Wal-Mart, Mexico, red flags and hindsight…
The initial buzz has faded when it comes to David Barstow’s stunning April 21 New York Times report on Wal-Mart and bribery allegations in Mexico, but from what we can tell, it still features prominently in the conversation whenever corporate-governance types gather. And there has been plenty of follow-up: a lawsuit by CalPERS, more scrutiny wherever Wal-Mart is expanding, a look at the company’s role in seeking to tone down federal anti-bribery laws, and baby steps in damage-control by Wal-Mart.
No doubt questions about Wal-Mart’s activities in Mexico will reverberate for some time, and we wouldn’t be surprised to see some pretty significant changes on the board and in management, though whether sooner or later remains to be seen. In the meantime, we’ll indulge in looking back a little — to late last year, when we spotted this disclosure in the 10-Q that Wal-Mart filed on December 8:
“During fiscal 2012, the Company began conducting a voluntary internal review of its policies, procedures and internal controls pertaining to its global anti-corruption compliance program. As a result of information obtained during that review and from other sources, the Company has begun an internal investigation into whether certain matters, including permitting, licensing and inspections, were in compliance with the U.S. Foreign Corrupt Practices Act. The Company has engaged outside counsel and other advisors to assist in the review of these matters and has implemented, and is continuing to implement, appropriate remedial measures. The Company has voluntarily disclosed its internal investigation to the U.S. Department of Justice and the Securities and Exchange Commission. We cannot reasonably estimate the potential liability, if any, related to these matters. However, based on the facts currently known, we do not believe that these matters will have a material adverse effect on our business, financial condition, results of operations or cash flows.”
We can’t claim to have seen through the bland platitudes of this 156-word paragraph, but we did recognize it as new and potentially important, and thought it was interesting enough to send out to our footnotedPro subscribers three days later (PDF, subscription required), as part of our weekly Red Flag Alert roundup, along with 20 other potentially significant finds from the week.
Interestingly, when Wal-Mart filed its 10-K on March 27 — presumably with management well aware of Barstow’s soon-to-be-published New York Times piece — the disclosure was word for word identical. In other words, Wal-Mart was suggesting that nothing of significance had changed in three months: no progress on the internal inquiry, no response from the Justice Department or the SEC, nothing noteworthy in terms of changes to compliance procedures. This is a case where the absence of evidence maybe should have attracted more attention than it did.
In any case, as you can imagine, the Wal-Mart kerfuffle sent us back to our database, to see what other, similar disclosures we had noticed at other companies. All told, we found a baker’s dozen of other examples in recent months, companies making Foreign Corrupt Practices Act disclosures, many of which would have been all too easy to overlook. We sent those out to subscribers late last week (PDF, subscription required), but the broader point is that companies sometimes leave clues behind as problems begin to swirl.
Unfortunately, finding those clues and making sense of what’s often convoluted disclosure is an entirely different game.