25
37
Gini Dietrich

The PR Nightmare for Walmart

By: Gini Dietrich | April 24, 2012 | 
118

I would be remiss if I didn’t blog about the PR nightmare Walmart has caused itself by allegedly covering up the bribes they paid Mexican officials in exchange for getting building permits faster and other favors to help it aggressively expand in the region.

Late last week the New York Times revealed a Walmart attorney received an alarming email from a former executive at the company’s Mexico subsidiary, which described how the company had orchestrated a campaign of bribery in order to win market share. The problem? This happened in 2005.

That same year, the attorney dispatched a committee to Mexico City and found, yes indeed, there was suspicion both Mexican and U.S. laws had been broken. The lead investigator at the time recommended Walmart continue the investigation to confirm suspicions.

Instead, Walmart shut it down.

The campaign of bribery isn’t the PR crisis…it’s in how it was handled. Rather, in how it was not handled.

I’m not an investor relations communication professional, but I do know enough to know Walmart has violated the Sarbanes-Oxley act, which was instituted in 2002 in the wake of accounting scandals at Enron, Tyco, WorldCom, and other giant organizations.

Sarbanes-Oxley requires corporations and their auditors to report on the company’s internal controls for financial reporting. It also requires CEOs and CFOs certify the material accuracy of financial reports.

If these allegations are true, Walmart has run afoul of all of these provisions…and the responsibility lies at the feet of its current chief executive, who had just been promoted to run all international divisions in 2005…which Mexico falls under.

If Walmart is found to have violated the Foreign Corrupt Practices Act, which forbids paying bribes to foreign officials, there will be huge fines, its executives will lose their jobs, or they may even go to jail.

And the giant retailer will be left with a PR crisis that will hurt its reputation for years to come, not to mention the distraction the company is facing for most of the rest of this year.

It’s been reported Lee Scott, the company’s CEO in 2005 and current board member, called a meeting in early 2006 to discuss the findings of the investigation committee and decided to hand it back to the Mexico subsidiary’s general counsel (who has been named in the investigation). From there it went nowhere.

I know I’ve been accused of being ethical to a fault, but I really don’t understand how you can sit in a board meeting and decide not to do anything, when it’s pretty clear there have been bribes.

Did we not learn from Arthur Andersen and Bridgestone/Firestone and Enron and WorldCom and John Edwards and Bill Clinton, and, and, and?

The problem is never in the issue at hand. The problem is always in how it’s handled when the truth comes out.

Why is it so hard for human beings to say: We made a mistake, we’re fixing it, and we’re sorry?

Are we so ego-centric we think we won’t get caught?

About Gini Dietrich


Gini Dietrich is the founder and CEO of Arment Dietrich, a Chicago-based integrated marketing communications firm. She is the lead blogger here at Spin Sucks and is the founder of Spin Sucks Pro. She is the co-author of Marketing in the Round and co-host of Inside PR. Her second book, Spin Sucks, is available now.

115 comments
kamichat
kamichat

@Samjb Thank you, Samra.

kamichat
kamichat

@RaeganHill thanks for the Rt Reagan

kamichat
kamichat

@paulmerrill Hey Paul, thanks for the RT. Also see you are in Littleton. I grew up in Englewood :)

Faryna
Faryna

Corruption can be deeply entrenched in business, politics, and culture. Really. It's everywhere.

 

I think of Loïc Le Meur's team of Seismic-related mobile app developers which he recently blogged about - trying to help them find new jobs.

 

http://loiclemeur.com/english/2012/03/who-wants-a-great-engineering-team-in-bucharest-please-help-me-spread-the-word.html

 

I am told Le Meur's team was employed in a manner that subverts the ordinary employment taxes according to Romanian Law. Official salaries were registered at the minimum legal salary (around $250/month). The remainder of the "salaries" were paid in other ways that avoided the taxes the company should have been paying to the Romanian government. But this is a common practice...

 

I once wrote about an investigation of such practices: The Scourge of Inexorable Corruption http://wp.me/pbg0R-5W

 

Le Meur is someone anyone in social has heard about. Like I said, corruption is everywhere.

 

As I further consider corruption, I am thinking now that the only way to deal with it is to grant a general amnesty for the past (where no direct physical harm to people was done) and start over with intimidating, severe punishment imposed forward from the restart.

