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    Published on: April 24, 2012

    by Michael Sansolo

    I’m lousy when it comes to predictions, which is why I never win things like NCAA pools and probably never will. So guided only by my perpetually clouded crystal ball I find myself at a complete loss when it comes to impact of the alleged bribery scandal at Walmart.

    It’s possible that the New York Times badly connected the dots in its massive investigation of the retail giant and produced a faulty conclusion of apparent cover-ups and denials. The Times may be the best American newspaper, but it has messed up before. It’s also possible that Walmart’s cooperation on the case minimizes the damage and repairs a problematic system in Mexico.

    Then again, maybe the article that appeared Sunday - and was commented on here at MNB yesterday - was dead on. In that case we might all look back in years to that article and its impact on Walmart, causing the company to lose numerous key executives, focus and resources at a critical moment. We can’t know and despite the animosity many in the industry have toward Walmart no one should be in a rush to judgment. Remind yourself that we really don’t know.

    Still, there’s no way this moment passes easily and that’s why companies should be hesitant to dismiss this as “just doing business” or anything else. This story demands that we examine uncomfortable issues like ethics, internal audits and the importance of doing the right thing.

    If you need a reminder of why that’s important, forget about Walmart and think larger: about the financial disaster that changed the global economy. It’s worth taking a few minutes to watch the opening segment of the April 22nd edition of “60 Minutes.” The show features an extraordinary interview with Anton Valukas, the attorney assigned to investigate the 2008 collapse of Lehman Brothers that was the spark that engulfed a then-weakening economy in the mess that remains today.

    Valukas makes a number of chilling points. He explains how Lehman used an accounting maneuver to repeatedly conceal $50 billion in bad assets and how the company’s management was alerted to the problem in 2007, only to lay off the whistleblower. And he tried to explain how two years after his report on his findings no one has been prosecuted.

    But the biggest point came when Valukas was asked who was impacted by what Lehman did.

    “Everybody got hurt,” he said. “The entire economy suffered…yes, the whole world.” One can only imagine how different the world would be today if Lehman - among others - had asked a lot of questions and come up with very different reactions.

    And then take a tough look inside your company.

    Michael Sansolo can be reached via email at . His book, “THE BIG PICTURE: Essential Business Lessons From The Movies,” co-authored with Kevin Coupe, is available by clicking here .
    KC's View:

    Published on: April 24, 2012

    As reported here on MNB yesterday, the Sunday New York Times provided an inside look at Walmart’s Mexico division, suggesting that its fast growth over the past decade was fueled by bribes, and that top management was more concerned with details not being revealed and investigations not being allowed to move forward than it was with stopping the systematic corruption and adhering to US law that forbids American companies from bribing foreign officials.

    You can - and should - read the entire story here.

    In the aftermath of the story’s appearance, several things happened yesterday.

    • The New York Times reported yesterday that Walmart’s stock price “fell almost 5 percent on Monday, accounting for about one-fifth of the losses in the Dow Jones industrial average, as investors reacted to a bribery scandal at the retailer’s Mexican subsidiary and a report that an internal investigation was quashed at corporate headquarters in Arkansas.”

    • The Times also reported that “critics of Wal-Mart in New York, including some elected officials, union leaders and small-business groups, said the company’s actions in Mexico cemented their opposition to Wal-Mart’s opening a store in the city.

    “‘This is precisely the type of business we do not want in our communities and I remain committed to fighting against Wal-Mart’s corporate poison from entering the five boroughs,’ Christine C. Quinn, the City Council speaker, said in a statement. Bill de Blasio, the city’s public advocate, and the Manhattan borough president, Scott M. Stringer, also issued statements criticizing Wal-Mart.”

    • In a second day analysis, the Times notes that “the Mexican bribery involved senior management at the subsidiary, not just low-level employees operating on their own. One factor cited in the Justice Department guidelines for deciding whether to charge a business organization is the ‘pervasiveness of wrongdoing within the corporation,’ and the most important consideration ‘is the role and conduct of management’.”

