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How Will Wal-Mart’s Bribery Scandal Affect CEOs?

Wal-Mart’s alleged FCPA violations are bound to bring about much legal fallout. Executives have gone to jail for violating the FCPA, and only time will tell what will happen to Wal-Mart’s C-Suite. If your company does any business outside the U.S., it’s important to follow this story and let Wal-Mart’s missteps be a cautionary tale. Here’s what you need to know.

There are surely many people working overtime at Wal-Mart’s headquarters in Bentonville, Arkansas following The New York Times’ expose on the company’s bribery practices in Mexico. The alleged violations of the Foreign Corrupt Practices Act (FCPA)  and the subsequent cover-up not only has huge implications for the future of the company and its executives, but for all CEOs.

The scandal has knock-on effect for executives well beyond Wal-Mart because virtually all companies have increased their share of non-U.S. business activity. Companies that may have depended on foreign revenues and earnings that were as little as 20 percent of their total  have seen that figure jump to 50 percent or more today. The greater the figure the higher the risk of exposure.

And in Wal-Mart’s case the scandal goes all the way to the top, says the Times, “Confronted with evidence of corruption in Mexico, top Wal-Mart executives focused more on damage control than on rooting out wrongdoing. In one meeting where the bribery case was discussed, H. Lee Scott Jr., then Wal-Mart’s chief executive, rebuked internal investigators for being overly aggressive.”

Mike Koehler, author of the FCPA blog FCPA Professordiscusses the legal ramifications for the company and notes that much of the company’s problem may come from its actions after learning of the potential violations:

“While the FCPA does not contain any affirmative disclosure obligation, most companies the size and statues of Wal-Mart tend to disclose conduct that could implicate the FCPA, particularly given the SEC’s position that all payments in violation of the FCPA are qualitatively material, even if not quantitatively material. Lacking such a voluntary disclosure, a company should, at the very least, thoroughly investigate the alleged wrongdoing and implement effective remedial measures, including by disciplining and terminating culpable employees.”

Wal-Mart, in fact, promoted Wal-Mart de Mexico CEO Eduardo Castro-Wright despite knowledge at company HQ of his involvement in potential violations.

Senior Associate Dean the Yale School of Management Jeffrey Sonnenfeld said to CNBC, “Apparently the board has failed. Either failure in complicity or failure in oversight.”

Wal-Mart can expect some serious legal fallout from this scandal.

FCPA Professor Koehler stated,

Not only will the DOJ and SEC likely be examining the conduct of Wal-Mart executives, but so too will plaintiff law firms representing shareholders who will likely scour Wal-Mart’s SEC filings and other statements to the market in bringing derivative claims alleging breach of fiduciary duty and potential Section 10(b) claims based on material omissions concerning Wal-Mart de Mexico.”

Executives have gone to jail under the FCPA before.

If you’re a CEO with operations in other countries, it’s crucial for you to understand the FCPA and how your operations elsewhere can affect your company. Any allegations of violation of the FCPA can have legal ramifications for you and for your company and must be taken seriously. It seems Wal-Mart was made aware of potential FCPA violations and failed in their action plans to deal with the issue.

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Read: Vast Mexico Bribery Case Hushed Up by Wal-Mart After Top-Level Struggle
Read: Wal-Mart shaken by bribery probe, shares plunge
Read: Wal-Mart’s FCPA Scrutiny Grows
Read: DEAR WALMART: If The Bribery Story Is True, You Need To Fire Your CEO
Read: Wal-Mart’s Bribery Inquiry in Mexico

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