Wal-Mart CEO’s Mexico Woes Show Importance of Managing Bribery Risk

Wal-Mart Stores CEO Doug McMillon has been asked to appear in court over alleged bribery payments by a Mexican subsidiary, underscoring the increasing risks that even the most reputable leaders face as they attempt to tackle new growth markets.

To be sure, the retailing giant first dipped its toes in Mexico back in 1991. But it has been gradually growing its presence to the point where it now has over 2,400 stores there, making it the company’s largest operation outside the U.S.

Concerns about the Mexican unit stirred in 2012, when media reports suggested it had paid bribes to local officials to speed up store openings, triggering a deep fall in Wal-Mart shares. Investors led by a major pension fund have subsequently sued the company, alleging it knew about the corruption for years but did little to stamp it out.

The news comes after British engine manufacturer Rolls-Royce in January agreed to pay the U.S. government nearly $170 million as part of an $800 million global settlement related to bribery payments in seven countries in exchange for government contracts. The corruption had occurred for more than a decade, prompting calls for former CEO John Rose to lose his British knighthood.

“Set stringent, well-tested controls,tailoring training for individuals on the ground to account for multiple scenarios.”

McMillon was the head of Wal-Mart’s international operations at the time of the alleged misdeeds, though nobody has yet suggested that he had any direct knowledge of the bribery. On Thursday, U.S. District Judge Susan Hickey in Fayetteville, Arkansas rejected the company’s argument that McMillon lacked the unique and special knowledge to justify a court appearance.

Her decision provides a reminder that signs of corruption, even if committed by third parties or lower-ranked employees, can reverberate all the way to the C-suite. McMillon, Hickey said, had taken part in meetings, saw communications and certified public statements about the alleged bribery. “It appears to the court that McMillon has unique knowledge of relevant issues in this litigation that only he can explain,” she wrote.

Even as many developing countries, such as China and India, continue to modernize, corruption around the world remains rife. In many countries, paying bribes to government officials is customary practice, potentially putting foreign entrants at a competitive disadvantage if they stay squeaky clean. The potential costs of being caught, however, can be profound, from financial, regulatory and reputational standpoints.

To manage the danger, the Institute of Risk Management suggests CEOs may want to take the following steps.

1. Identification. Take time to honestly assess risk types, whether they be geographic, sectoral, transactional or stem from particular business opportunities or partnerships.

2. Evaluation. Rank risks to identify the ones that could be most damaging to the business, taking into account factors such as likelihood and impact.

3. Management. Set stringent and well-tested controls, while tailoring training for individuals on the ground to account for multiple scenarios. Perhaps consider rewarding staff for compliance, particularly in markets where businesses are expected to bribe to succeed.

4. Oversight. Perform a gap analysis to identify deficiencies in risk controls and establish a regular reporting regime to test the strength of protections.

CEOs following such steps should be mindful that corruption risk isn’t just restricted to the poorest or most war-torn countries. According to Transparency International’s 2016 Reputation Index, over two-thirds of 176 countries it analyzed fell below the midpoint of a scale of 0, representing highly corrupt, to 100, representing very clean. The global average was 43, a score which represents endemic corruption in a country’s public sector.

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Ross Kelly
Ross Kelly is a London-based business journalist. He has been a staff correspondent or editor at The Wall Street Journal, Yahoo Finance and the Australian Associated Press.

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