    • On Yahoo, the Daily Ticker observes that Walmart’s defense overlooks a number of points...

    “First, Wal-Mart clearly didn't think it could defend its actions by saying ‘this is the way things are done in Mexico.’ If it had thought it could justify its actions this way, it already would have.

    “Second, the Foreign Corrupt Practices Act makes it illegal to bribe officials in countries in which American companies do business, which is what Wal-Mart is accused of doing here.

    “Third, the bribes involved internal accounting fraud, which Wal-Mart couldn't condone under any circumstances.

    “Fourth, it's preposterous to think that a company as large and influential as Wal-Mart could take a position that it's fine to ignore local laws to meet its own growth targets.

    “So the allegations are a huge deal, regardless how business is generally conducted in Mexico. And, given the current positions of Eduardo Castro-Wright and Michael Duke, they extend right to the top of the company.

    “If the allegations are true, Wal-Mart needs to apologize, pay whatever fines are required, and then fire both men - Castro-Wright because he oversaw the bribes, and Duke because he knew about them and didn't do anything. This scandal is far too big for the company to just sweep under the rug.”

    Reuters reports that “two Democratic lawmakers on Monday said they are launching an investigation into allegations of bribery at Wal-Mart Stores Inc's Mexican affiliate.

    Representative Elijah Cummings, the top Democrat on the House Oversight and Government Reform Committee, and Representative Henry Waxman, the top Democrat on the House Energy and Commerce Committee, sent a letter to Wal-Mart Chief Executive Michael Duke, requesting an in-person meeting with company officials.

    “The lawmakers also said they are contacting former Wal-Mart executives who may have documents or information relevant to a congressional investigation.”
    KC's View:
    This is going to continue for some time, and it will be fascinating to see where things lead at Walmart.

    While it is true that we do not yet know what happened, the company’s defense rings hollow. And it will be interesting to see what happens in early June when the company has its annual meetings down in Arkansas. While senior executives may not address the issue from the stage, they almost certainly are going to quizzed about the issue by investors, analysts and the media.

    The basic question will be as follows:

    What did you know and when did you know it?

    Expect a lot of avoidance along the lines of “I can’t comment on an open investigation.”

    I’m also not convinced - despite some protestations to the contrary - that this could have implications outside Walmart.

    How about all the other US companies doing business in Mexico? Will these revelations lead to additional investigations into whether the use of bribery there is widespread? I would expect that a lot of executive committees and boards of directors have been discussing this issue in the last 48 hours.

    The Times story noted that Craig Herkert - now CEO at Supervalu - and John Menzer - now CEO at Michael’s - both knew about the bribery six years ago when they were senior execs at Walmart. Supervalu said yesterday that “this is strictly a Walmart matter,” but I’m not so sure. Herkert was hired to fix Supervalu at least in part because of his success with Walmart’s Latin America divisions, especially Mexico, and now the reasons for that success have been called into question. And, Herkert (along with a lot of other past and present Walmart execs) has to be worried about being indicted for violation of both US and Mexico law.

    Michael’s isn’t commenting, except to say that Menzer was hospitalized for undisclosed reasons last week. The current news probably isn’t making him feel any healthier.

    It’s all a mess. It is going to get messier.

    Published on: April 24, 2012

    by Michael Sansolo

    One of the reasons Walmart draws so much attention is simply that the company is so large that it’s always in the spotlight. A creative article in “The Food Institute Report” of April 16th compared the size of Walmart with A & P, once the industry’s goliath, at its peak. The comparison is enlightening.

    FI looked at Walmart’s recent SEC filing showing the retailer generating nearly $180 billion or 55% of its sales in just grocery products. The Institute explained that amount equals 14% of spending on food - both at and away from home. To give scope to that dominance, the Institute found in 1950 A & P generated $1 billion from almost as many stores as Walmart has today, or 6% of food expenditures that year. Adjusting for inflation, the $1 billion would be nearly $9 billion today and remember that the US population more than doubled over those 62 years.

