Managing in the International Economy (MGT6233)

1.0

Introduction

In a case that continues to reverberate across borders, Wal-Mart Stores, the worlds largest retailer, announced recently that it has started its own probe into allegations that executives at its Mexican operations made hundreds of illegal payments worth more than $24 million to help expedite the opening of new stores. According to a report in The New York Times, Wal-Mart officials in the U.S. learned about the bribery allegations in 2005, but failed to alert U.S. or Mexican officials at the time. The charges have cast a dark cloud over Wal-Mart, which is also the largest retailer in Mexico and the countrys top private-sector employer. According to news reports, Wal-Marts own probe of possible bribery could force the firing of some of the firms executives, and bring serious fines from the U.S. government if investigations reveal that the companys senior managers knew about the illicit payments but did not take sufficient action. The day after the allegations were made public, Wal-Mart shares fell nearly 5%.

2.0

Assignment Background

Wal-Mart is an American multinational retail corporation that runs chains of large discount department stores and warehouse stores. The company is the world's second largest public corporation, according to the Fortune Global 500 list in 2013, the biggest private employer in the world with over two million employees, and is the largest retailer in the world. Wal-Mart remains a family-owned business, as the company is controlled by the Walton family, who own over 50 percent of Wal-Mart. It is also one of the world's most valuable companies. And, that may be only the beginning of Wal-Marts troubles: In other repercussions, leaders of New York Citys pension funds said they would vote their shares against the five Wal-Martdirectors standing for re-election at the companys shareholder meeting in June. Also, the California State Teachers Retirement System, which holds more than 5.3 million Wal-Mart shares, has filed a lawsuit alleging that the firms senior officials engaged in massive opportunistic sales of the companys stock before news of the Mexico allegations broke in late April. According to legal and ethics experts at Wharton and elsewhere, the Wal-Mart case raises broader questions about how multinational companies conduct business in foreign countries. Is Wal-Marts alleged bribery in Mexico an anomaly, or is it more typical of multinational behavior than many corporate executives would like to admit? Is the practice of bribing public officials ever justifiable from an economic or ethical point of view? And apart from collapsing share prices and shareholder lawsuits, what are some of the other possible consequences of bribing foreign officials?

Managing in the International Economy (MGT6233)

3.0

The Subject matter

Wal-Mart Stores Inc.s profit and sales surpassed expectations as more people shopped its established U.S. stores and spent more, pushing its shares up more than 4 per cent despite ongoing internal and government probes into possible bribery. Wal-Marts shares have recovered all of the 8.2 per cent plunge sustained suffered after an April 21 New York Times report uncovered an alleged past bribery scheme in Mexico and an internal investigation that was squashed by Wal-Mart executives. The company was founded by Sam Walton in 1962, incorporated on October 31, 1969, and publicly traded on the New York Stock Exchange in 1972. It is headquartered in Bentonville, Arkansas. Walmart is also the largest grocery retailer in the United States. In 2009, it generated 51 percent of its US$258 billion sales in the U.S. from grocery business. It also owns and operates the Sam's Club retail warehouses in North America. Wal-Marts consultants handed out more than $97,000 to seven of 11 city council members who oversaw construction in the area near Teotihuacan, Cicero told investigators. They also paid almost $12,000 to the president of the National Institute of Anthropology and History to secure his approval for the stores location near a historical site, he added. The NIAH declined to comment on Ciceros accusations. 3.1 Ethical Decision making Corporate practices All of this happened , massive write downs and restatements of profit , misclassification of expenses as capital expenditures and Pirating corporate assets for personal gain. Why businesspeople perceived to be acting unethically? What is considered in one country to be bribe to expedite service is sometimes considered in another counter to be normal business practices? Is because of Tipping! And this is the most serious matter which not suppose to be if aim for long term business. Once they learned about the bribery allegations in 2005, Wal-Mart executives in the U.S. ordered an audit of the Mexican units operations, according to the files.In files released by Waxman and Cummings, Cicero told a Wal-Mart investigator that U.S. executives hadnt conducted a full audit of the Mexican operation since 1988, and thats why the illegal payments hadnt surfaced. According to files obtained by Bloomberg , a draft report of the audit ordered in the wake of Ciceros bribery allegations showed investigators found almost $13 million in suspicious payments listed as contributions or donations over a three-year period starting in 2003.

