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Wal-Mart Investigated for Overseas Practices – Again

Alleged Foreign Corrupt Practices Act Violations Raises Questions about Ethics at Wal-Mart

Have you heard that Wal-Mart is in trouble again with its overseas practices? The company reported that the audit committee of the Wal-Mart Stores board was examining possible violations of the Foreign Corrupt Practices Act and “other alleged crimes or misconduct in connection with foreign subsidiaries, including Wal-Mart de México.” It was the first public disclosure by the company that the internal inquiry could involve additional subsidiaries, though none was named.

The regulatory filing also confirmed that Wal-Mart is the subject of investigations by the Securities and Exchange Commission and the Justice Department. And while Wal-Mart said in December that it did not expect the bribery accusations and their fallout to hurt the company, it recently backed away from that assertion.

The New York Times reported last month that Wal-Mart had found credible evidence that its Mexican subsidiary had paid bribes and that an internal inquiry into the matter had been suppressed at corporate headquarters in Arkansas.

Representatives Elijah E. Cummings and Henry A. Waxman who are looking into Wal-Mart’s activities in Mexico said they had internal company documents that showed the company’s former general counsel had pushed for an investigation of some transactions in Mexico before she resigned in 2006. The Congressmen reiterated a request that Wal-Mart brief them on the bribery accusations, and asked that Wal-Mart authorize the former general counsel to speak to them. A Wal-Mart spokesman said the company had already scheduled an initial briefing with the congressmen’s staffs, and was working to schedule another session.

Egan-Jones Proxy Services, which advises institutional investors, recommended last week that shareholders vote against re-electing Wal-Mart’s chief executive, Michael T. Duke, and a board member, H. Lee Scott Jr., at its June meeting because of accusations that they were involved in the bribery case.  In a call with investors, Mr. Duke said, “We are working aggressively to determine what happened, and we will take appropriate action if violations of the law or our policies occurred.”

Wal-Mart also warned in the regulatory filing that its reputation could be affected by the bribery scandal, with inquiries from the media and law enforcement authorities affecting the “perception among certain audiences of its role as a corporate citizen.”

Possible outcomes include enforcement actions that could lead to fines or criminal convictions; judgments against the company from shareholder lawsuits; and costs from the government’s investigations, from its own investigation and from defending itself against the lawsuits, the filing said.

The company “cannot predict at this time the ultimate amount of all such costs.” Further, the inquiry could involve some senior executives, and that could “could impinge on the time they have available to devote to other matters relating to the business.”

Wal-Mart has been in trouble before for its oversea business practices including the use of under-aged children in foreign countries to manufacture goods and questionable health and safety practices in the workplace. It goes back to 1996, after Charles Kernaghan and the National Labor Committee revealed that Kathie Lee Gifford’s clothing line for Wal-Mart was being made by 12 and 13-year-olds in Honduras, the resulting scandal and publicity was enough to virtually wipe out child labor in garment factories around the world producing for export to the U.S.

In 2006 it was discovered that children were again sewing clothing for Wal-Mart. Kernaghan said: “Children belong in school, not locked in sweatshops. The children report being routinely slapped and beaten, sometimes falling down from exhaustion, forced to work 12 to 14 hours a day, even some all-night, 19-to-20-hour shifts, often seven days a week, for wages as low as 6 ½ cents an hour. The wages are so wretchedly low that many of the child workers get up at 5:00 a.m. each morning to brush their teeth using just their finger and ashes from the fire, since they cannot afford a toothbrush or toothpaste.

The workers say that if they could earn just 36 cents an hour, they could climb out of misery and into poverty, where they could live with a modicum of decency.

In the month of September, the children had just one day off, and before clothing shipments had to leave for the U.S. the workers were often kept at the factory 95 to 110 hours a week. After being forced to work a grueling all-night 19-to-20-hour shift, from 8:00 a.m. to 3:00 or 4:00 a.m. the following day, the children sleep on the factory floor for two or three hours before being woken to start their next shift at 8:00 a.m. that same morning.

The child workers are beaten for falling behind in their production goal, making mistakes or taking too long in the bathroom (which is filthy, lacking even toilet paper, soap or towels).

I’m a big believer in a values-based approach to ethical behavior. According to Wal-Mart’s website, since Sam Walton founded Wal-Mart Stores, Inc., it has always been a values-based, ethically led company. The values that guide the company’s decisions and leadership are the 3 Basic Beliefs:

• Respect for the Individual
• Service to our Customers
• Striving for Excellence

It seems to me Wal-Mart has violated all three of its alleged core values. It’s worse than that because Wal-Mart has been a persistent offender. My question is whether the company is getting away with these unethical practices because of its size, employment of massive amounts of workers in the U.S., and – dare I say – political influence?

Blog posted by Steven Mintz, aka Ethics Sage, on May 25, 2012