New York Times – by Elizabeth A. Harris
Thomas A. Mars, formerly the chief administrative officer for Walmart in the United States, stepped down. José Luis Rodríguezmacedo Rivera, once the general counsel at Walmart’s Mexican division, quietly left the company. And H. Lee Scott Jr., who was Walmart’s chief executive, will retire from the board this month.
These men belong to a list of executives from the uppermost reaches of Walmart’s management who held critical positions when corruption scandals engulfed the company’s international division. Come July, almost every person on that list will no longer be with the company — but no departure has been cited by Walmart as a way to clean house after those scandals.
It has been more than two years since accusations of widespread bribery surfaced about Walmart de México, drawing a host of investor lawsuits and a United States government investigation into Walmart’s global operations. The company’s financial outlay is closing in on nearly half a billion dollars as it deals with external and internal inquiries, which were set in motion by an investigation published by The New York Times.
While the investigations are still pending, Walmart has substantively changed its compliance structure and personnel, at times with great fanfare and at others without a whisper.
While the circumstances surrounding each executive’s departure are unclear, a pattern has emerged. At least eight of Walmart’s most senior executives in Mexico, India and Bentonville, Ark., have left the company since the latter part of 2011, when Walmart learned of The Times’s investigation. In the same two years, the company has revamped its global compliance program. In a move that swims against the current of Walmart’s corporate culture, the company has increased its compliance staff by more than 30 percent, to 2,000 people, in that short time.
Other changes the company has made — including mandating that any potential foreign corruption violations be reported to corporate headquarters and the board — may make it more difficult for senior executives to plead ignorance in the future.
It is in Walmart’s interest, particularly as it negotiates with federal prosecutors, to show how it has strengthened its compliance efforts.
“The more proactive you can be in terms of setting up good compliance program, the more favorably the Department of Justice will look on it when you’re sitting across the table,” said David Schertler, a criminal defense lawyer. “One thing you can be pretty much assured of is that they’re letting the Department of Justice know, even if they’re not making it public.”
The company’s reform efforts may surface again on Friday at the annual shareholders’ meeting, where in previous years investors have raised concerns about the inquiries.
The federal investigation into Walmart’s global operations centers on whether the company violated the Foreign Corrupt Practices Act, a law that prohibits companies from bribing foreign officials.
The Times reported in 2012 that Walmart consistently bribed public officials in Mexico for things like building permits to speed its expansion in that country. Executives at company headquarters in Bentonville learned of those supposed misdeeds in 2005 but subsequently shut down an internal investigation instead of reporting potential violations of the law to the United States government.
Cases involving accusations of foreign corrupt practices typically take years, while targeted companies and government officials sometimes conduct behind-the-scenes negotiations. The government generally pushes for stronger internal controls, like compliance programs and, often, a purging of employees involved. Companies often pursue a settlement involving lighter penalties and smaller fines.
“You don’t want death by a thousand paper cuts — you want one hit,” said Biz Van Gelder, head of the congressional investigations practice at the law firm Dickstein Shapiro. “When negotiating with the government, you want to get out of it with the understanding that you’re a credible, cooperative corporation and that they will hopefully never see you again.”
The Justice Department declined to confirm or deny any Walmart investigation.
So far, the retail giant has reported spending $439 million on investigations and its compliance program.
“If you want to get not just to the middle of the pack but to the front of the pack, you’re going to spend more,” Jay Jorgensen, Walmart’s global chief compliance officer, said. “The mandate that we’ve received is, Let’s try to move this company to the front of compliance and really lead, and that takes an additional investment.”
Nonetheless, some significant questions remain.
Under Walmart’s new system, any potential Foreign Corrupt Practices Act violation is supposed to be reported to the board’s audit committee, whose outside counsel is tasked with investigating accusations. But outside experts criticized the oversight structure, saying that the chief ethics officer, Cindy Moehring, does not have sufficient independence as long as her position falls under the jurisdiction of the company’s top legal officer, Jeffrey Gearhart, who is the company’s corporate secretary.
