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Thomas M. Coughlin, who resigned as Wal-Mart’s vice chairman last January, was forced by the company to resign from its board of directors on Friday, reportedly as the result of an internal investigation into the alleged misappropriation of between $100,000 and $500,000.

Wal-Mart said that the matter has been turned over to the U.S. Attorney for the Western District of Arkansas.

As a result of the internal investigation, Wal-Mart has fired three people, including Rob Hey, a vice president of store operations who was close to Coughlin.

Shortly after Coughlin originally announced his retirement, according to the Springdale Morning News in Arkansas, Wal-Mart fired three company employees – reportedly including James Haworth, executive vice president of operations, who reported directly to Coughlin - for ethical lapses and failing to follow company rules. However, Wal-Mart has been saying the events are not related.

According to the Washington Post, “the probe focused on misuse of corporate gift cards and personal reimbursements that appear to have been obtained from Wal-Mart through false invoices and expense reports, according to a filing with the U.S. Securities and Exchange Commission.

The Los Angeles Times reports that it is unclear whether Coughlin “was alleged to have personally been involved in the transactions or whether they simply had occurred on his watch.” The Associated Press story refers specifically to “the reporting of false information on third-party invoices and Company expense reports" without specifying the level of Coughlin’s involvement.

Coughlin, who had been the number two man in the company under CEO Lee Scott and had responsibility for the retailer’s US operations, had been scheduled to resign from the board of directors in June, when the company was scheduled to hold its next annual meeting. The company said it asked for Coughlin’s immediate resignation from the board based on his “response to questions concerning his knowledge of certain transactions."

The Wall Street Journal reports this morning that Wal-Mart President and Chief Executive Lee Scott plans to tell company employees in an internal telecast that “If you see something or someone asks you to do something that you know is wrong -- whether that is a buddy or a supervisor or Lee Scott -- you must have the courage to say 'no.' We all have to do this, no matter our role or position within the company."

The WSJ writes that Scott “sent a letter to Wal-Mart employees Friday, assuring them that the company wasn't a target of the investigation and that it would have no adverse material financial impact on the company. The letter was accompanied by questions employees might have about Mr. Coughlin's predicament and about Wal-Mart itself. One of the questions: ‘What will happen to Tom? Is he going to prison?’ Wal-Mart's response: ‘Because the matter is now in the hands of federal prosecutors, we don't know what the eventual outcome will be.’

“Another question the company anticipated: ‘Why does this stuff keep happening? Is there something wrong with Wal-Mart?’ To that Wal-Mart corporate affairs offered this response: ‘ ... [T]his demonstrates once again the strength of the Wal-Mart culture. Our standards of integrity apply to everyone, with no exceptions.’”

Wal-Mart reportedly is reviewing internal controls on reimbursements and gift cards in the wake of the investigation.

Coughlin joined Wal-Mart in 1978, but had given no specific reason for his resignation from the vice chairmanship when he announced his retirement. The WSJ piece this morning suggests that Coughlin, who was seen as a link to the Sam Walton days, was bitter about Scott getting the CEO job.

Analysts said that the move by Wal-Mart undoubtedly reflected concerns about how the company would be perceived in the light of recent disclosures about ethical and legal lapses at companies such as Enron.
KC's View:
Not to minimize whatever transgressions may have been committed by Coughlin, but what this ultimately proves is that Wal-Mart is company populated by human beings – and human beings make mistakes as well as do things both good and bad.

It’ll be interesting to watch how this plays out, but anti-Wal-Mart folks shouldn’t take too much pleasure in these specific problems. In fact, the company has to be lauded for apparently moving both quickly and decisively.

Where solace can be taken is in the knowledge that Wal-Mart makes mistakes and even occasionally takes its eye off the ball. If you’re competing with Wal-Mart, that’s small but measurable consolation…sort of like finding the tiny window of vulnerability in the Death Star.