FCPA: Only as Good as a Company’s Internal Controls

Many of us now have to take annual FCPA (Foreign Corrupt Practices Act) training to validate/confirm that we are in compliance with the requirements of the act. Essentially, the FCPA prohibits bribes (which may be acceptable in other cultures) from being paid by US-based companies while conducting business outside of the US. Companies that are well-prepared for this have policies and processes in-place to ensure that not only bribes are not paid, but also that the appearance of a bribe is not paid.

Walmart is not one of those companies.

For months, rumors have been in and out of the news regarding the bribes paid by their Mexican subsidiary in the course of conducting business; primarily around obtaining permits and zoning for new stores. Their shares are down further after NYT published their investigation into the issue. The worst part: it appears as though Walmart shut down the internal investigation as soon as it started to “look bad” so that they would not be obligated to report any wrong-doing.

Was the price worth it?

Sadly, for Walmart: maybe. They have become one of the largest corporations in the world based on volume and cost, often at the expense of the communities around them, their employees, and now, apparently, ethical business practices. The general motto seems to be to move forward with “the plan” (employee benefits, cost of goods, location of stores, etc.) regardless of the cost.

In the short term, this seems to be working. Walmart also has a favorable economy for their business model as low-cost and convenient are two of the most important things to many of today’s consumers. Many households are on such tight budgets that they cannot “make a statement” with their purchases (or lack of purchases): they need to buy their groceries and other goods at the lowest cost possible. So they continue to shop at Walmart despite the less than stellar business practices.

So, the $1MM question: will it continue to work for Walmart?

Maybe, maybe not. I would like to believe not as the price the communities and individuals are paying to the benefit of Walmart cannot be worth it in the long-run. But, commercialism is powerful. If enough people either: (1) read the news and do not care or (2) do not read the news, then Walmart will continue to have customers and sales despite the business practices.

The other unknown is whether Walmart will face fines and/or it’s employees will face jail time. If this happens, then the equation likely changes for Walmart and the need for internal controls and policies will be greater. (Which is the entire point of the legislation: to make it more painful to not comply than to comply.)






6 thoughts on “FCPA: Only as Good as a Company’s Internal Controls

  1. I agree that this in the hands of the consumers. It seems as though “most” companies will take the cheapest way of out of legal action, whether or not it is the right thing to do. Similar to going “Green”, many companies have to decide whether making the world better or doing what is right is worth the possible loss it could show on the bottom line. As we have seen in recent legal action where CEO’s are held responsible for actions taken by the firm, this could be one change forcing companies to think twice before thinking of only profits, rather than stakeholders in the company.

  2. This is a very interesting article regarding business ethics. I’m sure it would be difficult to be in the position of CEO of Walmart when doing business internationally. Unfortunately, ethical issues do arise from culture to culture. It makes me question whether it is right to take the “when in Rome” approach, or the “eye of the beholder” approach. You made a great point when you mentioned that bribery is acceptable in other cultures, such as the Chinese. A more challenging question is whether or not we should hold ourselves to the same standard. A similar controversy comes to mind involving Nike. The company’s reputation was at stake when word got out about their sweatshop manufacturing, causing much turmoil. I wonder how Walmart was able to suppress enough of the rumors or bypass this ethical problem to continue to thrive. As you said, people depend on Walmart for the lowest prices and sometimes, that is more significant than ethics.

  3. Business ethics has always been an issue in big companies such as Walmart. This is a very interesting topic because many companies struggle with the same decisions.I believe it is a good thing that companies need to take the FCPA training even though other countries do not have to take it. I understand that even though they are trading with countries that don’t require the training, because they are still conducting most of their business and selling in a country such as the U.S they should be required to take the training. I understand that large companies have to bargain to get discount prices which may require bribes, but how else will they be able to sell their customers products at low costs?

  4. I think it is really interesting that spr1322cleahy asked, “whether or not we should hold ourselves to the same standard” as to what is ethical in other cultures. There is a very fine line in determining a “gift” versus a “bribe.” Based on my own opinion and an international business course, it is essential to NOT offer or accept bribes even if it is an expectation of foreign business partners. Once, a company gains the reputation of bribing/being able to be bribed, business relationships can be taken advantage of and the waters can become pretty muddy. I think that the FCPA training should be enforced more harshly and that monstrous companies like Walmart need to learn to play by the rules. I’m not saying that the ethical dilemma is black and white. I just think that the compliancy is a good way of implementing checks and balances in Corporate America.

  5. If Walmart was truly a business leader, they would have better management and better internal controls to prevent bribery from occurring. What is more important: being the largest company in the world, or being the most ethical company in the world? I think the latter. Illegal activities are expensive, and if Walmart was smart, they would focus on building credibility rather than expanding their operations.

  6. This post caught my attention because of the “internal controls” wording in the title. As an accounting major with a concentration in internal auditing I understand the importance for large public organizations to have an effective internal audit function that promotes appropriate ethics and values within an organization. However, it is just as important for operation managers to make ethical and socially responsible decisions on behalf of the company. This brings many challenges because it is almost impossible to please all stakeholders affected by a decision. In the case of Walmart, I certainly believe their aggressive approach is getting too out of hand and they should hire individuals such as operation managers that have the ability and expertise to bring awareness to all employees in the importance of enhancing the ethical climate of the organization and creating a system where all stakeholders have a voice.

    One situation I found interesting to read about was that of a US corporation that was dinged for having children as young as 10 years old working in their facilities overseas. When this child was terminated due to the negative publicity this caused, the child’s family ended up losing their home. Although the child was too young to be working, the contribution he or she was adding to the family’s income was quite significant. Hiring a 10-year old certainly seems to be an unethical decision. However, is it considered unethical to terminate the child if this job is helping sustain the family?

    Ethical dilemmas are simply challenges that companies will continue to deal with in the future.

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