Lynn E. Turner, former chief accountant at the Securities and Exchange Commission, said that Mr. Gearhart’s authority over Ms. Moehring rendered the system “window dressing.”
“If the hiring and firing and setting of compensation of the ethics officer is done by the top legal officer, then it is highly unlikely employees will trust a whistle-blower hotline where the tips are reported to that ethics officer,” Mr. Turner said in an email. “I think such a system is not effective.”
David W. Tovar, a Walmart spokesman, said any decisions involving the hiring or firing of Ms. Moehring and Mr. Jorgensen would not be made “without consulting with the audit committee.” The panel also has input into their yearly evaluations, Mr. Tovar said.
“We are confident we have the right corporate structure to manage a strong and effective compliance and ethics program around the world,” Mr. Tovar said in an email. “Our chief compliance officer and chief ethics officer report directly to our independent audit committee on a regular and as-needed basis.”
Other questions revolve around the few executives who are still with the company and had been touched in some way by the scandals. One of these executives, Kenneth H. Senser, was the vice president for global security, aviation and travel in 2005, and was intimately involved in the investigation into accusations of bribery in Mexico. Today, his position at the company appears little changed.
Mr. Tovar said federal investigators were aware of Mr. Senser’s role and that “the company remains confident in his ability to do the job.” Foreign Corrupt Practices investigations are not overseen by Mr. Senser or his team.
Michael T. Duke, who was the head of Walmart International in 2005, also remains on the company’s board. Mr. Duke eventually rose to become chief executive, a post from which he retired earlier this year.
Last month, Institutional Shareholder Services, an influential shareholder advisory group, recommended a vote against Mr. Duke’s board membership, stating that it was troubled that Walmart’s investors still had no idea whether any executives had been held accountable for the corruption.
Mr. Tovar, asked if any of the eight high-level executives left because of the corruption scandals, declined to issue a blanket denial. Instead, he said, they left for a variety of reasons and pointed to the originally stated explanations for their departures. The company has not said that any of these executives left because of the scandals.
Mr. Rodríguezmacedo, the former general counsel of Walmart’s Mexican division, who was said to have authorized the paying of bribes, stepped down from his role as general counsel in April 2012, only days before The Times’s article was published. He was reassigned, and a year later, he left the company altogether.
In an email, Mr. Rodríguezmacedo, who has since founded a law firm in Mexico City that specializes in wealth and estate planning, said he left Walmart of his own accord.
“I voluntarily resigned from Walmart to engage in private practice,” he wrote. “I acted at all times in compliance with the law and Walmart’s policies.”
Another executive, Eduardo Castro-Wright, a vice chairman of the company who had run the Mexican division and was featured prominently in the Times report, retired shortly after the article was published. But the announcement that he planned to retire was issued many months beforehand. Mr. Castro-Wright’s lawyer, Daniel S. Ruzumna, declined to comment.
Mr. Mars declined to comment on the circumstances surrounding his departure.
Mr. Tovar explicitly denied, however, that the investigation had affected two company executives: Mr. Scott and Mr. Duke.
“One of the questions you might have is, ‘Is that a result of the F.C.P.A. investigation?’ ” Mr. Tovar said of their decisions to leave their respective roles. “And I would tell you no.”
Mr. Tovar said that Mr. Scott was leaving the board because the company preferred to have only one former chief executive on the board at a time, and that post is now filled by Mr. Duke, who Mr. Tovar said was retiring after a long career.
Ushering employees out the back door during an investigation is a fairly common practice, experts say. But Stephen M. Davis, the associate director of the Harvard Law School Programs on Corporate Governance said that from an investor’s perspective, if this is the path Walmart was taking, then the question was not whether it was commonplace but whether it was sufficient.
“When you have a company like Walmart that is so important to investor portfolios, to the consumer world and to the labor market,” Mr. Davis said, “you may need to be more open than the common company, to restore trust.”
Resign but no arrests. Typical corporate punishment these days.