Managing in the International Economy (MGT6233)

3.2 Reason for Unethical Behaviour Allport-Vernon-Lindzey Study of Values : Aesthetic, Economic, Political, Religious, social, Theoretical.Reason for Unethical Behaviour most common reasons for bending rules: Organizational performance required it Ambiguous or cut of date rules Pressure from others- everyone else does it The New York Times is bucking for a Pulitzer Prize with its blockbuster report on how Wal-Mart de Mexico allegedly bribed its way to skyrocketing growth in Mexico in the early 2000s and then try to bury the allegations and avoid an independent investigation. If the allegations are true, Wal-Marts got some explaining to do and the legal bills it will have to pay are going to keep many lawyers busy for a long time. Wal-Marts alleged misdeeds are described in an interview the Times did with the former head Wal-Mart de Mexico executive, Sergio Cicero Zapata, who explained how the company found fixers known as gestores who allegedly funneled Wal-Mart funds to officials in the Mexican government at many levels. After the gestores made their payments using a coding system in their documentation that signaled the specific nature of the payment the recipients, Mexican government officials who had the power to impede Wal-Mart de Mexico through zoning and environmental permitting processes issued prompt approval for Wal-Mart de Mexico to open hundreds of stores. But Cicero alleged that Wal-Mart perfected the art of bribery by accounting for these payments as legal fees. Thats ironic because if the allegations are true, they violate the Foreign Corrupt Practices Act (FCPA) which makes bribery by a U.S. companys foreign subsidiaries illegal and requires companies that commit bribery to account for it as a bribe. And as Wal-Mart executives learned more about these allegations, they tried to put control of the investigations into the hands of the people running the business units. This was in direction contradiction of its policy that investigations should be conducted by individuals who do not have any vested interest in the potential outcomes of the investigation, according to the Times. Wal-Mart is sticking with a statement of its official policy on the FCPA in its response to the Times story. We will not tolerate noncompliance with FCPA anywhere or at any level of the company, according to a Wal-Mart statement. 3.3 Moral Relativism Moral is relative to some personal , social, or cultural standard and there is no method for deciding whether one decision id better than another. Kohlbergs Level of Moral Development tell us that :

Managing in the International Economy (MGT6233)

1. Characterized by a concern for self : personal interest, Avoidance of punishment 2. Conventional level , characterized consideration of societys values , external code of conduct 3. Principle level , characterized by adherence to internal moral code , universal values or principles 3.4 Encourage Ethical Behaviour Codes of Ethics : specifies how an organization expects its employees to behave on job. Guidelines for Ethical Behavior : Ethics , Morality and law. Approaches to Ethical Behavior : Utilitarian : Judged by consequences Individual Right: Fundamental rights in all decisions Justice : contribution in equitable fashion How the Investigations Work Its unclear what Wal-Marts investigation involves, but a companys internal investigation is usually conducted by outside lawyers and accountants. Their goal is to determine what happened by interviewing employees and anyone who might have been involved, Henning, of Wayne State University Law School, said in the email to Arkansas Business. They face investigations by the Securities and Exchange Commission, the Department of Justice, the United States Congress and Mexican authorities. Wal-Mart also faces investor lawsuits from pension funds.Their troubles are tied to the decision by Wal-Marts most senior executives to ignore clear evidence of widespread corruption in Mexico. The allure of building a Wal-Mart near the ancient pyramids in Teotihuacn, Mexico, and gaining access to tourists from across the globe was so strong that Wal-Mart circumvented democratic institutions and bribed the right people to get their way. Starting with a $52,000 bribe to change the zoning map, Wal-Mart de Mexico bribed their way to get the store built despite local opposition to the tune of over $200,000. In the world according to Wal-Mart a few dollars slipped to the right hand is the way to expand. It has been a large part of their global corporate culture.It is also the reason Wal-Mart is the largest private sector employer in Mexico. The Teotihuacn example is but one of many documented incidents of bribery by Wal-Marts foreign operations to ensuring expansion on Wal-Marts terms.When Wal-Marts corporate offices were tipped off to the bribery in Mexico, officers at the top of the company shut down an investigation that was initiated by more junior executives. They clearly were more interested in getting results than following the law.

Managing in the International Economy (MGT6233)

It was not just local laws that corporate officers were violating; they were also systematically violating the Foreign Corrupt Practices Act which forbids American companies and our citizens from engaging in bribery. Both U.S. and Mexican prosecutors said last year they were investigating the bribery allegations. Wal-Mart de Mexico SAB is the countrys largest private employer, with more than 209,000 employees. Twenty percent of Wal-Marts more than 10,000 stores worldwide are in Mexico, following growth over the past decade. 3.5 Ethics in business 1. What is the corporations responsibility? Does it have any responsibilities to society to produce goods of high quality? 2. Does the corporation reduce its volume if production in order to create an artificial shortage and in doing so it create a reason to raise the price of product? 3. Should Wal-Mart permit their Mexicostuff to tbribery scheme? 4. Has management the right to look into the private lives of its employees? 1. Ethics of individual Individual ethics consists of a set of values that guide the conduct and behaviour of individuals , enabling them to differentiate between right and wrong, good and bad ,and between what should not and cannot be done. These options will always be present in the course of carrying out one s duties daily life , or in the course of interactions with others. 2. Professional Ethics Professional ethics is a code that provides guidelines for practitioners in various professionals . Professionals with their code of ethics include medicine , law , accountancy ,engineering and others . 3. Ethics of organization For those working in organizations , organizational ethics serves as guidelines in the conduct of duties. These includes adherence to the principles of honesty , competency, trustworthiness, truthfulness, transparency , accountability and justice. Since organizations continuously interact with the public , organizational ethics also demands staff of the organization to uphold the Clients Charter. 4. Government Probes There is nothing new in these documents, Wal-Mart spokesman Randy Hargrove said. This information has been part of the companys ongoing investigation of potential violations of the U.S. Foreign Corrupt Practices Act for more than a year and has been the subject of two New York Times articles.Hargrove said the company had provided the documents to the U.S. Department of Justice and the Securities and Exchange Commission as part of its cooperation with those agencies.

