Business ethics muted in Mexican relations

by The City Wire staff ([email protected]) 3,054 views 

Business dealings south of the U.S. border are often riddled with corruption and were brought to recent attention by the Wal-Mart de Mexico bribery scandal that knocked the retail giant off its lofty perch.

Wal-Mart faces a full-blown federal investigation as prosecutors sift through nearly 10 years of real estate dealings into how the retailer managed to build 2,000 stores in record time — while some of its competitors in that market simply gave up and went elsewhere.

Wal-Mart has said it also been investigating the matter internally for the past six months and will not allow illegal dealings to go unpunished if they are found to be true.

This alleged $24 million bribery scandal that helped Wal-Mart get faster approval for new stores threatens to unseat top management if the alleged cover-up is proven.

Legal and ethics experts agree the corruption must stop because there is no excuse for U.S. companies to skirt the law — even in Mexico.

Just a year ago another local corporate giant, Springdale-based Tyson Foods Inc., was also in violation of the Foreign Corrupt Practices Act in Mexico. In February 2011 Tyson agreed to pay a $4 million criminal penalty to resolve a federal investigation of improper payments totaling $90,000 to Mexican officials who inspected poultry facilities in that country between 2004 and 2006.

That case drew very little media attention and with no material impact on the company’s bottomline or share price. Tyson self-reported the improprieties in 2007 — the same year Tyson executive Greg Lee, international president, abruptly announced his retirement.

According to the court documents, Tyson’s Mexican subsidiary, Tyson de Mexico, paid out about $90,000 to two officials who inspected Mexican plants resulting in profits of $880,000. The payments were made to the inspectors and their wives who were listed on the company’s payroll and covered-up with a false set of books.

Tyson also paid the Securities and Exchange Commission more than $1.2 million for disgorgement of profits and pre-judgment interest related to the crime.

The major difference between the two corruption probes is the scope. Tyson paid $5.2 million for $90,000 in bribes with one top executive seemingly sacrificed in the settlement.

Analysts say the fallout for Wal-Mart is much greater in terms of likely fines, shareholder lawsuits and a recent petition calling for top executive resignations.

“Corruption breeds inefficiencies both in the company officials having to cover up the crime and in the country’s ability to set and maintain the proper protocol,” said Stephen Zamora, director of Center for U.S. and Mexican Law at the University of Houston.

Frank Vogl, one the world’s top experts in corporate ethics, said corruption probes also inflict “turmoil at the top” as the CEO and other executives are distracted from the day-to-day core business by exhaustive investigations that can last between two and three years.

Vogl, has written two books that deal with corporate ethics and corruption, with the second, “Wage War on Corruption” due out in September. He is also an advisory council member of Transparency International (TI) which he helped co-found in 1993. TI is the world's largest anti-corruption organization, operating in more than 90 countries.

He said a big problem for Wal-Mart is the company’s own proud ethics code, which specifically denounces the use of bribes.

“The company from the CEO on down must walk the talk. Corporate ethics policies cannot be just be part of the wallpaper. Executives must live them. There are plenty of multinational corporations who are not using bribes to further their own agendas,” Vogl said in an interview with The City Wire.

He said there is a misconception that bribes are a necessary part of getting things down in some countries and too often impatient companies try and cut corners.

“If a German manufacturer wanted to build in the United States, he would face a mountain of environmental hurdles and lengthy time process for getting permits. But if he tried to bribe U.S. tax and government officials we would be outraged,” Vogl said. “Why is it different in Mexico?”

He said corruption is the greatest threat to maximizing development in Third World countries. But as an optimist Vogl also believes retailers have a great opportunity to change that if they can build strong bridges of trust within the communities they serve.

He used Coca Cola as an example. The company received the 2012 integrity leadership award from Transparency International USA in March. Vogl said Coca Cola “walks the talk” and is exemplified by its commitment to collective action against corruption in partnership with other companies, non-governmental organizations and governments all over the world.

“I dare say that Coca Cola is respected in communities around the world to the point where any local official on the take would likely be front page news the following day,” Vogl said.

Zamora said anti-corruption laws do exist in Mexico, but there is a often a lack of enforcement with inadequate funding and education that has impeded progress.

He said in 2002 the country passed its own form of the Freedom of Information Act which has allowed news organizations to do more investigative reporting against corruption rings.

“I was not that surprised to hear the bribery allegations at Wal-Mart involve licenses for permits. But I did not expect to see a company with that level of legal sophistication dismiss the Foreign Corruption Practices Act because international lawyers know this law is taken seriously,” Zamora said.

He said as long as large U.S. companies think they can circumvent the system in Mexico without adequate punishment, others in the world will go on thinking they can too.