Wal-Mart in Mexico: It's Not Getting Better

Back in April, the New York Times published a devastating article by David Barstow about bribery at Wal-Mart de Mexico. And while some Times readers were inclined to give the company a free pass ("This is apparently the method of doing business in Mexico..."), I argued that this argument (a) painted a whole country with a very big brush, and (b) ignored the inconvenient fact that bribery is illegal in both the U.S. and Mexico. The behavior uncovered was, in addition, a complete violation of Wal-Mart's own code of ethics (the first of which is, "Always act with integrity.").

Today's Times has another compelling, worth-reading-in-full story by Barstow and Alejandra Xanic von Bertrab on how Wal-Mart systematically used bribes to get what it wanted and grow its business in Mexico.

The Times’s examination reveals that Wal-Mart de Mexico was not the reluctant victim of a corrupt culture that insisted on bribes as the cost of doing business. Nor did it pay bribes merely to speed up routine approvals. Rather, Wal-Mart de Mexico was an aggressive and creative corrupter, offering large payoffs to get what the law otherwise prohibited. It used bribes to subvert democratic governance — public votes, open debates, transparent procedures. It used bribes to circumvent regulatory safeguards that protect Mexican citizens from unsafe construction. It used bribes to outflank rivals. 

The Times investigation found 19 store sites in Mexico where the trail of bribes matched up with a trail of permits. For example: "Thanks to nine bribe payments totaling $765,000, Wal-Mart built a vast refrigerated distribution center in an environmentally fragile flood basin north of Mexico City, in an area where electricity was so scarce that many smaller developers were turned away." Wal-Mart is the largest private employer in Mexico.

According to the article, Wal-Mart de Mexico employees did not themselves deliver bribe payments, but entrusted "fixers" to deliver payoffs:

Wal-Mart de Mexico’s written policies said these fixers could be entrusted with up to $280,000 to “expedite” a single permit. The bribe payments covered the payoffs themselves, a commission for the fixer and taxes. For some permits, it was left to the fixers to figure out who needed to be bribed.  

How much did Bentonville, Arkansas, Wal-Mart's global headquarters know? It's hard to be sure, at least without a full judicial investigation. The Times quotes a Wal-Mart spokesperson as saying, "We are committed to having a strong and effective global anticorruption program everywhere we operate and taking appropriate action for any instance of noncompliance," and notes that the company has spent more than $100 million on investigative costs related to anticorruption training and background checks this year. Given that the company relies on careful financial accounting for its success, I do find it hard to believe that headquarters was unaware.

I wasn't surprised by the revelations back in April, and I'm not surprised now. Disappointed, oh yes.

It's Not the New Year Yet, But I Have a Resolution

I'm getting tired of writing posts in the aftermath of a horrific garment-factory fire. I wrote two in September (here and here), following the worst factory fire in Pakistan's history (one of several New York Times reports, here). And late last month there was another tragic fire, in Bangladesh.

New York Times reporter Vikas Bajaj wrote that "Bangladesh’s garment industry, the second-largest exporter of clothing after China, has a notoriously poor fire safety record. Since 2006, more than 500 Bangladeshi workers have died in factory fires..." Worse, many of the deaths were preventable, if proper -- or indeed any -- precautions had been taken. In the late November fire, another 112 workers were killed.

I hadn't thought about writing about this issue again. After all, how many times can I make a case for really tough regulations? But the story won't let go of me. Because I know I bear some responsibility too. I read labels (I hate paying for dry-cleaning, so I always look for washing instructions). I note, in passing, where a particular item was made or assembled. But do I go further than that? No.

It had been reported that the factory, Tazreen Fashions, made clothes for a number of Western companies, including Walmart / Sam's Club, Sears, and others.

In the first days after the fire, Walmart issued a statement saying,

While we are trying to determine if the factory has a current relationship with Walmart or one of our suppliers, fire safety is a critically important area of Walmart’s factory audit program and we have been working across the apparel industry to improve fire safety education and training in Bangladesh.

In yesterday's Times, Steven Greenhouse reported that documents had been found in the factory's rubble that confirm that about one-third of the production lines were devoted to Walmart / Sam's Club products. Of even greater concern, the report stated that

In a related matter, two officials who attended a meeting held in Bangladesh in 2011 to discuss factory safety in the garment industry said on Wednesday that the Walmart official there played the lead role in blocking an effort to have global retailers pay more for apparel to help Bangladesh factories improve their electrical and fire safety.....

According to the minutes of the meeting, which were made available to The Times, Sridevi Kalavakolanu, a Walmart director of ethical sourcing, along with an official from another major apparel retailer, noted that the proposed improvements in electrical and fire safety would involve as many as 4,500 factories and would be "in most cases" a "very extensive and costly modification."

