Wal-Mart’s U.S. Expansion Plans Complicated by Bribery Scandal
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A protest last week at City Hall against Wal-Mart’s plans to open a store in New York City.
By STEPHANIE CLIFFORD and STEVEN GREENHOUSE
Published: April 29, 2012
In Los Angeles, a Wal-Mart
building permit is getting a once-over. In New York, the City Council
is investigating a possible land deal with the retailer’s developer in
Brooklyn. A state senator in California is pushing for a formal audit of
a proposed Wal-Mart in San Diego. And in Boston and its suburbs,
residents are pressuring politicians to disclose whether they have
received contributions from the company.
Related
-
Attorney General in Mexico Will Investigate Wal-Mart (April 27, 2012)
-
Deal Professor: Weighing the Legal Ramifications of the Wal-Mart Bribery Case (April 23, 2012)
-
Wal-Mart Hushed Up a Vast Mexican Bribery Case (April 22, 2012)
Yuri Cortez/Agence France-Presse — Getty Images
The Mexican government has begun investigations into a
Wal-Mart subsidiary’s dealings with local officials.
All of it in the past week.
Wal-Mart has worked hard in recent years to polish its reputation and
give elected officials, community groups and shoppers a reason to say
yes to their stores, especially as it pushes aggressively into big — and
historically hostile — cities. Now, the revelation of a bribery scandal
involving the retailer’s Mexican subsidiary is giving critics a new
reason to say no.
“Overnight, the environment has shifted in terms of Wal-Mart’s strategy
in big cities, in winning over local politicians,” said Dorian T.
Warren, a political science professor at Columbia who is writing a book
about Wal-Mart’s efforts to expand into Chicago and Los Angeles.
The New York Times disclosed last week
that Wal-Mart had found credible evidence that its Mexican subsidiary —
the retailer’s biggest foreign operation, which opened 431 stores last
year — had paid bribes and that an internal inquiry into the matter had
been suppressed at corporate headquarters in Arkansas. The Mexican
government has begun investigations into the retailer’s dealings with
local officials.
Felipe Calderón, the Mexican president, said last week that he was
“indignant” about the company’s behavior, and some elected officials
across the United States joined the chorus of outrage. In other
countries where Wal-Mart operates, including China and India, the
reaction was slower, but analysts said they expected the company to face
significant new obstacles.
Wal-Mart last week took several steps intended to demonstrate it was
serious about getting to the bottom of the bribery scandal — and
preventing anything like it happening again — but the damage from the
revelations could be problematic, analysts said.
“It gives more power to critics, and that might prove to be the biggest
negative of all,” said David Strasser, an analyst with Janney Montgomery
Scott.
In the United States, Wal-Mart has largely exhausted places in suburban
and rural areas to build new stores, and is focusing on many of the
nation’s biggest cities. That means a lot of red tape for approvals. In
the last few years, Wal-Mart has smoothed the way with donations to
politicians and local nonprofit organizations, and arguments that it
helps economic growth and provides healthy groceries.
Steven Restivo, a Wal-Mart spokesman, said the bribery investigation
would not affect those expansion plans. “We remain committed to opening
stores all across the U.S., including large cities,” he said.
There has always been opposition to the new stores — for years, small
store owners, for example, complained they would be put out of business
by Wal-Mart’s low prices — but the scandal in Mexico has provided
opponents with new ammunition.
Union leaders, who have been particularly critical of Wal-Mart’s
workplace practices, called last week for the resignation of the
chairman, S. Robson Walton, and the chief executive, Michael T. Duke.
“The corruption scandal and reported cover-up exposed an unacceptable
failure of leadership within Wal-Mart,” said Joe Hansen, president of
the United Food and Commercial Workers International Union.
Most of the stepped-up opposition, however, has been directed at blocking specific expansion plans.
In New York, City Councilman Erik Dilan said the housing and buildings
committee that he heads will conduct an investigation into a land-use
transfer at a Brooklyn site Wal-Mart has been considering. The New York
state comptroller, Thomas P. DiNapoli, was already reviewing a contract
for the site, a vacant 14-acre lot in East New York owned by the state.
In Los Angeles, opponents of a Wal-Mart site in Chinatown were using the
bribery scandal to supplement an appeal they have filed that would
rescind the project’s building permit
In the Boston area, Wal-Mart is eyeing three possible stores, in
Somerville and Watertown and in the Roxbury neighborhood. Leaders of the
local anti-Wal-Mart coalition are now demanding that the company
publicly identify its financial contributions to elected officials,
local organizations and community leaders.
Related
-
Attorney General in Mexico Will Investigate Wal-Mart (April 27, 2012)
-
Deal Professor: Weighing the Legal Ramifications of the Wal-Mart Bribery Case (April 23, 2012)
-
Wal-Mart Hushed Up a Vast Mexican Bribery Case (April 22, 2012)
This pressure on politicians, in particular, to respond to the
suggestion Wal-Mart is buying them off could spread to other cities,
said Professor Warren of Columbia.
“There definitely is a pattern of giving campaign contributions to
politicians who support what they want,” he said of Wal-Mart. But
because the Mexican accusations include bribing local officials, “when
you take that to the context of New York or Los Angeles, it’s going to
make it harder for politicians to accept campaign contributions from
Wal-Mart.”
Mr. Restivo, the Wal-Mart spokesman, said the company would not change
its pattern of giving to politicians and nonprofits in areas where it
wants to open. In New York, for instance, its foundation has given more
than $13 million to nonprofits since 2007, and the company gave almost
$200,000 to Republican political committees in 2011.
“We are proud of the work our foundation has done,” he said, and “we
support those who stand for issues that are important to our customers,
associates and shareholders in the areas where we do business. When we
make political contributions, we do so in an ethical, legal and
transparent way.”
For Wal-Mart, the new obstacles come after a long and concerted battle to win over its critics.
For years, labor unions said it did not pay fair wages.
Environmentalists said it was a polluter. And female employees, claiming
discrimination, were locked in a lawsuit against the company.
And city after city denied Wal-Mart entry.
About seven years ago, as Wall Street analysts began to refer to the
negative media coverage of the company as “headline risk,” the stock
price fell and Wal-Mart decided it needed to burnish its image.
H. Lee Scott Jr., a Wal-Mart board member who was then Wal-Mart’s chief
executive, made a public argument that better business practices would
help the company.
With the help of Leslie Dach, a former adviser to President Clinton
hired in 2006 to handle external relations, Mr. Scott and other
executives met with activists to improve Wal-Mart’s labor and health
care records, to outline an aggressive energy conservation plan, to
position Wal-Mart as a company that was bringing fresh, affordable food
to underserved areas and to develop initiatives to help promote female
workers.
The company’s fiercest critics doubted the efforts, saying they were
public-relations moves with little substance, but at least in some
circles, Wal-Mart was seen as a better corporate citizen.
That helped smooth over opposition to new stores in some cities.
Wal-Mart will soon open its sixth store in Chicago, has two additional
sites approved in Los Angeles, is building two in San Diego, and has six
planned in Washington.
What was not previously known until the Times report on the bribery
scandal is that at about the same time Mr. Scott began the offensive to
improve Wal-Mart’s image in the United States, he also rebuked the
company’s internal bribery investigation in Mexico for being overly
aggressive. The investigation was soon dropped.