Managing in the International Economy (MGT6233)

When Wal-Mart top executives were informed of Ciceros allegations by then General counsel of Wal Mart International, Maritza I. Munich, they decided that rather than conduct an independent investigation, they would assign internal lawyers to conduct a limited preliminary inquiry. 4.0 Conclusion (150) This assignment all the description how Wal-Mart addresses alleged past bribery scheme in Mexico and labour issues in USAand background of Wal-Mart Stores. The article also describe Is there any weakness in the code of conduct and ethics of Wal-Mart. How should Wal-mart overcomes these weakness and move towards more transparency and openness in their leadership and ethics. And the conclution is : Aesthetic, Economic, Political, Religious, social, Theoretical.Reason for Unethical Behaviour most common reasons for bending rules. For those working in organizations , organizational ethics serves as guidelines in the conduct of duties. These includes adherence to the principles of honesty , competency, trustworthiness, truthfulness, transparency , accountability and justice. Since organizations continuously interact with the public , organizational ethics also demands staff of the organization to uphold the Clients Charter.

5.0

Recommendation (150)

Wal-Mart case show that there is no strict laws, there is no regulation in place, there would be a noble business ethics, so do not expect to eat safe food. Survival of the fittest of the road, only with worse, this is Wal-Mart to do business in China has become immoral one reason. This is the moral defeat of the process. In this process, play a decisive role in the legal and regulatory. The solution 1. Improve the legal system, the companies selling fake punish , punish legal persons , who are mainly responsible punished , do not give opportunity. 2. Improve the government's regulatory functions , for malfeasance , dereliction of duty and other irresponsible behavior punish , deter others and change the full atmosphere . 3. Cultural construction, improve the entire system, establish mainstream values , righting atmosphere . Does a company has a moral responsibility to inform public of how they dispose their wastes which may be throw away discriminately?

Managing in the International Economy (MGT6233)

6.0

List of reference

Uncharted boundaries of the US Foreign Corrupt Practices Act Wal-Mart Spends $230 Million on Mexican Bribery Investigation by Mark Friedman http://www.arkansasbusiness.com/article/92905/wal-mart-spends-230-million-on-mex ican-bribery-investigation?page=all The Huffington Post http://www.huffingtonpost.com/tag/walmart-bribery The Bribery Aisle: How Wal-Mart Got Its Way in Mexico http://www.nytimes.com/2012/12/18/business/walmart-bribes-teotihuacan.html?_r=0 Wal-Mart Accused of Using Mexican Governor to Push Bribes By Jef Feeley http://www.bloomberg.com/news/2013-01-29/wal-mart-accused-of-using-mexica n-governor-to-push-bribes.html Did Wal-Mart de Mexico Perfect the Art of Bribery? By : Peter Cohan http://www.forbes.com/sites/petercohan/2012/04/21/did-wal-mart-de-mexico-perfect-t he-art-of-bribery/ Wal-Mart Emphasizes Ethical Behaviour at Annual Shareholders' Meeting by World Watch http://compliance.saiglobal.com/community/news/item/3618-wal-mart-emphasizes-et hical-behavior-at-annual-shareholders-meeting Opinion: Walmart Bribery And Mexico http://newyork.cbslocal.com/2012/12/19/opinion-walmart-bribery-and-mexico-2/ Towards shareholders' value: an analysis of sustainability reports Uncharted boundaries of the US Foreign Corrupt Practices Act How Emerging Markets are Reshaping the Innovation Architecture of Global Firms Author(s): Venkatesh Shankar, Nicole Hanson Human resources relations: A new paradigm for better theorizing and research on the HR/IR field Type: Chapter ItemAuthor(s): Kenneth F. Walker A Typology of Moral Exemplars in Business Author(s): Duane Windsor Let Wal-Mart apologize Yi reconstruction difficult business ethics http://law.eastday.com/dongfangfz/2010dffz/fzxw/u1a57217.html Whats wrong with Wal-Mart bribery, anyway? Chris MacDonald http://www.canadianbusiness.com/blogs-and-comment/whats-wrong-with-wal-m art-bribery-anyway/ Everyones Problem: Looking Beyond the Wal-Mart Bribery Casehttps://knowledge.wharton.upenn.edu/article/everyones-problem-looking-be yond-the-wal-mart-bribery-case/