    Walmart’s size means that everything the company does matters. To paraphrase Spider-Man, with great size comes great scrutiny.

    (The Food Institute is a small trade association that since 1928 has been gathering statistics about the industry in a non-partisan manner. For transparency: I serve on its Board of Directors.)
    KC's View:

    Published on: April 24, 2012

    by Kevin Coupe

    Here’s a number that’s an Eye-Opener.

    The Boston Globe reports this morning that “nearly half of Massachusetts residents have had their personal information lost or stolen as a result of about 1,800 data breaches over the past four years, according to a new report from the state’s Office of Consumer Affairs and Business Regulation.

    “Banks, hospitals, and retailers exposed the personal data, such as Social Security and credit card numbers, of roughly 3.2 million consumers in Massachusetts. Most of the incidents reported to the state involved electronic information that was vulnerable because it was not properly encrypted. The data breaches, which included a combination of criminal acts and poor data management, could have put consumers at risk of identity theft or incurring fraudulent charges on credit and debit cards.”

    The good news is that state regulations require that such breaches be reported. But the bad news is the extent to which breaches seem to be happening, and the personal information that is being put into play, putting a vast number of people at risk.

    It won’t reverse the technology revolution and the extent to which people transact commerce online or use credit and/or debit cards. But it certainly could have the effect of diminishing customer trust, and it could slow down progress.
    KC's View:

    Published on: April 24, 2012

    The New York Times reports that Whole Foods’ decision to stop selling seafood defined as unsustainable by the Blue Ocean Institute, a conservation group, and the Monterey Bay Aquarium in California, has been greeted by New England fishermen with a fair amount of hostility.

    According to the story, “Although the new policy will affect fishermen nationwide, the reaction from Gloucester and other New England ports may be the unhappiest. New England has more overfished stocks than any other region, according to federal monitors, and its fishing industry has bridled - and struggled to survive - under strict regulations ... Some question the need for grocery stores to reject certain American-caught fish when the government has already imposed its own conservation measures. Many of the nation’s fishermen now operate under federally created systems that allocate a yearly quota of fish.”

    The general sense seems to be that Whole Foods’ new position is more related to marketing its environmental image than actual sustainability.
    KC's View:

    Published on: April 24, 2012

    The Associated Press reports that “the college class of 2012 is in for a rude welcome to the world of work.

    “A weak labor market already has left half of young college graduates either jobless or underemployed in positions that don’t fully use their skills and knowledge. Young adults with bachelor’s degrees are increasingly scraping by in lower-wage jobs - waiter or waitress, bartender, retail clerk or receptionist, for example - and that’s confounding their hopes a degree would pay off despite higher tuition and mounting student loans.”

    According to the story, “While there’s strong demand in science, education and health fields, arts and humanities flounder. Median wages for those with bachelor’s degrees are down from 2000, hit by technological changes that are eliminating midlevel jobs such as bank tellers. Most future job openings are projected to be in lower-skilled positions such as home health aides, who can provide personalized attention as the U.S. population ages.

    “Taking underemployment into consideration, the job prospects for bachelor’s degree holders fell last year to the lowest level in more than a decade.”
    KC's View:
    I have a 22-year-old son, and I think he feels lucky to be working full-time and making decent money at a local wine merchant. I cannot tell you how many people we know who have kids his age who are either unemployed and miserable or employed and miserable.

    The thing is, the current employment issues are likely to have an extended impact on this generation’s shopping and buying patterns.

    Published on: April 24, 2012

    The Los Angeles Times reports about a new online service called Tugg that “has launched a grass-roots movie distribution business that enables consumers to select the movies they want to see at local theaters.

