WALMART: Reaping the benefits of compliance investment

August 3, 2015

Walmart has spent more than US$612 million in legal fees and compliance restructuring costs over the last three years following alleged Foreign Corrupt Practices Act (FCPA) violations. Although the United States retailer did not reveal the FCPA expenses in any of three recently-released reports, the information is available in the company’s quarterly earnings. One of the three recent reports, Walmart’s 2015 global compliance report, resulted from the probe into expanded allegations of bribery in Mexico, India, Brazil and China.

Despite the fact that Walmart said in its 2014 report that it expected to spend approximately US$100 million on compliance system enhancements worldwide over the next several years, its most recent report did not mention the FCPA investigation by name and failed to give any financial updates.

However, Walmart is known to have spent US$173 million on FCPA compliance-related costs in the fiscal year of 2015, which ended on 31 January. Legal costs relating to the investigation were US$121 million, while the remaining US$52 million was spent on an internal compliance overhaul. In the two fiscal years prior to 2015, Walmart incurred US$439 million in FCPA costs, with US$282 million allocated to 2014 and US$157 million to 2013.

The 2015 report, in contrast, highlighted the various steps that Walmart has taken thus far to correct its compliance shortcomings. For example, the board’s audit committee set a series of objectives in 2013 that were to be completed by January 2014. If the board fell short of implementing the objectives, then the committee would vote to withhold a portion of the board’s compensation. The report confirmed that 70 of the 72 objectives had been met, and that the company was some way towards completing the remaining two objectives. The board’s compensation was not withheld.

According to the report, ‘The objectives reflected careful thinking about how to build a structure that would not only immediately enhance the company’s compliance efforts, but also enable a cycle of continuous self-assessment and improvement in the years to come.’

A problem that many compliance officers face is securing sufficient backing from their companies’ boards. Walmart’s executive vice president and global chief ethics and compliance officer Jay T Jorgensen told Compliance Insider® that Walmart’s board had welcomed the opportunity to invest in compliance efforts. In reference to the objectives and compensation, he said that ‘the board is actively participating, rather than just sitting back’.

Speaking of when the company introduced its new compliance programme, Jorgensen said, ‘There are always those who think it’s a good idea and some that don’t, but having the board behind us was great.’

The report also confirmed that Walmart’s compliance objectives are grouped into three categories: people, policies and processes, and systems. Chief executive officer Doug McMillion said that additional staff were hired in 2015 to meet the aims set out by the company’s audit committee. According to The City Wire, Walmart employs more than 2000 individuals in its formal compliance programme.

McMillion also said that Walmart had strengthened its programme by employing compliance monitors in each of its international markets. These monitors regularly visit stores and assess the effectiveness of the compliance programmes, and carried out more than 5500 assessments in the 2015 fiscal year.

Tangible benefits

Jorgensen suggested that, rather than focusing on the cost of increasing headcount in the compliance function, companies should use the additional staff to create a common culture and programme. He said that Walmart had seen tangible benefits from investing in staff members.

‘We had a compliance programme in each region but they each did their own thing,’ he said. ‘Now that we‘ve tied it all together, we have a common system and common goals and it’s so much more transparent. I’d recommend anyone to do it.’

Walmart also supplemented its anti-corruption leadership team by recruiting anti-corruption directors in the e-commerce businesses at Walmart.com.br (Brazil) and Yihaodian.com (China).

A hurdle that many multinational companies face when implementing a global compliance programme is making sure that third parties and associates buy into the idea. Jorgensen admitted that this had been a challenge at Walmart, and that in some regions compliance was a new concept.

‘It depends if compliance exists as a formal discipline in that market,’ he said. ‘Those that don’t [have it as a discipline] need it explained.’

Jorgensen emphasised that implementing the programme should be a three-step process. Firstly, parties that are unfamiliar with compliance should be introduced to the idea and why it is important. Next, training should be conducted. Finally, you should follow up and audit to make sure that the programme is being properly implemented. According to Jorgensen, Walmart is entering the third phase and is auditing a vast number of its third parties this year.

Emphasising the importance of training for combatting local cultures, Jorgensen said, ‘People think when bad things happen, people are bad. But it can be because it’s just normal, it’s just a misunderstanding. Without training, people will revert to the cultural norm.’

Jorgensen said that the benefit of having compliance officers on the ground is that they can understand the local culture better than a remote officer. He added, ‘We used to say “act with integrity”, but now we explain what that means.’

Walmart’s report states, ‘With these experts in place, the process for identifying, analysing and prioritising compliance risks for FY15 was even more thorough and informed. In light of the progress in building our internal anti-corruption capabilities, in FY15 we transitioned to our internal staff a number of activities that external consultants had been handling.’

When Jorgensen was asked whether he thought the move to internal staff had cost the company a degree of objectivity, he said that all companies need to strike a balance between employing internal staff and hiring external consultants.

‘A few years ago we were all internal. And then when we ramped up compliance, we spent millions – tens of millions – on external resources. We’ve taken those millions and spent it on internal resources that will be around for a while. But we still have external people; we have a balance,’ he said.

 

Walmart’s example is one that should be followed. Compliance officers should endeavour to secure board support so that the compliance function is not viewed as a barrier to the business. From there, investment in personnel and programmes will produce its own rewards by making the company a first choice for consumers.

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