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Corporate Integrity: Wal-Mart’s Blatant Bribery in Mexico Cannot be Excused as “Everyone Does it”

Posted in Corporations

A couple days ago I declined to blame Apple for strategic structuring of its revenues to avoid high tax jurisdictions.  While distasteful and contrary to the interest of those Apple customers who must “pick up the slack,” what Apple did was perfectly legal.  (What did Apple do, exactly?  Shifted revenue and cash reserves from its California headquarters, 8.84% state corporate tax rate, to a Nevada-based subsidiary, 0% state corporate tax rate.)  Some might say a similar thing about Wal-Mart’s recent Mexican bribery scandal.  To get things done in Mexico you must “grease a few palms.”  “Don’t blame Wal-Mart for playing the game since it didn’t invent the rules”—but I disagree.

Wal-Mart’s decision to bribe its way into ownership of over 2,000 stores in Mexico, at a cost of $24 million, was decidedly not legal.  “But Wal-Mart’s corruption largely arose from its Mexican subsidiary, Wal-Mart de Mexico, which maneuvered to hide its corrupt activities from Wal-Mart the parent.”  I don’t buy it.

Did anyone at Wal-Mart headquarters say, “Hey everyone, these profits are too good to be true.  Maybe we should figure out what is going on?”  Or perhaps, “This type of growth is unrealistic, what is making it possible?”  Nope, it’s the all-too-familiar “wink and nod,” let’s look the other way.  In the end it took a courageous executive-turned-whistleblower coming forward after the fact to truly focus attention on the issue.  Individual integrity strikes again.

Comparing these two recent examples of corporate overreaching (one legal, one not so legal) reemphasizes something I’ve been saying for a long time: We must work to hold corporations to a higher standard.  Why can’t ethics trump revenues?  It’s sad and misses the point when Wal-Mart put in an SEC filing, “We do not believe that these matters will have a material adverse effect on our business.”  I guess they are right.  At the end of the day, the reputation and brand of a company matters, but cold hard cash matters more.  And Wal-Mart has plenty of cash.

How can we begin to expect the same level of integrity from corporations as we currently do from individuals?  Either the public must be outraged by scandals like the one facing Wal-Mart and punish Wal-Mart by boycotting their stores (not going to happen), or the government must increase penalties and/or oversight so that it is simply too much of a financial risk to engage in such behavior.  We’ve seen time and again that public outrage about cheating doesn’t do the trick—just ask all the Yankees fans who continue to root for A-Rod.  So my eyes are on the government cracking the whip.  Only through increased enforcement, regulation, and a clearly defined set of deterrents will corporate integrity be promoted, incentivized and ultimately strengthened.