    “Since its formal launch last month, Tugg has formed partnerships with several major theater circuits, including AMC, Regal, Cinemark and Rave Cinemas. It has hosted more than 50 ‘Tugg events’ nationwide, filling auditoriums with specialty films — movies like Fox Searchlight's The Tree of Life and the Stanley Kubrick classic Dr. Strangelove and documentaries such as One Day on Earth and Morgan Spurlock’s Comic-Con Episode IV: A Fan’s Hope.”

    According to the story, “As more theaters convert from film to digital, there is growing interest in using services like Tugg to program so-called alternative content and attract new customers to the multiplex at a time when long-term attendance in the U.S. has been on the decline, in part because consumers have more entertainment options ... Each Tugg event is promoted by an ‘organizer’ - which can be anyone, including a director, film blogger, film festival director, schoolteacher, church group leader or environmental activist - who chooses a film he or she would like to see in the local community. The organizers draw from a list of more than 300 titles on Tugg's website, which includes independent, foreign and specialty films as well as repertory titles.

    “The organizer selects a local theater, locks in a date and then aggressively promotes the event using Facebook, Twitter or other social media. If people reserve enough tickets - a screening typically requires a minimum of 50 advance ticket purchases - Tugg then books the film in one of the theaters that have signed up for its service.

    “Because tickets are purchased in advance, theater owners have a guarantee that they won't be left holding the bag if no one shows up to see the film.”
    KC's View:
    I just found this fascinating. When you think about it, the movie theater business is one in which the sellers have largely continued to control the supply chain - they decide what movies are going to be programmed, they set the time and dates and price, and they even charge pretty much whatever they want for food and drink. A lot of chains are improving the experience with stadium eating, digital projection systems and upscaled food and drink offerings - in my case, I love the wonderful AMC multiplex in Port Chester, NY, and will drive past a dozen other theaters to go there.

    And now, it appears that a mechanism is being put into place that will actually allow users to take greater control. The balance of power is shifting. And chains, to their credit, seem to understand that by embracing Tugg, they can be more relevant, not less so.

    There’s a good lesson there for every marketer.

    Published on: April 24, 2012

    • Target Corp. announced yesterday that “it has initiated remodels at 90 general merchandise stores across the U.S., which are expected to be completed on June 24, 2012. Upon completion of the construction, these stores will offer a full selection of affordable and quality fresh foods to guests across the country.

    “The June stores will be the second of three cycles of remodels for Target this year. Stores scheduled for the June remodel cycle span markets across the country, from Des Moines, Iowa to El Paso, Texas and Dayton, Ohio.”

    The company said that nearly 1,000 Target stores currently offer an expanded food layout.

    • Nestle has announced that it will acquire children's food maker Pfizer Nutrition for $11.85 billion. Closing of the deal is subject to regulatory approvals.

    • It looks like Starbucks has conquered a part of the world previously off-limits to the coffee chain.

    It is going to Disneyland.

    Disney announced yesterday that it has signed a deal with Starbucks to open stores in both Disneyland and Disney World. USA Today writes that “for Disney, which has often been criticized for the limited food and beverage choices at its parks, this is a huge move forward. For Starbucks, which is running out of ways to expand in the U.S., this is a slam-dunk move in a captive market ripe for growth.”
    KC's View:

    Published on: April 24, 2012

    • Family Dollar Stores announced yesterday that Dorlisa K. Flur, the company’s vice chair - strategy and chief administrative officer, has resigned her position “to pursue other interests.” The resignation is effective May 2.
    KC's View:

    Published on: April 24, 2012

    Not surprisingly, we got some reaction to yesterday’s revelation about widespread bribery by Walmart in its Mexico business...

    One MNB user wrote:

    As you mentioned, many Americans will shrug off the bribes as the way business is done in Mexico. They've heard or seen that paying a "mordida" (bribe or kickback) in Mexico is as normal as tipping for good service. As someone who enjoys visiting Mexico regularly and working there occasionally, three aspects of the story seem especially important:

    1- that Wal-mart top guns see the company as too big to follow rules it thinks are naive or barriers to its success and

    2- that this will have more impact on perceptions in Mexico than in the US. Mexicans have many perceptions about the America and Americans, but one that is especially widespread is that American businesses and governments are less corrupt than any other country in the world.

