores. I'm not an invirimentalist, but look at the energy they use in those boxes> That is a waste of resourses. How many homes could be heated by on store. It goes on and on.

May 31 2012 at 12:27 PM Report abuse rate up rate down Reply
Margie

They are already raising prices. I am from the DC area and the prices are cheaper there than in the Michigan stores. The superwalmart up here food prices are even higher than the higher end grocery stores. I DO NOT buy any type of food from Walmart up here. You might even find that things that are most needed, bathroom tissue, toothpaste, trash bags, diapers, and childrens clothing will be going up first.. along with other items that we need daily. Also next time you travel to Walmart,, the cheapest things you see in the food department especially snack item are the lowest and have the most sugar.

May 31 2012 at 12:09 PM Report abuse rate up rate down Reply
tfamerican

Mexico has a corrupt government. The only way anything can get done in Mexico is to pay off the right person. I'm talking about building and construction permits, and related, including inspectors. After that, you have to pay off the local police for protection.

May 31 2012 at 11:58 AM Report abuse rate up rate down Reply
Iselin007

Amazing . Gee this is such a surprise! I would not have ever suspected this. Now get back to work pulling pallets you lazy managers!

May 29 2012 at 1:57 PM Report abuse rate up rate down Reply
Wayne Bradshaw

SEATTLE (AP) — Border officials say they have seized more than 25,000 counterfeit purses that arrived in an ocean container from Coach Online Outlet.More than 8,500 of the purses were knockoff Gucci, Fendi, Burberry and Coach bags, officials with the U.S. Customs and Border Protection office said Monday. The bags were seized in Seattle March 13 and will be put on the Coach Purses Outlet .Officials said the combined manufacturer's suggested retail price of the handbags, had they been genuine, is more than $ 8.4 million.

May 05 2012 at 11:46 PM Report abuse rate up rate down Reply
mccglf

Take out Walmart and insert Obama. Take out Mexican, and insert Afghan.

May 03 2012 at 5:21 PM Report abuse rate up rate down Reply