Wal-Mart Lesson: Compliance Program Works Only When You Follow It

By Pamela J. Bethel

Even a carefully designed corporate compliance program will do a company no good if its top executives intentionally decide to ignore the program’s dictates.

That is one of the many lessons that can be gleaned from the Wal-Mart bribery scandal, which was first highlighted in an 8,000-word New York Times article this past Sunday. The ramifications of the scandal are only beginning to become evident.

The article says that several years ago, Wal-Mart, in a push to expand rapidly in Mexico, systematically made payoffs to Mexican government officials that may well have amounted to bribes that violated the Foreign Corrupt Payments Act (FCPA).

One of the most troubling aspects of the story, out of many troubling aspects, is that when the company’s top management first learned of the allegations, its initial response was to kick off an independent internal investigation – exactly what a public company in its position should do – but that Wal-Mart then backed off from that plan and launched a half-hearted “preliminary inquiry” that ended up going nowhere. That “failure” is no surprise, since the probe into the allegedly illegal payments was not independent: senior management had full and direct control over the inquiry. And the inquiry was eventually turned over to a Wal-Mart official who was one of the inquiry’s chief targets.

The Times reported: “Wal-Mart’s leaders had clear guidance about the propriety of letting a target of an investigation run it. . . . On the same day that [a Wal-Mart vice president] was putting the finishing touches on the new investigations protocol, Wal-Mart’s ethics office sent him a booklet of ‘best practices’ for internal investigations. It had been put together by lawyers and executives who supervised investigations at Fortune 500 companies. ‘Investigations should be conducted by individuals who do not have any vested interest in the potential outcomes of the investigation,’ it said.”

Wal-Mart still went ahead and disregarded its ethics office’s advice. As bad as the bribery allegations may have been, the seemingly willful desire to disregard the proper practices for an investigation may have been worse.

Companies that want to avoid Wal-Mart’s fate, in the court of public opinion and possibly in federal court as well, need not only to have a compliance program in place, with a procedure in place for independent internal investigations when they are called for, but also to actually put the compliance program into effect.


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