People in different parts of the world are now, more than ever before concerned about business ethics. The totality of business ethics calls for organizations and individuals to uphold six qualities namely; honesty, integrity, trust, responsibility, citizenship and respect both for the rule of law and human rights (Moon, Et al. 2001). In an effort to gain larger market shares and remain competitive in the dynamic business environment, several companies have in the last decade practiced gross unethical behaviors. The practicing of unethical behaviors negates several legal, moral and economic stipulations in law. More so, unethical practices badly ruins the reputation of the company involved once scandalous details of underhand dealings come to light. The Walmart Bribery Scandal of 2012 is one such scandal. Walmart Stores Inc. is an American multinational worth $446 billion in revenue, with a presence in more 15 countries across different continents where it operates 8,500 stores (walmart.com, 2013). The scandal that has dealt the giant US based chain stores Company a huge blow comes in the wake of increasing competition in the chain stores business. This essay explores the ethical facts and issues related to the scandal and bring to the fore legal, social and cultural consequences of unethical behavior.
Details about Walmart’s 7-year bribery scandal first came to the public limelight in May 2012 through a publication in the New York Times. Soon after the scandal was revealed, the company’s stocks declined sharply. In just two days after the scandal was revealed the company’s share prices declined from $57.77 to $62.63 (Andrew & Mathew, 2012). The paper alleged that Walmart used dishonest graft where company officials bribed Mexican officials and employed blackmail to grease processes leading to the opening up of new stores in Mexico (Andrew & Mathew, 2012). In 2005 an internal audit carried out by the company’s own investigation revealed that more than $24 million was lined up for local politicians, planning officials and other relevant authorities that could hinder or help Walmart’s expansion plans (Andrew & Mathew, 2012). In one of the cases, Walmart allegedly paid a bribe of $342,000 to build a store named Sam’s Club in a densely populated part of Mexico’s city of Basilica de Guadalupe. The bribe was to allow local authorities to allow construction of the store without an environmental permit, a construction license or a traffic permit (Andrew & Mathew, 2012).
Once the Walmart’s executive management in Arkansas, US were informed of the bribery plans, they shut down investigations instead of addressing the problem. They also promoted Eduardo Castro-Wright to executive vice-president of Walmart. Prior to his appointment, Castro-Wright headed Walmart’s operations in Mexico and had been implicated in the bribery scandal (Andrew & Mathew, 2012). Moreover, Walmart failed to notify law enforcement officers to take legal action after uncovering the bribery plans. Instead, they alleged in a filing with the Securities and Exchange Commission (SEC) that Walmart’s management had started investigations into its overseas operations to ensure their compliance with the Foreign Corrupt Practices law. Details later emerged in the December Times newspaper that Walmart, never met with SEC officials but only met federal officials (Andrew & Mathew, 2012).
The appointment of Castro-Wright in 2008 as Walmart’s vice-president was a slap in the face of business ethics. It was at the height of mounting evidence for Castro’s involvement in the bribery scandal that Walmart’s executive management chose to appoint him! Since his appointment bribery incidences increased as his aim was to rapidly obtain building permits, build more stores and help Wal-Mart stay ahead of competition.
The implications of Walmart’s bribery scandal in Mexico are devastating. They are unethical and contravene the US laws of foreign business operations. The US law as contained in the 1977 Foreign Corrupt Practices Act (FCPA) forbids US companies from engaging in corrupt acts such as bribery and blackmail (Anand & Rosen, 2008). Some of Walmart’s practices have not been explicitly outlawed by US laws but judged by moral laws they are unethical. Business ethics examine the ethical principles that arise in different business environments. Business ethics applies to individuals serving in organizations and to the organizations in their entirety. According to Anand and Rosen (2008), business ethics calls upon businesses to basically uphold transparency, accountability and value for human rights such as health, safety and a clean sustainable environment.
