When Wal-Mart (WMT) beat expectations in its Q1 earnings report this week, in one very quick stroke the stock price decline that occurred on news of its alleged bribery scandal in Mexico was erased. So, with that, it seems that investors have sent the message to Wal-Mart leaders that illegal practices and corruption are okay as long as the company continues to be profitable. That's probably the same kind of thinking that Wal-Mart and/or its subsidiaries used to justify the bribery in the first place, if, in fact, it is found that they actually did it.
The Foreign Corrupt Practices Act (FCPA) was signed into law by President Jimmy Carter in 1977 to restore the integrity of American businesses after it was determined that questionable "payment" practices to foreign government officials was rather common. When the FCPA was fashioned, the U.S. government was taking the stance that profitability-at-any-cost would not be the strategy that American companies would carry with them as they set up operations in global markets around the world.
It's a sad statement about American corporate leadership when values have to be thrust upon them via government legislation. it's also a sad statement that 35 years after the FCPA was enacted, the investment community has proven that it doesn't agree that global integrity matters all that much. That is, it doesn't matter until some potentially hefty monetary government penalty levied against Wal-Mart substantially hurts its profitability. That's when investors will bail again. But it will be money, not integrity, that motivates a Wal-Mart stock bailout for most.
The Wal-Mart bribery scandal is shining a spotlight on how easily retail industry leaders can lose their integrity when they use the stock market as their due North. If executive pay is tied to stock performance, and investors have no values beyond money, then executives are incentivized to adopt the profitability-at-any-cost approach that the FCPA is still trying to prevent.
This week Forbes reported that bribery scandals typically cost the offending company between one and two percent of sales. For Wal-Mart, that would be more than $4 billion dollars. That's more than the total of all penalties levied in the 50 bribery cases that have been resolved in the past four years combined.
So who would end up "paying" for Wal-Mart's illegal actions, if it is found that they were any? We can probably guess who would be squeezed in order to cover the losses, and it's probably not anybody in the executive ranks of the Wal-Mart corporation.
It would be most fair if penalties were paid from the personal assets of the people who were involved in the alleged bribery and those who allegedly chose to cover it up. But nobody said life or the business practices of the second largest company in the U.S. are fair. Allegedly.
When Wal-Mart lost it's #1 ranking on the 2012 Fortune 500 list, it was a message to Wal-Mart that price is not the only criteria consumers use when choosing where to shop. So while Wal-Mart has plenty to be nervous about in the ongoing corruption investigation and possible subsequent enforcement actions from authorities, Wal-Mart should also be nervous that the offensiveness of its offenses are going to reach a tipping point with consumers who just won't want to do business with them any more.
The cost of profitability-at-any-cost might prove to be too high in this case, and in the long-run that might be the best thing that could happen to the Wal-Mart organization that Sam Walton would probably not be completely proud of today.