(July 23, 2012) — Institutional investors need to pay better attention to the Foreign Corrupt Practices Act — which prohibits improper payments to foreign officials to garner business — to prevent controversies such as Wal-Mart’s alleged bribery from happening again, a former FBI agent and pension spokesperson note.
In late May, the $228 billion California Public Employees’ Retirement System (CalPERS), the largest public pension fund in the United States, said that it would withhold votes for nine Wal-Mart Stores board members following allegations that the retailing giant failed to look into bribery in Mexico. According to the fund, these board members were in a position of authority, oversight, or management of the company’s operations during the time that the alleged bribery was conducted. The decision by CalPERS followed a New York Times report from late April that said Wal-Mart’s Mexican unit allegedly paid millions of dollars in bribes to accelerate building permits and gain other favors. Furthermore, the report claimed that executives failed to notify authorities despite Wal-Mart’s knowledge of the scheme.
“The Foreign Corrupt Practices Act has been around since 1979, but it’s only been slowly addressed by the Department of Justice for the last seven or so years,” Ken Springer, a former FBI agent and is now president of global financial investigations firm Corporate Resolutions. In a nutshell, Springer explained, the act promotes compliance training around the world, making it illegal for corporations to pay bribes to government officials oversees. “Big corporations such as Wal-Mart completely disregarding the act is shocking,” he said, noting that Wal-Mart’s alleged scandal represents a breakdown of corporate governance. “Institutional investors need some assurance from companies before they invest.”
Michael Sicilia, spokesman for the California State Teachers Retirement System (CalSTRS), noted that since Wal-Mart’s directors and officers allegedly failed to properly handle claims of the alleged bribery, better controls must be put in place at the highest level of corporations. “The fact that Wal-Mart has reelected all of its board members despite strong criticism from pensions aiming to remove them is not comforting,” he added.
Proper behavior, however, is difficult to evolve, Springer and others note. “Similar to the generational acceptance of wearing bicycle helmets and seat-belts, it will take time for due diligence to really become a priority to promote a level playing field with dealing with investments oversees,” Springer concluded, noting that prevention up front will save money down the road. “It’s not always expensive to address an issue but to ignore it can be costly.”
While institutional investors such as CalPERS, CalSTRS, and other pension funds have been vocal in addressing the alleged bribery at Wal-Mart, their efforts recently stalled. Last week, a Delaware judge, Chancellor Leo Strine Jr., scolded attorneys of two public pensions for rushing to court with lawsuits over Wal-Mart’s allegations of bribery at its Mexican operations, according to the Associated Press. Strine said attorneys for the California and New York pension systems seemed more focused on competing with each other in a “first-file Olympics” than doing a thorough investigation into Wal-Mart’s corporate records and acting in the best interests of the retail giant’s stockholders.