2 Ways Walmart Is Making You Pay for Its Mexican Corruption

Shoppers at Walmart
Shoppers at Walmart

Executives 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.

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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.

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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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