The Walmart 1 Percent are having a rough week and it’s only Tuesday. Shares of Walmart stock fell by nearly 5 percent in response to a report in The New York Times that alleged widespread bribery and corruption in Mexico. According to the story, Walmart’s top executives—including CEO Mike Duke—knew about the problem and tried to cover it up. Matthew Feeley, an expert on corporate malfeasance, told the Times yesterday that the tumble in the stock price could be a sign that investors have lost confidence in the company’s leadership.
“I think there’s going to be a lot of pressure to come down hard on them as a company, not entirely because of the actual violations but because of the failure to do anything internally when those violations came to light,” Mr. Feeley said.
The uncertainty made investors anxious on Monday. Wal-Mart’s stock lost $2.91 in heavy trading, to $59.54. Wal-Mart de Mexico’s stock, traded separately, fell more than 12 percent to 37.89 pesos.
The headache doesn’t end with the plummeting stock price. The Washington Post broke the news yesterday that the U.S. Justice Department launched an investigation into Walmart’s dealing in Mexico back in 2011.
The investigation was launched in December after Wal-Mart met voluntarily with Justice Department officials, revealing it was looking into whether its Wal-Mart de Mexico unit had bribed foreign officials to gain business. Wal-Mart said this weekend that it has also met with the Securities and Exchange Commission. The allegations were brought to light by the New York Times on Saturday.
The U.S. Foreign Corrupt Practices Act bans companies from paying foreign officials to get more business. The law has recently been targeted by lobbyists — including an arm of the U.S. Chamber of Commerce with ties to Wal-Mart — who criticize it as too broad and bad for business.
So what are the details of the Foreign Corrupt Practices Act? And why might it cost the company so much money? Here’s an explanation of why the losses may be devastating for Walmart from the Chicago Tribune:
The potential liability Wal-Mart faces is staggering because the monetary penalties for breaking the law are based on the profits enabled by payoffs, said Andrew Spalding, an assistant law professor at IIT Chicago-Kent College of Law. Wal-Mart de Mexico, known as Walmex, is Wal-Mart’s largest foreign subsidiary.
The inquiry into Wal-Mart will cast a spotlight on a law that has become controversial in corporate America. Federal authorities have aggressively stepped up their enforcement of the anti-bribery statute in the last decade. The numbers tell the tale.
At the end of 2011, nearly 80 companies were known to be the subject of an ongoing and unresolved foreign bribery investigation, according to “The FCPA Blog,” which compiled the list primarily from disclosures to the Securities and Exchange Commission.
Finally, an opinion piece on Market Watch by Mark Hulbert says that the drop in Walmart stock could be a sign that more trouble is coming. The author looked research about bribery prosecutions and found that corruption cases alone don’t create panic among investors. It’s only when the market expects additional bad news to follow that a company can lose serious market value.