This morning, Wal-Mart Stores (WMT) filed its most extensive disclosure yet about questions of corruption and bribery in its Mexico operations, but sadly, that isn’t saying much.
What’s most striking about the new disclosure is that it was buried at the bottom of the 8-K that put Wal-Mart’s first-quarter earnings release on record. Somehow, though, there’s no mention in the earnings release itself, which is the document that most investors see and read — especially since the first 70% of the filing is routine boilerplate about the company’s many non-GAAP financial measures.
When it comes to substance, the company added 574 words to its minimalist oeuvre on the subject, explaining that the company’s audit committee is
“conducting an internal investigation into, among other things, alleged violations of the U.S. Foreign Corrupt Practices Act (the ‘FCPA’) and other alleged crimes or misconduct in connection with foreign subsidiaries including Wal-Mart de MâŸxico, S.A.B. de C.V. (Walmex) and whether prior allegations of such violations and/or misconduct were appropriately handled by the Company.”
There’s more, about engaging multiple outside law firms “and other advisors,” conducting a “voluntary global review” of its compliance practice (really? Voluntary? As in, it would have done this even absent the publicity?), reminding investors that the company is under investigation by the Justice Department and SEC as well as by Mexican officials, that the company is cooperating, and — of course — that it’s too early to tell where things might go, or how much they might cost. In other words, a lot of it is rehashing what we already know, and layering on the boilerplate.
We do wonder about a few things in the disclosure, though. That “other crimes and misconduct” is ominous — it could simply refer to Mexican anti-corruption laws, which are obviously distinct from the U.S. statute, or more general violations stemming from a cover-up. But it also holds out the specter that there could be something more serious behind the inquiry, and really, you might never know until too late, given Wal-Mart’s track-record on disclosure.
As we footnoted in early May, there were signs in Wal-Mart’s filings that something was amiss with the company’s non-U.S. operations as far back as early December (and we alerted our footnotedPro subscribers to that language at the time), but you had to look closely, and know how to read between the lines: The original 156-word disclosure was vague to an extreme, and didn’t even mention Mexico specifically. When Wal-Mart filed its 10-K nearly four months later, it didn’t change a word — even though, by then, executives must have known more about the sweeping New York Times piece that was on the horizon.
Given that history, we noticed in the most recent disclosure that the company says it told the Justice Department and SEC about its internal “investigative activity” in November 2011 — no more specific date is provided. But the initial disclosure for investors, as far as we can tell, was that December 8 filing. Depending when in November Wal-Mart notified the authorities, that might have been a very long time indeed to make investors wait. And no, we’re not comforted by the fact that, as Bloomberg News reports on its Businessweek site, lots of companies drag their feet on corruption inquiries.
Meanwhile, Wal-Mart executives are apparently predicting “no material adverse effect” from the inquiry — which is a bold statement given that the company’s public filings say things are still at such an early stage that Wal-Mart “cannot predict accurately at this time the outcome or impact” of the investigations or related shareholder lawsuits.
Anyway, credit Wal-Mart with at least saying a little more — in one sense, today’s 574 words is a 3.7-fold improvement over the original disclosure. But unless the company starts filling in a little more detail, we doubt investors are going to be able to get comfortable with the overhang. Nor should they.
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