National & International

After bribery scandals, a pattern of quiet departures at Wal-Mart

Wal-Mart has substantively changed its compliance structure and personnel, at times with great fanfare and at others without a whisper.
Wal-Mart has substantively changed its compliance structure and personnel, at times with great fanfare and at others without a whisper. The Associated Press

Thomas A. Mars, formerly the chief administrative officer for Wal-Mart in the U.S., stepped down. José Luis Rodríguezmacedo Rivera, once the general counsel at Wal-Mart’s Mexican division, quietly left the company. And H. Lee Scott Jr., who was Wal-Mart’s chief executive, will retire from the board this month.

These men belong to a long list of executives from the uppermost reaches of Wal-Mart’s management who held critical positions when corruption scandals engulfed the company’s international division. Come July, almost every person on that list will no longer be with the company — but no departure has been cited by Wal-Mart as a way to clean house in the wake of those scandals.

It has been more than two years since allegations of widespread bribery surfaced about Wal-Mart de México, drawing a host of investor lawsuits and a U.S. government investigation into Wal-Mart’s global operations. The company’s financial outlay is closing in on nearly half a billion dollars as it deals with external and internal inquiries, which were set in motion by an investigation published by The New York Times.

Though the investigations are still pending, Wal-Mart has substantively changed its compliance structure and personnel, at times with great fanfare and at others without a whisper.

While the circumstances surrounding each executive’s departure are unclear, a pattern has emerged. At least eight of Wal-Mart’s most senior executives in Mexico, India and Bentonville, Ark., have left the company since the latter part of 2011, when Wal-Mart learned of The Times’ investigation.

In the same two years, the company has revamped its global compliance program. In a move that swims against the current of Wal-Mart’s corporate culture, the company has increased its compliance staff by more than 30 percent, to 2,000 people, in that short time.

Other changes the company has made — including mandating that any potential foreign corruption violations be reported to corporate headquarters and the board — may make it more difficult for senior executives to plead ignorance in the future.

It is in Wal-Mart’s interest, particularly as it negotiates with federal prosecutors, to show how it has ramped up its compliance efforts, said David Schertler, a criminal defense lawyer.

The company’s reform efforts may surface again Friday at the annual shareholders meeting, where in previous years investors have raised concerns about the inquiries.

The federal investigation into Wal-Mart’s global operations centers on whether the company violated the Foreign Corrupt Practices Act, a law that prohibits companies from bribing foreign officials.

The Times reported in 2012 that Wal-Mart consistently bribed public officials in Mexico for things like building permits to speed its expansion in that country. Executives at company headquarters in Bentonville learned of those supposed misdeeds in 2005 but subsequently shut down an internal investigation instead of reporting potential violations of the law to the U.S. government.

The Justice Department declined to confirm or deny any Wal-Mart investigation.

So far, the retail giant has reported spending $439 million on investigations and its compliance program.

“If you want to get not just to the middle of the pack but to the front of the pack, you’re going to spend more,” said Jay Jorgensen, Wal-Mart’s global chief compliance officer. “The mandate that we’ve received is, let’s try to move this company to the front of compliance and really lead, and that takes an additional investment.”

Under Wal-Mart’s new system, any potential Foreign Corrupt Practices Act violation is supposed to be reported to the board’s audit committee, whose outside counsel is tasked with investigating accusations. But outside experts criticized the oversight structure, saying that the chief ethics officer, Cindy Moehring, does not have sufficient independence as long as her position falls under the jurisdiction of the company’s top legal officer, Jeffrey Gearhart, who is the company’s corporate secretary.

Lynn E. Turner, former chief accountant at the Securities and Exchange Commission, said that Gearhart’s authority over Moehring rendered the system “window dressing.”

“If the hiring and firing and setting of compensation of the ethics officer is done by the top legal officer, then it is highly unlikely employees will trust a whistleblower hotline where the tips are reported to that ethics officer,” Turner said in an email. “I think such a system is not effective.”

David W. Tovar, a Wal-Mart spokesman, said any decisions involving the hiring or firing of Moehring and Jorgensen would not be made “without consulting with the audit committee.” The panel also has input into their yearly evaluations, Tovar said.

“We are confident we have the right corporate structure to manage a strong and effective compliance and ethics program around the world,” Tovar said in an email. “Our chief compliance officer and chief ethics officer report directly to our independent audit committee on a regular and as-needed basis.”