Wal-Mart's (WMT) stock is getting hammered following allegations that the company engaged in systematic bribery in Mexico for several years and then covered it up.
If true, the allegations are a huge black eye for the global retailing leader, which prides itself on its reputation for integrity and transparency.
So far, Wal-Mart hasn't denied the allegations. Rather, it says it is once again investigating them—the way it did several years ago, before it shoved them under the rug.
According to David Barstow of The New York Times, who reported the story, the bribes were directed by the man who went on to become vice-chairman and the head of Wal-Mart's U.S. division, Eduardo Castro-Wright. At the time, Castro-Wright was head of the company's Mexico unit, and he was praised and promoted for the astonishing growth he delivered there—growth that the NYT says was directly the result of the bribes.
Wal-Mart's investigation of the bribery story, meanwhile, was in part overseen by the head of Wal-Mart International at the time, Michael Duke. Duke has since been promoted to CEO of Wal-Mart.
The first reaction of many upon hearing the Mexico bribery story is "So what—it's Mexico—that's the way things are done in Mexico."
That may often be true, but as a defense of Wal-Mart's actions, it overlooks several key points.
First, Wal-Mart clearly didn't think it could defend its actions by saying "this is the way things are done in Mexico." If it had thought it could justify its actions this way, it already would have.
Second, the Foreign Corrupt Practices Act makes it illegal to bribe officials in countries in which American companies do business, which is what Wal-Mart is accused of doing here.
Third, the bribes involved internal accounting fraud, which Wal-Mart couldn't condone under any circumstances.
Fourth, it's preposterous to think that a company as large and influential as Wal-Mart could take a position that it's fine to ignore local laws to meet its own growth targets.
So the allegations are a huge deal, regardless how business is generally conducted in Mexico. And, given the current positions of Eduardo Castro-Wright and Michael Duke, they extend right to the top of the company.
If the allegations are true, Wal-Mart needs to apologize, pay whatever fines are required, and then fire both men—Castro-Wright because he oversaw the bribes, and Duke because he knew about them and didn't do anything. This scandal is far too big for the company to just sweep under the rug.