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Allegations could put Wal-Mart's reputation back on the line

Experts say the complex allegations are unlikely to have much effect on Wal-Mart shoppers, who are most interested in whether the prices are low, the lines are short and the shelves are stocked.
Experts say the complex allegations are unlikely to have much effect on Wal-Mart shoppers, who are most interested in whether the prices are low, the lines are short and the shelves are stocked.Lisa Poole / AP

Wal-Mart has spent years aggressively working to improve its reputation on issues ranging from environmental stewardship to healthy food choices.

Now, allegations that the company’s Mexican subsidiary paid out bribes to speed growth threaten to derail that work.

"My sense is that if this is mishandled it may reinvigorate the anti-Wal-Mart coalition," said Daniel Diermeier, a management professor at Northwestern University and author of "Reputation Rules."

The New York Times reported Saturday that Wal-Mart de Mexico, the company’s foreign subsidiary, had for years given out payoffs in order to facilitate speedy growth. The newspaper alleged that executives at the company’s highest levels were aware of the alleged schemes and thwarted an aggressive investigation into the matter.

Wal-Mart has said that it is investigating the matter and has recently taken steps to improve its compliance with the Foreign Corrupt Practices Act, which forbids such behavior. In a statement released Tuesday, it also said it was cooperating with federal law enforcement.

“We are confident we are conducting a comprehensive investigation and if violations of our policies occurred, we will take appropriate action,” spokesman David Tovar said in the statement.

Experts say the complex allegations are unlikely to have much effect on Wal-Mart shoppers, who are most interested in whether the prices are low, the lines are short and the shelves are stocked.

“There’s no real issue there that’s going to affect them, as long as Wal-Mart can help keep Americans’ prices low,” said C. Britt Beemer, CEO of America’s Research Group, which regularly monitors shoppers’ attitudes about retailers.

But it could present a bigger issue with the labor groups and other activists who fueled the anti-Wal-Mart sentiment that hit a fever pitch about six years ago.

At that time, Wal-Mart was facing opposition from a number of groups, some funded by labor unions. The activists complained that the company’s wages and benefits were lacking, that its gigantic stores harmed other local businesses and that it wasn’t a good environmental steward.

On the local level, such efforts culminated with so-called site fights in which coalitions of citizens fought to keep Wal-Mart from building new stores in their towns. The much-publicized struggles could be costly and time-consuming even when Wal-Mart prevailed.

“The bigger problem for Wal-Mart wasn’t so much the customer moving somewhere else, but the delay and in some cases inability to open stores,” said Diermeier, the Northwestern professor.

Diermeier said Wal-Mart worked aggressively, and often effectively, to improve its reputation.

The retailing behemoth began a major effort to improve its environmental practices, even inviting some of its harshest critics to work with the company and its suppliers to do things like reduce packaging and power usage.

The company also addressed its critics on other fronts. For example, it created a healthy foods initiative, endorsed by First Lady Michelle Obama, who has been working to fight obesity.

It also won a major victory last year when the Supreme Court ruled that it was too big for employees to sue for discrimination using class-action status.

Since the Great Recession hit in late 2007, Americans’ attention has seemed to turn to other things and the Wal-Mart criticisms have gotten less attention.

But Diermeier said these new allegations could make people question the company's credibility, reinvigorating the company’s harshest critics.

To counter such concerns, Diermeier thinks the company needs to bring in an aggressive and high-profile investigator from outside the company, to show that they are committed to really rooting out the truth.

The Wal-Mart de Mexico allegations also have the potential to hurt the company’s reputation with its shareholders, said Brian Sozzi, chief equities analyst for NBG, an independent research group. Shares in Wal-Mart fell Monday and Tuesday following the allegations.

Sozzi said investors could start wondering whether there will be similar allegations about its practices in other countries, or whether any prior earnings statements will need to be reviewed.

Still, Sozzi doesn’t expect the allegations to have an effect on Wal-Mart’s improving U.S. business, which he said has been helped by stronger efforts to match Target’s prices online and a better assortment of fresh food and dry goods in its stores.

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