The unbearable lightness of corruption: The case of Wal-Mart in Mexico

Joaquín Garralda. Professor. IE Business School

5 June 2012

Corruption is something that is rejected and criticized by society in general. But does such criticism really impact the behavior of consumers, savers, employees or voters? Or does it remain as just a verbal attack which subsequently fades into oblivion?

In theory the subject of corruption among civil servants in terms of assigning contracts to firms provokes lesser or greater social outrage depending on how usual it is in the country in question. The question we have to ask in the face of the scandal surrounding bribes made by Wal-Mart in Mexico is what the reaction would be to this news in the US, where public opinion is strongly opposed to bribery.

According to a recent investigation carried out by the New York Times and published on April 21, Wal-Mart’s senior management team decided to silence the conclusions of an internal report, which stated that it was reasonably certain that bribery had taken place on a systematic basis in Mexico to get licenses to open new stores. This attempt to hide the facts came on top of the hypocrisy that the main architect of the operations that permitted Wal-Mart to grow so fast in Mexico was promptly promoted in the company.

One of the keys to Wal-Mart’s business is the ability to keep increasing the number of Wal-Mart stores. This strengthens the company’s purchasing power and its capacity to keep piling the pressure on its providers, thus securing increasingly favorable funding conditions by using a negative current asset to keep growing its share value.

In some countries it is common practice to offer “facilitation payments” which comprise small amounts of money made to a low-ranking civil servant to be particularly diligent in carrying out work that in theory he/she should be doing anyway. The anti-corruption law in the US (Foreign Corruption Practices Act, FCPA) is fairly permissive with regard to such payments, whereas the UK’s 2010 Bribery Act states that they are not acceptable. When the quantity is more substantial and the civil servant involved is of a higher rank, which is presumably what happened in this case, then the regulatory authorities of both countries view it as corruption.

Many skeptics believe that the result of this “incident” will be a possible agreement between Wal-Mart and the fiscal department  whereby Wal-Mart will pay a fine while  neither denying nor admitting any wrongdoing (which will exonerate it from any other related offences), accompanied by the occasional small demonstration by people waving eye-catching hand-designed banners.

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