Legally, Walmart faces several legal implications. After the investigations that revealed that Walmart planned to bribe Mexican officials, the chief investigator informed the company indicating that, “there is reasonable suspicion to believe that USA and Mexican laws have been violated” (Andrew & Mathew, 2012). Already, several legal suits have been filed in contravention of the FPCA and the company could potentially lose millions of dollars in settlement of legal fines. Legally under the FPCA Walmart is obliged to conduct a review of all its foreign operations. In line with this requirement, the company has funded independent team of lawyers to carry out investigations in Walmart’s stores in India, Brazil, China, and Argentina among other countries (Andrew & Mathew, 2012). Moreover Walmarts’s recent involvement in unethical practices adds to evidence required to speed up other related legal suits against the company. For instance, Walmart faced suits for improper labor practices. In some of the suits, Walmart paid $4.89 million as fees to employees who were denied overtime while in yet another suit the company paid $34million worth of back pay to its employees (Andrew & Mathew, 2012).
In choosing to bribe and evade certification by Mexican environmental authorities and construction regulations, Walmart was negating the people’s right to assurance of a sustainable and clean environment. Moreover, its concealing of details of planned corruptions shows the company was not transparent in its operations and was greedily seeking to enrich itself through corruption. The bribes offered to Mexican officials were effective as permit obstacles could vanish in just a few days or weeks.
The negation of business ethics has widespread social implications. According to Anand and Rosen (2008) shoppers actually care about the moral compass and integrity of the stores where they shop. Therefore any company that finds itself in any form of scandal loses public faith and loyalty and therefore lesser sales. In an era characterized by radical transparency and instant communication what a company professes to stand for and how it actually behaves have become cardinal yardstick for gauging adherence by businesses to ethics (Anand & Rosen, 2008).
Failure by a company to uphold business ethics has some direct social consequences. First of all it potentially leads to diminished standards of living for people in a given place through exposure to environmental hazards (Anand & Rosen, 2008). Walmart’s failure to adhere to laid out construction and building regulations potentially leads to damaging of the environment thereby affecting the people’s health and social wellbeing. Secondly, failure to adhere to business ethics could lead to gross violation of people’s cultural beliefs. In one of the bribery instances Walmart sought to obtain permits to construct stores on ancient cultural ruins. This could attract widespread public condemnation since ancient ruins are an integral part of the social lives of not only the Mexican people but also of various societies around the world.
Violation of business ethics also leads to unemployment. Prior to the bribery scandal, Walmart was Mexico’s leading private employer with 209,000 employees serving in more than 1000 stores across the country (walmart.com). However, the financial implications such as settlement of legal fees and financing investigations in the face of declining sales in Mexico and beyond, has compelled Walmart to downsize its workforce. The number of people working in Wal-Mart Mexico has declined by about 30% (walmart.com). Mexico is a developing economy and retrenchments are bound to bring about social evils such as increment in crime and drug trade.
Walmart unethical practices have also compelled massive exodus of a talented pool of employees who choose to distance themselves from scandals that were not of their own making. These people influence the society by revealing more evidence of unethical behaviors by their former employer. This helps sustain a rebellion against a company and its products. In the case Walmart, anti-Walmart books and documentaries such as Robert Green Wald’s documentary, The High Cost of Low Prices extensively damages a company’s reputation (Andrew & Matthew, 2012). Socially, a damaged reputation denies any organization the political clout thus sinking the organization in question into deeper mire.
Failure by organizations to adhere to business ethics has several social, legal and cultural implications as shown in Walmart’s bribery scandal. Walmart bribed Mexican officials in order to gain building permits illegally. Legally, the company contravened the 1977 Foreign Corrupt Practices Act (FCPA) and thus inviting upon itself legal suits. Socially, the company suffered a damaged reputation which led to declining sales and consequently downsizing of its workforce. These and other implications of unethical business practices emphasize on the need for companies to adhere to business ethics. All organizations ought to uphold honesty, integrity, trust, responsibility, citizenship and respect both for the rule of law and human rights in all their dealings.
Moon, C. Et al. (2001) Business Ethics. London: The Economist: 119–132
Anand, V.; Rosen, C. C. (2008). The Ethics of Organizational Secrets. Journal of Management Inquiry 17 (2): 97.
Andrew, C., & Mathew, D. (2012, April 12). 8 Revelations from Walmart’s Mexican Bribery Scandal - The Daily Beast. The Daily Beast. Retrieved February 25, 2013, from http://www.thedailybeast.com/articles/2012/04/22/8-revelations-from-walmart-s-mexican-bribery-scandal.html
About Walmart-Corporate. Retrieved 25 Feb 2013 from: http://corporate.walmart.com/