Was Walmart’s ethics policy part of the problem?

By Felix Salmon
April 24, 2012
dispatched the company's jet to pick up marketing head Julie Roehm in Chicago.

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Back in November 2006, Eduardo Castro-Wright, who was then the US president of Walmart, dispatched the company’s jet to pick up marketing head Julie Roehm in Chicago. She arrived late, in an ice storm, but made it in to the Walmart headquarters, where Castro-Wright started grilling her on the agency review process: how she had picked DraftFCB as the agency which would take over Walmart’s $1 billion-per-year account. Roehm had interviewed some 30 agencies before settling on Draft; the questions centered on whether she had allowed any of those agencies to pay for dinner while she was talking to them, and whether she had accepted a lift in the car of any of the agencies’ CEOs.

Four days later, Roehm was fired, for violations of Walmart’s extremely strict ethics policy. As Walmart expert Charles Fishman explains,

Wal-Mart had a kind of unbending almost obsessive adherence to even the trivialist elements of an ethical code. They’re a brutal competitor and everybody acknowledged that, but Wal-Mart was also the company that wouldn’t take a dinner from you, that wouldn’t let you provide a soda if you went to meet them to talk about business, where they wouldn’t join trade associations for many, many years because they didn’t want to pay dues and have a conflict of interest.

We now know, of course, that Castro-Wright was the man at the very center of the Walmex corruption scandal. Which raises the obvious question: did the corruption at Walmex appear despite Walmart’s ultra-strict ethics code? Or did it, paradoxically, appear because the code was so strict?

The point here is that Walmart left, essentially, nothing to its employees’ discretion. It didn’t trust them to do the right thing: it codified everything in a set of rules, and then told them to follow those rules. And you can see how that might have resulted in a kind of Calvinist scale-blindness, where accepting a soda when going to meet a vendor is exactly as bad as greasing Mexican wheels to the tune of 24 million dollars.

On top of that, the most senior executives at Walmart had a lot of discretion when it came to enforcing the rules. For someone like Roehm, who never fit in to the corporate culture, it was easy to find an infraction and fire her. On the other hand, when it came to allegations touching on Castro-Wright himself, it was similarly easy to hand the investigation off to one of his loyal subordinates, who did what he was expected to do and buried it.

Accepting a soda from a vendor, of course, is not illegal; engaging in sham investigations, on the other hand, is. Or can be, at any rate. At a grown-up organization, the Mexican allegations would have been a much darker shade of grey than anything that Roehm is alleged to have done, and would therefore have been taken much more seriously. But executives at Walmart, used to seeing the world in black and white, were unable to distinguish between the merely unethical and the downright illegal. As a result, there could be criminal charges for Walmart executives. Call it the ultimate unintended consequence of a strict ethics policy.

Update: EJ Fagan has a very smart take on all this.

There’s a difference between having a soda bought for you and buying someone a soda. Internally, maybe Wal-Mart did not want its employees to make economically inefficient decisions based on who bestowed upon them the most favor, just like people in Mexico don’t want their government making decisions they wouldn’t otherwise make if an agent from a giant multinationals didn’t transfer six figures to their offshore bank account. Their ethics policy may be designed to support what’s good for Wal-Mart, not necessarily to follow any sort of legal or moral code. We shouldn’t expect anything else from a profit-seeking corporation in a competitive marketplace.

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Comments
12 comments so far

You are probably overthinking this. More likely, the stuff about paying for one’s own coffee is part of the company’s public image, whereas bribing officials is how they really operate (at least in emerging markets).

Posted by ktheintz | Report as abusive

OR it could be that Castro-Wright is a typical hypocrite. Those who sound off the most are sometimes the worst offenders. We see this in many areas, including the anti-gay people who are closeted gays.

Posted by jomiku | Report as abusive

The policy of not accepting anything of value, or any favors, from a current or potential supplier is not an ethics issue – it is designed to keep employees from falling under the spell of those companies. The whole point of vendors buying lunches and stuff is to unconsciously make the employee like the person. The vendor wants you to think the person you are dealing with is your friend, because it will help them if the choice is close or a toss-up. It has nothing to do with ethics. When I used to run a company over a decade ago, I told the buyers that if they wanted to go to lunch with vendors, they had to buy their own lunch. Vendors are not your friends, and I didn’t want anyone feeling they might be.