 

 

Andrea T.H.W.
Andrea T.H.W.

They just think that their money, power and lawyers can fix everything if they get caught doing something illegal, and 99 percent of times they are just right. Human beings tend always to see those with a lot of money as different. Mr. Hughes would have been thrown into an Asylum if he was just a common human being but being Hughes he was more or less seen just as highly "particular" or "extravagant".

 

If I'm right it's not the first time Wal-Mart indulges in unethical behaviors, isn't it? Only that with money you can buy more or less everyone and everything. Luckily not all the times but usually it's needed a catastrophe to have those kind of businesses to expose their business practices like in the Gulf of Mexico or Fukushima.

 

Also usually they don't say "We made a mistake" but "We got caught". It's like those criminals who become witnesses but only after being caught by the Police, before that everything is cool.

 

Well, when you get caught it's easy to say sorry. But there are no excuses.

M_Koehler
M_Koehler

Ok take 2 on the comments..... As you know, my dealings with Wal-mart take up an exceptionally large portion of my work day. This situation is being watched closely here. We hope this doesn't hurt us. I am not shocked this went on. They are Wal-Mart and they get what they want. That is their attitude. We venders do not help the situation by capitulating to their demands. But most companies are not in a position that they can pass on that much business. This is one of the many reasons we try to a avoid shopping there but it is increasingly difficult to do so in this semi rural town of ours.

savithoughts
savithoughts

Agreed Gini, but having worked in corporate America, I don't have much faith or trust in them anymore. Profits first. It's ironic, this foolish action. Had they put people/ethics before profits in the day-to-day decisionmaking, they'd see long-term gains and sustainability. This short-term tactic of lying/sweeping under rug to keep current profits intact only shortchages companies, by shuttering a consequence into the future, only making the financial impact that much greater and the reputational impact insurmountable.

JulesZunichPR
JulesZunichPR

The problem is that there are far too many people who are willing to sit on Boards and not do anything about anything. Generally these people are the ego-centric type who would rather choke on their own stock options than say "We made a mistake. We are sorry. This is how we are fixing it."

TheJackB
TheJackB

People like cheap products and unless there is more than a hand slap here nothing much will happen because their customers will keep shopping there. I wouldn't say that the company is above the law because no one/thing is, but there is an enormous beast here.

 

The automotive and banking industries were bailed out. Curious to see what happens during an election year.

mitchellfriedmn
mitchellfriedmn

@ginidietrich FCPA, business practices overseas, corporate ethics bigger issues here

GrizzardComm
GrizzardComm

@ginidietrich It's undoubtedly the right thing to do, but it sort of short-circuits our brains. We want to cover up and lie and spin instead

TonyBennett
TonyBennett

I don't know, but is it really too much to ask for big business to play by the freakin rules? Or is it established that there are a different set of rules? Probably both, although my contempt is pointed more toward the Mexican Government. If they're condoning this practice, it's just an extra cost of doing business. Btw, I love the evil smiley face!

GrizzardComm
GrizzardComm

@ginidietrich Humans have an instinct for self preservation, and honestly confessing one's mistakes is sort of counter-intuitive for that.

ElissaFreeman
ElissaFreeman

 @M_Koehler

 Your point is well taken. It's that "we are Walmart and you're not" attitude this is pervasive among similar companies in the Fortune 50. Sure it takes cojones to run a successful corporation, but social responsibility is not just an HR program; it''s something that needs to be embodied by the C-Suite.  Part of me thinks that Walmart felt it was 'okay' to engage in bribery, cuz "everyone in Mexico does it." I'm sure other companies have engaged in the same practice...it's just that they never got caught.

TMuellerFFM
TMuellerFFM

@ginidietrich You're welcome, Gini. Thanks for the great post!

ckrohn1
ckrohn1

@ginidietrich hi yourself! How are things? Just as time-pressed?

ginidietrich
ginidietrich

@GrizzardComm It's awful because it's always worse when it comes out. And it always comes out

ginidietrich
ginidietrich moderator

 @SociallyGenius I really don't understand why it's so hard for human beings to say they're wrong. If you look at this logically, you know it's going to cost you less if you come clean seven years ago than if it comes out down the road. The only reason people don't come clean is because they think they won't get caught. Makes me nuts.

rustyspeidel
rustyspeidel

@SociallyGenius AppArently it is. They are never held appropriately accountable.

