WalMart, the world's biggest retailer, has been growing quite rapidly in Mexico. The company started its first store there in 1993 and over the last five years, has been maintaining a store growth rate of about 10 per cent per year. Mexico, with 1,730 stores, is now the company's largest overseas market accounting for 38 per cent of the company's stores overseas.

However, that remarkable performance has now come under a cloud, with revelations that the company's Mexican operation has been indulging in fairly extensive bribery involving mayors, city council members, urban planners, and low level bureaucrats to secure the permits and zoning changes needed to open the stores.

The New York Times published a detailed investigative report in April this year detailing WalMart's activities in Mexico.

The company used to retain the services of agents called ‘gestores' (much like the so-called liaison agents in India) who would actually make the payments to officials to get the required permits, licences, and so on. These payments, including a 6 per cent fee for the gestores, were recorded in the company's books under various secret codes.

Real-estate executives of the company were also suspected of taking kickbacks from construction companies. What the Times' investigation reveals is not just the extensive bribery, but that its top officials in the country were aware of it and apparently approved it.

When an inside investigation began to find the facts, it was shut down. None of those involved were disciplined. In addition, when the corporate office in the US came to know about mischief down south, they undermined the investigation. The company, when it learned about the newspaper's investigation towards the end of 2011, reported the violations to the US government.

It takes two to tango

The reason given to the reporter by the Mexican executives was that the pressure to expand and grow in Mexico made them indulge in bribe-giving. That is believable. A low level executive who reports that he is not getting the permission to expand in a particular market is very likely to have been told to do ‘whatever is necessary'.

Any effort to crack down on such corruption has to deal with both sides to the deal. Unless executives fear the consequences of bribing a government official, they would continue to be willing participants in the mutually beneficial arrangement of corruption.

And these corporate chiefs are also the self-styled opinion leaders and role models. If the crackdown against them is not swift and severe, the message of ‘cease and desist', given to low-level corruption that goes on in any society, will be hypocritical.

We most often associate ‘corruption' with a public official demanding money for doing his job. Even the World Bank's definition of corruption, (“abuse of public office for private gain”), seems to absolve the corporate world. The bribe-giver is assumed to be the victim. But it takes two to tango.

On paper, WalMart is doing everything it can to operate with integrity. It has an elaborate Statement of Ethics that runs into 30 pages, visualising all kinds of situations and giving advice to its employees. The section on anti-corruption specifically describes the Mexico-kind of situation. To quote, “Even when local practices or customs allow behaviour that violates our Anti-Corruption Policy, it is not acceptable for us to do so.” It also has a Global Ethics Helpline that people can call and have their concerns clarified or addressed, in confidence. Then, what went wrong?

Cost of doing business

The answer is quite simple. Corporations do not see bribery as a moral issue, but as a cost of doing business. And, of course, they would like to stay on the right side of the legal line. That is where the American Foreign Corrupt Practices Act (FCPA) comes in handy.

Enacted in 1977, it bars US companies from bribing officials overseas for securing or retaining business. It allows some low level facilitation payments. The enforcement of the Act was dormant for many years, but in the recent past, the government has become active. US corporations have put pressure on the government, saying the enforcement of the law affects their ability to compete overseas. So the US has pushed other countries to enact similar laws.

In addition, the whistle blower laws in the US give a tipster up to 30 per cent of any money that the government recovers as part of the violation. Thus, individuals in companies have an incentive to report wrongdoing. The FCPA along with the whistleblower legislation can be quite effective in keeping most companies in line, provided there is aggressive enforcement.

Based on an insider's complaint, Chevron of the US, Italy's ENI and Russia's Lukoil are under investigation for bribing customs officials in Kazakhstan.

Newspapers also reported a case where, under the same act, a senior executive of the financial services firm Morgan Stanley pleaded guilty to bribing a Chinese official with property investment in return for directing business to Morgan Stanley funds. The executive will do jail time as well as pay a fine.

The companies under indictment usually settle out of court and pay huge fines, like Siemens which paid $800 million (about Rs 4,320 crore) in 2008. No CEO would like his/her picture, of being led away in handcuffs, appearing on the front pages of a newspaper.

(The author is Professor of International Business and Strategic Management at Suffolk University, Boston, US.

(This article was published on June 17, 2012)
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