NOTE- Wal Mart isn’t on trial here. Wal Mart should be given the basic courtesy of reply to the allegations in the NYT story and the rights of due process, not just “on principle”, but in fact. Trial by media would be particularly inappropriate in a case of this seriousness. This story illustrates far more dangerous and much more important issues for the wider corporate sector.
The New York Times article
needs to be read in full to see the extent of the corporate tangle into which Wal Mart got itself.
The scene is pre-drug wars Mexico, circa 2001.
The story runs roughly:
1. Approvals for construction of Wal Mart stores happen super-fast.
2. Corruption in Wal Mart de Mexico alleged.
3. Conditions for approval, including environmental issues, “vanish”. (You don’t say.)
4. Investigators find evidence.
5. Top management does nothing.
6. Investigators removed from Wal Mart Mexico.
7. Auditor fired.
8. Further investigations commenced, but go nowhere.
9. Lack of action.
10. Parties involved in investigation leave Wal Mart.
11. Parties involved in alleged bribery leave Wal Mart.
12. Lack of action- Wal Mart decides not to take action against the person said to be the facilitator of the bribery.
At no point are regulators or law enforcement agencies involved in this situation, which went on for years. There’s no indication from the NYT story that they were even aware of the situation. Nor is/was the FBI involved, despite the fact that this situation involves the Federal Foreign Corrupt Practices Act.
The culture problem
OK, so now we have a picture of a corporate culture that doesn't solve its own problems and is able to create the mess described by The New York Times for itself. There are some absurdities and some atrocities in this mix:
• Massive misuse of corporate money, for which the corporation could be held responsible, is alleged. (Corporations can be held liable for the actions of people working on their behalf, prima facie. Management can also be held responsible for misuse of funds by shareholders.)
• Equally massive amounts of documentation are produced on the subject, resulting in no effective action.
• Bribery is a criminal offence, both in Mexico and the United States.
• Conflicts of interest in terms of management, or in this case non-management, of the case were ignored despite advice to the contrary.
• The Mexican government was apparently not interacting on any level with Wal Mart regarding the allegations.
• The apparent assumption that all this information regarding the Mexican dealings would be “on the dark side of the moon, i.e., never come to light. (No, Pink Floyd didn’t invent the expression, either.)
Worthy of mention here is that Wal Mart apparently didn’t have a senior management fixer to deal with the problems at inception. (This person is basically a head kicker, able to fire with a phone call and do the damage control ASAP.) They had a remote process from the Mexican end to corporate headquarters. That’s a classic mistake. The only way to control internal problems is with a fast moving process which can keep up with developments and stop the rot. You just can’t do these things at a bureaucratic pace any more.
Corporate law and the new realities
The above story just shows how a corporation can be totally neutered by its own culture. Now we get to the truly gruesome side of things. This is no longer about Wal Mart. There's a whole spectrum of very big, very grim issues in corporate misbehaviour to be considered. You’d have to be living under a rock not to know that American corporate malpractices are routine headline-makers. The picture of hyperactive corporate law breaking is getting progressively bigger and uglier. Corporations are now seen as the bad guys, all
the time. The public, unfortunately, gets the post mortem views of corporate actions, not the whys and wherefores of these weird behaviours.People may understand the money angle, but not know who's making
The trouble with this rather simplistic view is that things are no longer that straightforward in any kind of business. With this unholy picture of gaga global corporations is coming another, arguably much worse, image- The widespread and undisputed involvement of organised crime in corporate life. These are the giant gorillas that have been on the rampage for decades. The behaviour of corporations is taking on a lot of similarities to the well-documented behaviour of many international organised crime groups. It also fits the pattern of apparently "irrational" corporate actions.
This is madness with very consistent methods applicable across the entire range of corporate business. Crime is about money. Typical criminal activities like fraud, bribery, embezzlement, account doctoring, money laundering, you name it, are common enough in corporate news. The finance sector, which handles gigantic amounts of money, is the usual area of “activities” of this sort, but there’s no reason to suppose that it couldn’t extend to other sectors quite easily.
For instance- All the basic forms of fraud, etc. are very common in the finance sector. The very prevalent blatant disregard and even contempt for clients in this sector is a good indicator of cultural and operational shifts from rational business perspectives to pure case by case money-milking. Real businesses doing real business can’t afford to think of multimillion dollar clients as morons. Nor do they risk losing their business and their clients' money so routinely. Criminals think of everyone passing by as a source of money, so there are some interesting questions about who’s calling the shots in that sector, too.
All of which raises some nasty questions-
• If corporate management is under any sort of duress from their associates, what’s it realistically supposed to do about it? The fact is that there are a range of grim possibilities for management, and not a lot of credibility for "do the right thing" options. A manager could report fraud today and be dead tomorrow.
• Can corporate managers be “leveraged” by criminal groups? Blackmail isn’t just a word. It’s an industry, around the world. It’s absurd to think US corporations are immune to it.
• Do corporations have any working defences against internal corruption which can’t be simply shut down by management, as this case alleges? In theory, yes, but in practice management calls the shots.
• Is there a link between the multitude of seemingly irrational acts on the part of corporations and criminal activity inside these organizations? A lot of the things corporations do don’t make much sense, unless you see the potentials for individuals to make money.
• The fact of global trade is that with global trade comes direct exposure to global corruption and criminal practices. This has been the case since the Silk Road. It's obvious that international law enforcement isn't even in the race in this area, years after globalization became a reality.
A fix- Maybe
The corporate sector is by nature very vulnerable to internal corruption and crime. That’s like saying the sky is blue. Fraud in the US alone is probably bigger than the GDP of some large countries. It’s also the sector least able to enforce effective oversight of itself. Its own secretive and evasive culture works against it, even when governance is purely a matter of internal management without any criminal interests involved.
There are no quick fixes here, just some facts which map out a strategy. The enormous spike in white collar crime in recent decades is no coincidence. There are patterns of abuse in these crimes.
A reliable fix needs to be available in-house, and management should also have the basic common sense to realize that it needs external help to protect its own interests when it gets out of its depth. The working solution is going to be tracking money to pin down breaches of law and nail individuals to their actions.
Above all- Change the corporate culture
. Get rid of the apes and their enablers. Until corporate misbehaviour is recategorized from "smart" to "stupid", the abuses will continue.