    3- This news is sure to erode Mexicans' trust in the integrity of American business and may taint the image of their Wal-mart stores as well.

    MNB user Geoff Harper wrote:

    Read the whole story on Wal-Mart Mexico.  Can’t say that it gave me piloerections, and certainly not for longer than four hours.  Actually made me want to throw up, thinking about how all of the executives ignored the law, the policy and common sense in covering up the mess. This is a prime example of cut-throat competition, and the company (and its current and former players) should pay a hefty price.

    From another MNB user:

    Once again, ego plus power equals stupid.

    And another:

    Wow. I thought the boys at Fleming were bad…

    And still another:

    I was a little surprised that you didn't ask the question that I would hope Supervalu's Board is asking this morning....what exactly did Craig Herkert know about the situation since he was running Latin American Operations at the time and went to Mexico to smooth ruffled feathers over the incident per the article. I'm not sure leaving the company would absolve anyone of guilt as Walmart probably will claim.

    The question is raised today.

    From another reader:

    How do you hide $24MM in bribes and no one knows about it?

    I think it is called accounting fraud. At least, that’s what investigators will be probing.

    Yet another MNB user wrote:

    It seems to me that this may be a case of it being better to ask for forgiveness than for permission. After all, Walmart planted a bunch of stores in Mexico and gained a tremendous market share there, which is all it wanted to do even if now it has to pay a little extra to keep it.

    This is a big story now but it’s not like Walmart had a pearly while image to begin with and it is yet to be seen what the Mexican government or Mexican public will do or care about it. They do foster the whole culture of corruption to begin with, no matter what laws are “on the books”.

    This strikes me as being a myopic view. And, in fact, the executives who committed these misdeeds (allegedly) may have put the company at risk.

    On another subject, that of food deserts in America, MNB user Bill Shaner wrote:

    As someone with a fairly deep understanding of this issue from my past experience, I can assure you that there is a correlation between having a lack of convenient, affordable healthy eating choices and obesity. The food desert issue is very real and very complex, and in truth there are no easy solutions that are economically viable. Mari Gallagher has done terrific research on the food desert challenge and I would consider her an expert in this area.

    And, on the subject of horsemeat availability in America, MNB user Kathleen Whelan wrote:

    I saw your piece yesterday and decided to hold mine, but today I can’t help it.  Yes, horses do deserve a special status – like dogs and cats.  They have earned it.  They served as transportation, farm machinery, war machinery and companions to humans for centuries and centuries.  Horses made it possible for the Spaniards to subjugate the native Americans who stood in the way of gold exploration.  Genghis Khan and the Mongols were able to overrun Asia because of their horses.  Robert E. Lee loved Traveler, his gray stallion.  If you want a horse as a hero, you don’t have to go any farther than “War Horse”.  Or Seabiscuit – who delighted a Depression weary American public.  Or Ruffian.  Or Barbaro.  Animals who gave their lives to amuse, entertain, and make money for  humans.

    Horses are prey animals.  Think of them being driven, terrified, into double decker trucks that are not designed for them – so that they can’t stand up.  It’s not just the fact that eating horsemeat is repugnant to me.  It’s knowing who these horses are.  The thousands and thousands of thoroughbreds born every year who don’t make it to the big time and then are discarded like garbage - literally.  The remnants of the wild horses of the plains, like Cloud, the gray mustang stallion. 

    If you want exotic new tastes, experiment with spices.  It’s a short trip from horses to dogs and cats, and the sickening pastime of some very wealthy aficionados who delight in preparing and serving exotic animals which they have obtained illegally.

    This is in memory of two Thoroughbreds I have loved – Old Times, grandson of Man O’ War, my first horse, and Tir Na Nog, my last horse, a veteran of the track who was recently euthanized at age 23.

    KC's View: