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Wal-Mart’s US Expansion Plans Complicated by Bribery Scandal

Stephanie Clifford and Steven Greenhouse|The New York Times
Monday, 30 Apr 2012 | 2:32 AM ET

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.

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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 scandalinvolving 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 Mexicohas 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.

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.

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