M_Koehler
M_Koehler

 @ElissaFreeman See my above comments. Not sure why it got added to that reply. Another sad part to ponder, no one is going to learn a hard lesson from this. Yes someone will go to jail but is it really going to be the people that did this or fall guys. And are they going to be doing hard time. Time will tell, but I don't think the punishment will send a harsh [enough] message to corporations that this is just unacceptable behavior.

 

M_Koehler
M_Koehler

 @ginidietrich I'm sure there is discussion surrounding them going to jail, however our bigger concern is how bad is their business going to suffer from this and how much is that going to impact us and on the flip side who is going to gain from this mess. I would expect you to see some small upticks in business at regional chains, however I bet you see the largest increase at Target. I'm not sure if this will effect sales at WM for petfood however. If I start seeing retail teams scrambling for last minute promotional volumes in the coming weeks, I will know my answer.

 

 @ElissaFreeman I completely agree. I'm very curious to see who the next one is that's caught doing this. WM is not the only one and I'm sure it's not just in Mexico.

ginidietrich
ginidietrich

@ckrohn1 Have a book coming out next week so, um, yeah… How are you??

kamkansas
kamkansas

@ginidietrich So are you glad March Madness is over? It was quite a ride for the Jayhawks! My fingernails are just now growing back :)

Howie Goldfarb
Howie Goldfarb

 @ginidietrich  @TheJackB the Huff Post reported congress and department of justice have been investigating since December and the CEO has been requested to talk with the Feds. Assuming there are any available Feds not at Colombian Brothels.

GrizzardComm
GrizzardComm

@ginidietrich Exactly. But we tend not to want to admit it unless we have to. It's hard to convince someone to admit it when they don't.

LucretiaPruitt
LucretiaPruitt

 @ginidietrich I'm backlogged, so I hope you'll excuse the majorly late reply... but we aren't talking about human beings here - we're talking about a corporation. (Yeah, I know, don't get me started on that debate.)While a human being might want to say "I'm sorry, what I did was wrong" - that's a whole different matter from a human being saying that as part of a corporation. That becomes a nightmare on the legal & fiduciary duty side of the house. Because "coming clean" in our society if you are an executive means admitting to legal wrong-doing. That means opening not just yourself, but the corporation up to legal liability.  If 2 centuries of being one of the most litigious countries in the world has taught us nothing else? It has taught us that you don't say "I'm sorry, what I/we did was wrong" because that means your lawyers are going to murder you since you essentially just 'confessed' on the record and it's going to be more than just a matter of stock prices dropping.That said - I've had the personal fortune of meeting both Lee Scott & Eduardo Castro-Wright briefly back in 2008. In the few minutes I had to assess them? Both struck me as sincere, smart, driven men - also the kind of people who wouldn't say "I'm sorry, I was wrong" if that was the case. But they also have a pretty savvy (and large) in-house legal team at Walmart - and there's no way you get to C-level status with a multinational corporation without learning when to listen to your lawyers and shut up.

 

I guess what I'm saying is that no matter what turns out to be the truth of the case or who ends up bearing the onus? It's one thing for a human being to say "I'm sorry" and another for a human being to say "we're sorry" on behalf of a corporation. :\

ElissaFreeman
ElissaFreeman

 @M_Koehler

 Perhaps its our jobs as PR counsellors to start providing early advice to the C-suite on playing fast and loose with the law....and the ramifications it can have???

ckrohn1
ckrohn1

@ginidietrich Wow next week - you *are* busy! All good here, no books ready to publish tho. :)

kamkansas
kamkansas

@ginidietrich Haha! I think I did too. And I may have even consumed a few cupcakes to help drown my sorrows!

ginidietrich
ginidietrich

@kamkansas It's OK. I think he drank through it.

kamkansas
kamkansas

@ginidietrich Oh my goodness! Lucky Mr. D to be there! Sorry he came home unhappy. Nobody at my house was happy that night either :)

ginidietrich
ginidietrich

@kamkansas LOL!! Mr. D was in New Orleans for the Final Four. He came home very unhappy