Key Lessons from Walmart’s Corruption Probe in Mexico

Executives in high-risk markets should use Walmart’s troubles in Mexico to educate corporate headquarters of the difficulties of achieving high growth targets while abiding by FCPA standards in emerging markets. While Walmex’s growth was seen as one of the major success stories in emerging markets retail, we now know that it was fueled by business practices that created significant legal and reputational risk for the company

For those who have done significant business in Mexico, the bribery allegations should not come as a major surprise, nor that skirting FCPA compliance has become more difficult. Almost two-thirds of Frontier Strategy Group’s Latin America clients reported that achieving FCPA compliance has become more difficult over the past few years, with over 65% of our clients considering Mexico one of the most challenging markets in which to remain compliant, behind only Brazil and Venezuela. Locally empowered managers violating FCPA standards were the major force behind Walmart’s troubles, and FSG’s board of on-the-ground experts considers this kind of violation to be one of the most common ways multinationals run afoul of regulations in Latin America.

FSG does not expect the situation to get better over the next few years, and companies need to prepare accordingly. Vigilance is necessary, and companies should create clear incentives and develop cultures supportive of ethics compliance and sanctions for violations, along with regular reporting of compliance practices in each business unit. However, this scandal represents an opportunity. It is particularly important for executives to communicate to corporate headquarters why growth targets must come with appropriate resources to understand and mitigate the accompanying risks, and this is best achieved by resourcing effectively government engagement efforts.

*Antonio Martinez, Analyst - Latin America contributed to this piece