the audit

The Times‘s Extraordinary Wal-Mart Investigation

April 23, 2012

David Barstow’s epic Wal-Mart investigation in the Sunday New York Times has already lopped $10 billion off the company’s market value ($8 billion if you assume Wal-Mart would have been down 1 percent like the rest of the market today).

Rest assured, though, the reverberations from this piece have just begun to be felt in Bentonville.

The Times gives Barstow nearly 8,000 words to present the case against Wal-Mart—and boy does he. This is one of the most damning exposés of corporate corruption I’ve seen in years. It’s an incredible piece of journalism.

Barstow untangles a web of corruption at Wal-Mart de Mexico that would eventually ensnare executives up to the CEO in a coverup. This story has a complicated hero, $24 million in alleged bribes, executive intrigue, and a coverup of serious and credible allegations. At the biggest company in the U.S., “bribery played a persistent and significant role in Wal-Mart’s rapid growth in Mexico.” Wal-Mart killed the investigation by taking its U.S. investigators off the case and giving control of it to the Mexican executive accused of helping orchestrate the bribes. Really.

The complicated hero is Sergio Cicero Zapata, a Wal-Mart real estate executive and linchpin in the alleged bribery scheme. He tells Barstow, in fifteen hours of interviews, “how he had helped organize years of payoffs,” blown the whistle, and seen nothing come of it. This is a former company executive implicating himself and his superiors in crimes.

Barstow shores up Cicero’s credibility, which is already pretty good, by talking to stifled Wal-Mart investigators, who vouched for Cicero’s allegations. But he went further, examining “thousands of government documents related to permit requests for stores across Mexico” and finding that “Again and again, The Times found, legal and bureaucratic obstacles melted away after payments were made.”

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The inevitable pushback, already begun in some places, is that this is just how business is done in Mexico and that Wal-Mart had to play the game. But if proven, these aren’t just Mexican crimes, they’re American ones. The Foreign Corrupt Practices Act prohibits American companies from paying foreign officials to do business. If you have to pay bribes to do business someplace, then you just don’t do business there. By doing so, you’re perpetuating the corruption that chokes poor economies like Mexico’s.

And by not dealing head-on with this alleged corruption in its fast-growing Mexico unit, Wal-Mart has let it metastasize into the C-suite. Cicero implicated the head of Wal-Mart’s Mexico unit, Eduardo Castro-Wright, as “most responsible” for the payment scheme. Castro-Wright has since been CEO of Wal-Mart in the U.S. and is (as I type this, at least) now vice chairman of the company.

Time and again, then-CEO Lee Scott rejected entreaties by advisers inside and outside the company to launch a full investigation of the alleged corruption. He “rebuked internal investigators for being overly aggressive” and, reading between the lines a bit, he was responsible for sending control of the Mexico investigation to the implicated executive.

This piece is just rock solid. One of the key reasons for that is that Barstow has gotten hold of scads of internal emails and memos to and from senior executives of the company that help show how they buried this big problem. These documents also show that the current CEO, Michael T. Duke, was also in the loop on the investigation, which will be a major headache for him in the coming months.

The scope and depth of the reporting is awe-inspiring, as is how the Times makes it easy to follow a complicated story with more than twenty important characters.

These kinds of blockbuster investigations don’t come around very often, even at The New York Times. The last non-magazine story given that much space in the paper was on the Deepwater Horizon disaster. The one before that was a 2008 expose of TV news shows and the military experts who propagandize for them. Barstow was lead byline and solo byline, respectively, on those.

Both of those were great pieces. This one is even better.

Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR’s business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum.