Global Workshop (Part 2) Professor Laureen Regan

Learning Objectives 1.Expand knowledge of FCPA and OECD Anti-Bribery Convention 2.Explore Transparency International Bribery and Corruption Reports 3.Apply concepts to an active bribery investigation

Last Time The corrosive effects of bribery and corruption. The link between good governance within companies and countries, and reduction in bribery and corruption. The US Foreign Corrupt Practices Act (1977) The OECD Anti-bribery Convention (1999)

Goals for today Talk in more detail about why bribery and corruption is a problem Evidence from the OECD Anti-Bribery Report Go to Transparency International Report Case Study: Analyze Wal-Mart’s actions in Mexico

Key Questions What is the impact of corrupt payments to outsiders on internal management? Can a firm behave corruptly to outsiders and expect employees to behave honestly and ethically within the firm?

Potential Benefits of Bribery Assume a country allows its firms to bribe foreign officials Assume a company allows it employees to bribe foreign officials

Costs of Bribery To a country  Potential Loss of FDI, loss of confidence of citizenry, increased political instability, inefficient allocation of resources to fuel growth For a company operating in a corrupt country  Higher costs, fewer market opportunities

The OECD Anti-Bribery Report

Key Questions What is the problem for firms facing unilateral rules from their home countries when competing with firms whose home countries do not have or do not enforce such rules? Is an international solution needed?

The OECD Anti-Bribery Convention Requires signatories to adopt anti-bribery legislation – Does not specify penalties – Does not require all countries to join – No full-time administrative body with enforcement powers – Uses a mutual monitoring method for implementation under a peer-review model

Transparency International A nonprofit NGO dedicated to exposing corruption Goal is to encourage and shame states into dedicating greater resources to fighting corruption Produces an annual report on bribery and corruption perceptions Scores countries from 0 – 100 based on responses from ~3000 executives and multiple sources

Corruption Perception Index by Transparency International Choose two countries from the map. Don’t use your home country. Report on why the countries are ranked as they are. What policies would you recommend the country adopt to reduce corruption. 20 minutes

Wal-Mart in Mexico: Key Questions This is a serious case of bribery and corruption. What conditions at Walmart may have allowed this behavior to continue for so long? What about the accounting? What changes to Walmart’s operations or strategy would you recommend to avoid this exposure going forward?

Walmart Overview Founded July, 1962 Officially incorporated as Wal-Mart Stores in 1969 Largest off-line retailer in the world in 2015 More than 11,000 stores in 27 countries Three Divisions  Walmart US, Walmart International, Sam’s Club Walmart International generates 28% of total revenue in 2015 – $486 B consolidated revenue total

Largest private employer in the world Products include apparel, furniture, groceries, electronics, hardware, pharmacy, etc. Strategy is “Every Day Low Prices” – Prices average 4% – 10% lower than competitors Leader in supply chain management and logistics Walmart Overview

Wal-Mart International Expansion: Selected Stories First expansion in Mexico through a joint venture in 1991 NAFTA enacted 1994  opened up price wars As of 2013, Wal-Mart had ~~ 2000 stores in Mexico Captured ~~ 50 % of all the retail revenues in Mexico

Wal-Mart International Expansion Strategy: Selected Stories Wal-Mart entered Brazil in 1995 through organic growth (25 stores) and through acquisition (118 stores) – 1996 acquired 160 more stores Argentina entry 1995  organic growth strategy, 94 stores total by 2013 China and Japan entry through acquisition

The Case Breakout to discuss Wal-Mart in Mexico Prepare a brief presentation of your findings Report back to the group 30 minutes

Case Questions Map out the timeline and key players Discuss conditions at Walmart that may have allowed this behavior to continue for so long. What changes to Walmart’s operations or strategy would you recommend to avoid this exposure going forward? 30 minutes and then report back.

Learning Objectives 1.Expand knowledge of FCPA and OECD Anti-Bribery Convention 2.Explore Transparency International Bribery and Corruption Reports 3.Apply concepts to an active bribery investigation