Question

Summary

Wal-Mart’s stock tumbled on the news that the company was investigating possible violations of the Foreign Corrupt Practices Act. According to information leaked to the press, Wal-Mart may have been bribing Mexican government officials in order to gain the zoning approvals it needed to build stores in the country. What makes the story especially interesting was the fact that the company appears to have known about the violations for several years, yet seemingly chose to do nothing.

While Wal-Mart had no legal obligation to disclose the fact that it was looking into the situation some years ago, analysts agree that the company had an ethical responsibility to make some disclosure, particularly given that the retail giant seems to have done little with the knowledge of a potential violation. Investigators will be looking to see whether the company gained an unfair competitive advantage as a result of its illegal activity.

If the company is found to have violated the Foreign Corrupt Practices Act it could face fines, and possibly have to return some of the profits it earned as a result. In addition, because it seems that top level executives were aware of the bribes when they occurred, there could be further penalties. Wal-Mart’s current CEO, Mike Duke, was head of Wal-Mart International at the time of the bribes.  

Discussion Questions

1. If the allegations against Wal-Mart prove to be true, the company will certainly be penalized for its illegal behavior. Consider, though whether the Foreign Corrupt Practices Act puts U.S. firms at a competitive disadvantage in foreign markets. Does it actually encourage unethical behavior by firms?

2. Is it ethical for U.S. lawmakers to prohibit bribery in foreign markets? What are the implications of the Foreign Corrupt Practices Act on employment and economic development in countries like India and Mexico?

3. Suppose you are a U.S. supplier to Wal-Mart Mexico. Do you agree with the Foreign Corrupt Practices Act? How does it affect you? Do you feel that U.S. lawmakers have the right to limit the activities of U.S. firms in foreign markets?

Please answer it in your own words .

Answer 1

1. Yes, in purely economic terms, the FCPA does put US companies at a disadvantage against foreign firms. Even in the current example, other companies who are not bound by the FCPA will have an upper leg in Mexico as they will be able to bribe local officials and get their permits and requirements done quickly while American companies adhering to the FCPA will not be able to do so and will lag behind.
In the end, it does encourage unethical behavior where the US company will bribe but will hide it from the US government.

2. It is ethical for the US lawmakers to implement FCPA. Whether it is economically right or not is a different question altogether and as shown in part 1, it does put US companies at a disadvantage. But talking purely from the ethical point of view, it does have its intention correct- stopping corruption by US companies worldwide and not just in the US.

In the long run, the act may hinder Us companies from setting up shop in countries such as India and Mexico, resulting in loss of employment and development opportunities in those countries. It is also possible that the American companies leave the market as they cant compete and that might result in monopoly and even worse conditions for local populace and workers.

3. If I am a supplier, I will look at the issue purely from the economic and financial standpoint and not from ethical standpoint. From an economical standpoint, the aw affeccts me negatively as I am not able to compete with local Mexican or other foreign suppliers.

Still, I wont take away the right of US lawmakers to regulate US companies in foreign markets as that will give too much leeway and options to companies. What if a company shifts all of its plants in foreign countries then? Do the US lawmakers leave all their rights of regulating that entity then? In my opinion, the lawmakers should regulate but keep the actual practical ground realities in mind before making the laws.