The New York Times recently published an in-depth report alleging that top officials at Walmart’s headquarters in Bentonville, Ark., quashed an internal investigation into a suspected $24 million bribery scandal at the retailer’s Mexican subsidiary. We asked Harlan Platt, a finance professor in the College of Business Administration, to examine the scandal’s fallout.
Walmart, which saw its stock tumble 5 percent one day after the scandal broke, employs approximately 1 percent of the American workforce. Is the company simply too big to fail?
Failure to Walmart is absolutely unthinkable — it is a huge cash-flow-generating machine. With that said, the bribery scandal in Mexico is an unintended consequence of two things: one, the quest for continued growth, and two, the challenge of reinvesting the massive cash flow generated by its operations —approximately $24 billion last year. Management’s challenge is to recognize this unintended consequence and walk the fine line to ensure ethical and financial performance.
How could the bribery scandal in Mexico affect the company’s expansion into other foreign markets?
I suspect that this scandal will only play to the home market and will not affect future expansion internationally. I’ve noticed, for example, that small-business advocates in New York City are trying to use the Mexican scandal to their advantage as they seek to keep Walmart out of the city. Developing countries, for a number of reasons, are likely to disregard this scandal: They are more interested in growth and jobs and they have less open press and media.
Where does this crisis rank among other Walmart scandals, which include allegations of using sweatshops, hiring illegal workers and intentionally selling products at low cost to subvert competitors?
Walmart has worked hard in the last decade to improve its ethical performance. Notable among these efforts are its drive to push the farms in America to organic production and its offering of some form of health insurance for its workers. While people argue that the move to organic is selfish and driven by profit potential and that the health care is inadequate, Walmart began these initiatives on its own and should be applauded. This scandal will probably fall onto the shoulders of one or only a few employees and therefore will be less harmful to the image of Walmart than previous scandals.