"It is not financially feasible for the brands to make such investments," the minutes said. 

Kevin Gardner, a Walmart spokesman, said the company official’s remarks in Bangladesh were "out of context."

It's hard for me to imagine the context in which those comments, from a "director of ethical sourcing", would be acceptable.

Of course Walmart will do everything possible to squeeze costs from its supply chain. How else can it promise "Save money. Live better."? 

But I don't think I am the only American who would pay a few pennies more for a T-shirt that didn't smell like smoke and sound like screams.

In today's Times, Jim Yardley tries to sift through the data to find how Tazreen, a factory whose "bosses had been faulted for violations during inspections conducted on behalf of Walmart and at the behest of the Business Social Compliance Initiative, a European organization", and still managed to continue receiving orders from major companies, "slipping through the gaps in the system by delivering the low costs and quick turnarounds that buyers — and consumers — demand." (Yardley's full story, worth reading in its depressing entirety, is here)

Who bears the ultimate responsibility? We all do.

Yardley quotes Richard Locke, deputy dean of MIT's Sloan School of Management: "We as consumers like to be able to buy ever-greater quantities of ever-cheaper goods, every year.Somebody is bearing the cost of it, and we don’t want to know about it. The people bearing the cost were in this fire."

Many of the victims were young women, drawn from rural Bangladeshi villages to the outskirts of Dhaka, lured by the promise of good wages: $45 a month. (And yes, even in Bangladesh, that's not much to live on.)

Today, both Walmart and Sears are saying that Tazreen was not an authorized supplier. But it's not that simple. Yardley spoke with David Hasanat of the Viyellatex Group, "one of the country's most highly regarded garment manufacturers" who noted that

...that global apparel retailers often depend on hundreds of factories to fill orders. Given the scale of work, retailers frequently place orders through suppliers and other middlemen who, in turn, steer work to factories that deliver low costs — a practice he said is hardly unknown to Western retailers and clothing brands. The order for Walmart’s Faded Glory shorts [being produced at Tazreen at the time of the fire], documents show, was subcontracted from Simco Bangladesh Ltd., a local garment maker. "It is an open secret to allow factories to do that," Mr. Hasanat said. "End of the day, for them it is the price that matters." 

In other words, for the retailers, if they have plausible deniability, that's all that matters.

Corporations won't care until we consumers show that we care.

Ask questions before you buy. Buy from companies and countries in which workers have real rights and regulations have real teeth. If that means each item costs more, buy fewer items.

That's my resolution for the New Year, and I hope you'll join me.

Sadly, We Do Have a Trifecta Winner

The results are now in, and Wet Seal is indeed a trifecta winner: Illegal, Immoral, and Stupid.

What?

Back in July, the New York Times and other media outlets reported that Wet Seal, a retailer of "fast fashion" apparel for young women, was being sued by former employees because "the company had a high-level policy of firing and denying pay increases and promotions to African-American employees because they did not fit its 'brand image.'" (Original Times story, by Steven Greenhouse, here)

To be honest, I found it hard to believe that a nationwide retailer could be that, well, stupid. Racial discrimination is both immoral and illegal, and to have a policy in place like this seemed unlikely.

At least that's what I hoped. So I coupled my comments on Wet Seal with a report on some recent research that suggests that fast ethical decisions are worse than slow, thoughtful ones. Perhaps, I wrote, the problem was the Wet Seal was just reacting too fast to, for example, slumping sales at a particular store -- let's just fire the frontline staff and store manager, and maybe that will fix the problem. They just didn't think the situation through, right? (Original blog post, here)

The Equal Employment Opportunity Commission has now found in favor of the plaintiffs, ruling in a "determination" that Wet Seal's managers had made it overtly clear that they wanted employees who had the "Armani look, were white, had blue eyes, thin and blond in order to be profitable." (as reported, again by Steven Greenhouse, in today's Times; full story, here)

The federal commission said that, prior to the forcing-out of one of the African-American women plaintiffs, "she had received high ratings in running the King of Prussia [PA] store, which was ranked No. 8 among Wet Seal's more than 500 stores. Her regional manager and district manager had said she had 'great energy' and 'strong ability' to hold other managers and subordinates accountable in fulfilling their responsibilities." These attributes, however, were apparently not enough for senior executives to overlook her race. The senior vice president for store operations had visited her store and others in the area and then sent an email back to headquarters that read: "African Americans dominate — huge issue." The African-American store manager was fired the following day (Wet Seal continues to insist that the store manager resigned; whatever the truth, I think we can all agree that the work environment was hostile.).

As I said, a trifecta.