On the overall issue of corporate ethics, well, there aren’t any. Corporations are virtual machines, and machines don’t have any ethics. They are designed for specific functions, and while those functions may morph over time from solving a problem or filling a need into making as much money as possible in a short time for the management, ethics are only a marketing tool. The shield of incorporation not only protects individuals from legal implications for the corporation’s actions, but also seems to absolve individuals for their personal actions and choices (all that nonsense about their responsibility to maximize profits).

Corporations are machines, and Wal-Mart is one of the most efficient machines, designed so employees do what they need to do to get the job done. If their task is to build a presence in Mexico as fast as possible, and accomplishing that task requires unofficial payments, they’re going to do it. It’s not an ethics issue for the company, because there is no ethical right or wrong, only a practical right or wrong. It only becomes an “ethics” issue if somebody talks, and they never expected anyone to talk. Oops.

Posted by KenG_CA | Report as abusive

“Call it the ultimate unintended consequence of a strict ethics policy.” (FS)

Huh … you sayin’ this wouldn’t have happened if WalMart had a less strict internal ethics policy?

Really, somebody needs to ask the shareholders straight-out if they want THEIR company to be operating anywhere that they have to pay bribes or “facilitating payments”. IKEA decided to leave Russia for that reason. Maybe it’s time shareholders decided if they should maybe follow that example.

Posted by MrRFox | Report as abusive

MrRFox – should that vote also cover if companies will operate in Chicago or New Jersey? (I ask only half in jest.)

Posted by realist50 | Report as abusive

The only reason the Obama administration is beating up on Walmart is because they don’t support him. Why is there no investigation of Jon Corzine and the billions he stole from investors? They guy should be in jail! Where is Eric Holder on the Crozine situation?

Posted by Booradley999 | Report as abusive

“MrRFox – should that vote also cover if companies will operate in Chicago or New Jersey? (I ask only half in jest.)” (realist50)

Well sure – inside the US it’s a clear-cut crime to make any such payments, “facilitating” or otherwise. Companies have to have a strict policy against it.

It’s tougher when you go overseas, and you’re after oil – we need the oil and want the companies to get it, and don’t seem to particularly care what they get mixed-up in to do so.

Posted by MrRFox | Report as abusive

This is silly – Walmart’s ethics guidelines also prohibit bribing foreign officials in addition to not getting their dinners picked up by suppliers, not instead of it. Besides which, I seriously doubt that the people involved were unaware that they weren’t allowed to do this… they presumably just decided it was worth the risk.

Posted by worm600 | Report as abusive

@Worm600 – perhaps it goes deeper than that. “Everybody knows ….” So, when companies make the decision to operate in these places they are implicitly – so very implicitly and plausibly deniable – telling the troops on the ground to do what it takes.

Posted by MrRFox | Report as abusive

Perhaps the line was personal vs company gain. Anyone doing it for themselves was not to be trusted, but anyone doing it for the company was to be praised.

Posted by MyLord | Report as abusive

Having a million pointless rules to enforce selectively is not so much about ethics as control. There are some historical examples, with which Walmart policy makers are no doubt very familiar.

Posted by Eericsonjr | Report as abusive

The case of Walmart making facalitaing payments is extreemly similar to BofA and most other publicly traded banks bending and breaking forclosure rules.

The business case is simple… Walmart will not be, can not be, and should not be fined enough to make the net present value of breaking the law negitive. If the back of the envelope estimates are anywhere near accurate 20% of the value of the company is the mexican business. If they got an unfair jump start on half of that business than their crime is worth a clean 20 billion.

They will never be fined that much… probably not even one hundreth of that amount… and so the ethics are pretty small potatoes…

…there is no inured party that I can find anyway… customers save money, the employees actually make a market wage in mexico, the mexican goverments actually collect taxes since Walmart actually reports unlike many small mexican businesses, and best of all Walmart reinvests every dime of mexican profit in mexico because they don’t want to pay US income tax on repatrating the profits they make down there.

If I’m a Walmart share holder I’m glad they did what they did… it’s not like they killed someone here which a bunch of companies have.

Posted by y2kurtus | Report as abusive
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