After two years of investigation, Walmart’s audit committee has released the company’s Global Compliance Program Report on Fiscal Year 2014.
The Report’s description of Walmart’s new compliance program is stunning and deserves line-by-line scrutiny by the compliance profession. It’s a complex, “living laboratory” for compliance innovations. And there’s the big picture: After extensive risk assessments in 2013, Walmart has prepared an ongoing multi-year plan to challenge the status quo of global corruption.
A copy of the Report is available here.
Walmart’s new SVP and Global Chief Compliance Officer, Jay Jorgensen, explained the company’s turn-around attitude toward compliance in a candid two-part interview focused on the Report’s three sections: people, policies and systems, particularly innovative technology. Former CECO and commentator Donna Boehme sums it up, “Make no mistake these are big reforms.”
The Report, a summary, is far from self-explanatory. It raises questions we should seek to clarify with Walmart, or by observation, in the coming year regarding the following major points:
- Structure – Walmart, responding to critical media articles from Boehme and the compliance profession, adopted the best practice of separating legal from compliance plus having the Global CCO report to the board’s audit committee. The company’s decision should mark the end of five years of stormy debate about this reform and open the door to better discussions about a “Global Compliance Organizational Structure.” Walmart’s new multi-tiered structure (p.3) combines many compliance areas into one global organization that funnels reports from local compliance officers in each market up to a regional chief compliance officer and then to the international CCO reporting to the Global CCO connected to the audit committee. The goal is to bring separate compliance groups and market-level technology into a unified, linked-up global compliance program. (p. 9.)
- Expertise – To provide expert guidance for compliance officers, the company has created Subject Matter Leaders (SMLs) and Subject Matter Experts (SMEs) as well as teams of “Compliance Monitors,” who will implement best compliance practices across the company. (p.4)
- Training – Following a review, the company implemented a multi-year plan of comprehensive company wide training, including third parties and business partners, plus “mechanisms to measure training effectiveness … and evaluating systems for tracking trainings.” (p. 5)
- Global Escalation and Review Procedures – Part of extensive improvements in communications among units and to headquarters, these procedures require reporting allegations relating to “integrity and other high priority risks” to the headquarters’ Global Ethics Office. (p.6)
- Compliance and Ethics Committees – In each international market, the CEO and its compliance and ethics executives meet to discuss accountability for compliance and ethics progress related to local markets. (p.7)
- Anti-corruption Controls and Procedures – Enhancements are underway in 11 components of its compliance program. Also implemented: a “financial controls enhancement project” tracked at corporate and market levels (p. 8) and a new, centralized worldwide system to identify and monitor all licensing and permit activities (p. 9.). Risk assessments in “all of its retail markets and in international procurement” will be used to create a new list of prioritized compliance enhancements for Fiscal 2015.” (p.9)
- Global Compliance Systems – The company inventoried all compliance-related systems in order to deploy enhanced, common core technologies to all of its international markets by 2015. New technology will screen third parties for corruption risk; an electronic tool will be deployed for “capturing monitoring data and tracking remediation of compliance issues identified by the company’s compliance monitors.” (p.10)
- Corporate Governance – Enhancements due in 2014-2015 – The company’s corporate governance will continue to include the process of creating “annual prioritized list of compliance objectives” for 2015 that must be achieved or executive compensation is reduced. (p.10)
Walmart has launched something new and important in the world of global compliance program management and innovation. By this time next year, they will have another year’s worth of compliance results to evaluate. What works and what does not work can be tested not in academic or blogger debates, but in the arena of global business competition and corruption risks. Starting now, compliance professionals will benefit from catching up to what Walmart did in 2013-14 and tracking results and innovations in 2014-15.
Beyond the details in the Report, there is the big picture of the challenge facing Walmart’s compliance system. The company is the world’s biggest retailer, with over $460 billion in revenues in over 20 countries, including most of Latin America, China, India, and other countries with high corruption risks. Without saying it explicitly, Walmart is committed, like Siemens (Only Clean Business is Siemen’s Business), to doing only bribe-free business. Walmart is not running a world-class compliance program just for show; it will detect and must turn down deals and partners involved in bribery.
Will revenues and profits go down? How will the Board and shareholders react? How will the company keep its resolve — or be incentivized by the compliance system of checks and balances — to lead the business world and to see this transformation to fruition?
Michael Scher is a contributing editor of the FCPA Blog. He has over three decades of experience as a senior compliance officer and attorney for international transactions. He is affiliated with ethiXbase, the owner of the FCPA Blog. He can be contacted here.
Walmart should expect some change in its revenue if a majority of its business in certain markets was a result of corrupt activity, at least in the short term. How much only time will tell.
Both the NYT and Forbes have reported, with respect to the Walmart de Mexico bribery scandal, that certain members of Wal-Mart senior management either participated in or condoned the bribery. The SEC, in its settlement agreement with Wal-Mart, should require admissions of wrongdoing from both the corporation and those members of senior management. If any of those members of senior management remains with Wal-Mart after the settlement, this will tell the public and Walmart's stockholders volumes about the objective behind the new global compliance program. Federal regulatory agency permissive settlement ground rules are exacerbating the race to the bottom by corporate America. In disregard of every objective other than the quest by senior management for increased short-term profits, bonuses and stock options. The path being followed is highly rewarding to the stewards of our large public companies. But would investors generally and our society as a whole be benefited by a return of our major public companies to observance of the rule of law? The SEC, DOJ and other federal regulatory agencies could facilitate this by requiring an admission of wrongdoing when the evidence shows that members of senior management either participated in, condoned or had advance knowledge of, and thereby permitted, the misconduct.
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