business news in context, analysis with attitude

• Interesting take by CBS This Morning on the Walmart Mexico bribery scandal, with Jack Welch, the former CEO of General Electric, and Suzie Welch addressing the ways in which Walmart seems to have covered up the bribery scandal when it came to light a number of years ago.

"Companies, because of experience with whistle blowers, have a strong inclination to shut every whistleblower down because they've heard it before, they think the person is damaged goods and that is what appears to have happened at Walmart," Suzy Welch said. "We think the Walmart story is just a wake-up call to any company that has a whistleblower come forward. Of course, you've got the gut instinct to write the whistleblower off, to shut them down, to ignore them, but don't do it."

Jack Welch added, "Don't investigate (the claims) with the same people. You've got to have a compliant system that absolutely looks at every one of these claims with vigor. I mean, look at the Secret Service issue; they're investigating themselves again. It's a crazy system where people are investigating themselves."

The comments come in reaction to the New York Times piece of more than a week ago that provided an inside look at Walmart’s Mexico division, suggesting that its fast growth over the past decade was fueled by bribes, and that top management was more concerned with details not being revealed and investigations not being allowed to move forward than it was with stopping the systematic corruption and adhering to US law that forbids American companies from bribing foreign officials. Both Duke and Scott, among other senior executives, were implicated in the story and identified as both knowing about and covering up the bribery.

USA Today reports that as federal prosecutors look into Walmart’s practices and examine its books, it seems most likely that Walmart will forge a settlement with the government rather than risk a trial:

“Records of Foreign Corrupt Practices Act cases show publicly traded companies are leery about going to trial against the government ... From 1991 to 2010, each of the dozens of publicly traded companies criminally accused under the law has reached a settlement that enabled it to pay a fine and avoid trial, said Richard Cassin, an attorney who's the creator and principal author of the FCPA blog ... By settling, companies sidestep negative publicity and avoid the long odds of prevailing at trial because of a legal doctrine that makes them responsible for the actions of their employees. Moreover, Cassin said deferred prosecution or non-prosecution agreements with the government often enable companies to have the case record closed, provided they cooperate with federal prosecutors.”
KC's View:
I talked to a lot of people about this story while at FMI this week, and the general feeling seems to be that this is likely to have an enormous impact on Walmart’s management structure (and maybe even that of other companies now headed by executives implicated in the scandal). Jail terms are not seen as out of the question.

Here’s the thing. The bribery may not be the biggest problem. It may be how the books were cooked so the bribery was not identified.

Remember, they got Al Capone for tax evasion.