Wal-Mart's Mexico probe could lead to departures at the top
Allegations that Wal-Mart Stores Inc stymied an internal investigationinto extensive bribery at its Mexican subsidiary is likely to lead toyears of regulatory scrutiny.
Allegations that Wal-Mart Stores Inc stymied an internal investigation into extensive bribery at its Mexican subsidiary is likely to lead to years of regulatory scrutiny and could eventually cost some top executives their jobs, analysts said.
The New York Times said that in September 2005, a senior Wal-Mart lawyer received an email from Sergio Cicero Zapata, a former executive at the company's largest foreign unit, Wal-Mart de Mexico, describing how the subsidiary had paid bribes to obtain permits to build stores in the country.
Wal-Mart sent investigators to Mexico City and found a paper trail of hundreds of suspect payments totaling more than $24 million, but the company's leaders shut down the investigation and neglected to notify U.S. or Mexican law enforcement officials, the Times reported.
According to the Times, current Wal-Mart Chief Executive Mike Duke and former CEO Lee Scott, who still sits on the company's board, were among senior executives allegedly aware of the situation.
"Ultimately, it falls under his watch," Brian Sozzi, chief equity analyst at NBG, a firm that does investment research, said of Scott. "It falls under Mike Duke, too."
Other analysts said that Wal-Mart's structure means any drastic action, such as firings of top executives, may not happen quickly.
"In many companies people would be asked to step down," said Consumer Edge Research analyst Faye Landes. "Two complicating factors here are the ongoing nature of the investigation and the composition of the board and the shareholder base."
The shareholder base includes the family of founder Sam Walton, which owns nearly 50 percent of Wal-Mart's shares, making it difficult for any activist shareholders to push for any immediate changes. Walton's eldest son, Chairman S. Robson Walton, known as Rob, and his younger brother Jim are also on the board.
Wal-Mart said in a statement on Saturday it was "deeply concerned" about the allegations in the Times report and began an investigation into its compliance with anti-bribery laws last autumn. It declined to make any executives available for comment, and said the investigation was continuing.