Wal-Mart works to repair beat-up corporate image

by The City Wire staff ([email protected]) 168 views 

In one month thousands of Walmart shareholders, international delegates and top media representatives will descend on Northwest Arkansas for the retail giant’s annual shareholder meeting and week-long activities.

The spotlight on corporate management was expected to be bright, a time of celebration for the 50th anniversary of the first Walmart store opening in Rogers and accolades for the return of positive same-store U.S. sales. But an ugly cloud unleashed on the retail giant Saturday threatens to rain heavy on the Wal-Mart shareholder parade.

Front and center is likely to be the ongoing federal investigation of a $24 million bribery scandal within the company’s Mexican subsidiary. The alleged bribery scheme was said to hasten the company’s foothold in that country during 2005 and the corporate cover-up that ensued has since blackened the eyes of top management and toppled share prices in recent days.

While the jury is still out in the court of public opinion, the negative news presents a new set of challenges for public relations firms helping Walmart mitigate damage control. One of the first places to begin is attempting to quiet speculation and the ongoing rumor mill inside the giant corporation when negative news breaks.

Wal-Mart CEO Mike Duke did that on Monday, circulating an email to company employees reiterating much of what corporate spokesman David Tovar has been saying publicly since Saturday.

“We will not tolerate noncompliance with Foreign Corrupt Practices Act anywhere or at any level of the company.“We are confident we are conducting a comprehensive investigation and if violations of our policies occurred, we will take appropriate action.”

Wal-Mart says it launched a comprehensive internal investigation into the allegations of bribery six months ago at the urging of Duke.

More recently the company says it has added a series of new escalation and review protocols to ensure FCPA investigations are managed consistently and independently. This ensures investigations are conducted rigorously and the findings are appropriately addressed.

A new Global FCPA Compliance Officer position has been created to help oversee compliance with the FCPA in every market around the world and will oversee five FCPA compliance directors based in the international markets, according to Tovar.

Tovar said, “We believe it’s also important to keep a few things in context:
1.The allegations in The New York Times story about the decisions made in Bentonville are more than six years old.
2. Six months ago, we launched an aggressive investigation under the auspices and supervision of the audit committee of the board of directors into the issues contained in the article. We are working quickly to determine what happened and are committed to getting to the bottom of this matter.
3. We are continuing to cooperate with federal law enforcement authorities.

All of that reassurance did little to bolster investor confidence Tuesday (April 24) as company shares (NYSE: WMT) lost another 3% of their value. Shares of Walmart closed Tuesday at $57.77, tumbling 8% in the past two trading days which has eroded nearly $15 billion of value in the company’s outstanding stock.

The losses south of the border ran deeper, despite the fact a majority of the Mexican state authorities said they would not launch a probe into the bribery allegations, according to Reuters.

Shares of Walmex closed Tuesday at $36.20, down 16.5% in the past two trading days.

CNBC Mad Money host Jim Kramer said Wal-Mart is already a company that is not well loved in several circles. This major scandal only seeks to make things worse at least in the short term as the company’s top management team must face the music for not self reporting more than six years ago when the bribery allegations were brought to their attention, he said.

Kramer said Monday there are a slew of possible consequences for the management team and the slight possibility the company’s Mexican bank charter could be revoked if it is tied in any way to the alleged payments.

While Wal-Mart has come forward in recent days citing an investigation began late last year, Kramer and other analysts say the company is a little late to the show given the bribery allegations date back to 2005.

“Sarbanes Oxley requires companies to self-report as soon as they know of improprieties which should have been found by an independent compliance committee. When that happens the penalties are generally lighter,” Kramer said.

Many of allegations came under the watch of Eduardo Castro-Wright, who oversaw the explosive growth of the Mexican marketshare from 2002 to 2005. Castro-Wright is set to retire in July. He also quietly resigned his position from the MetLife Board of Directors Tuesday. The resignation was made public in a filing with the Securities and Exchange Commission.

Castro-Wright said in the letter, “It is my expectation that these outside distractions will be resolved favorably within the next several months. In the interim, however, they would not allow me to perform my duties at the highest levels that both the board and I demand. Accordingly, I now must focus my energy in spending personal time with my family and in protecting my good name and business reputation.”

Castro-Wright was elected to the MetLife board in 2008 and earned a total of $259,124 in cash and stock awards annually for his service, according to SEC proxy fillings.

Alan Ellstrand, University of Arkansas associate professor, said Wal-Mart’s corporate reputation has been under near constant attack for at least a decade with the Tom Coughlin scandal, wage lawsuits and gender-biased litigation, but this latest challenge is perhaps the greatest of them all.

He said companies with Wal-Mart’s size and resources are far better positioned to handle these giant public image shocks than smaller businesses.

“We will just have to wait and see who is still standing when all the dust has finally settled this time,” he said.