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April 24, 2012
Wal-Mart Gets ESG Rating of F After Bribery Allegations
    by Robert Kropp

GovernanceMetrics International assigns a failing grade to the retail giant's environmental, social, and corporate governance performance following revelations that information about a bribery scandal in Mexico was covered up.


On Sunday, The New York Times reported that Wal-Mart's strategy of rapid expansion in Mexico was fueled by "a campaign of bribery to win market dominance." Wal-Mart's own investigators found evidence of more than $24 million in bribes which circumvented regulatory mandates and "bought zoning approvals, reductions in environmental impact fees and the allegiance of neighborhood leaders."

Upon learning of the bribes, however, executives at Wal-Mart's headquarters "focused more on damage control than on rooting out wrongdoing," The Times found. Indeed, the former chief executive of the retailer's Mexican subsidiary, Eduardo Castro-Wright, was promoted to vice-chairman of the company in 2008.

The short-term benefit to the company of the cover-up can be discerned by what has turned out to be an undeserved reputation among sustainable investors for its environmental, social, and corporate governance (ESG) performance. In 2010, As You Sow awarded Wal-Mart its highest grade for supply chain compliance. And in 2011, the Carbon Disclosure Project's (CDP) Supply Chain Report designated Wal-Mart as a lead member of its Supply Chain Program.

Investors reacted quickly to news of the bribery campaign and the subsequent cover-up. Yesterday, the value of the company's stock fell five percent. Payments of bribes abroad violate the Foreign Corrupt Practices Act (FCPA), and a settlement of any charges could cost the company millions.

Corporate governance researchers responded quickly as well. Also yesterday, GovernanceMetrics International (GMI) gave Wal-Mart an ESG rating of F, citing the bribery allegations as well as ongoing issues concerning the alleged mistreatment of workers.

"Wal-Mart missed the chance to clean up its alleged bribery problems in Mexico," GMI wrote in its analysis, "Just as it also turned a deaf ear to warnings about the mistreatment of its workers."

"When other kinds of issues have arisen in the past," GMI continued, referring to allegations of mistreatment of workers, "The retailer hasn't always succeeded in preventing them from happening again."

GMI cited a case from 2008 in Bangladesh, where workers were physically abused and paid less than the minimum wage. "When Wal-Mart inspectors came to visit, managers forced the workers to lie about the sweatshop conditions and wages," GMI stated.

Only after SweatFree Communities published an audit of working conditions in the Bangladeshi plant did Wal-Mart announce that it would improve the working conditions there.

"Meanwhile, Wal-Mart's labor rights problems have continued," GMI reported, citing several incidents in New York and Canada as examples.

In addition to the F given to Wal-Mart for the social component of its corporate governance, GMI also gave the company an F for its global performance and a D for domestic performance.

 

 
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