Walmart: Results Trump Ethics

When the New York Times ran an article about bribes that Walmart (NYSE: WMT) executives in Mexico exchanged for favorable treatment for the company, it seemed the world’s largest retailer would be crippled indefinitely. Investors called for the CEO Micheal Duke to depart, along with chairman Robson Walton, the son of the company’s founder. The company’s share price dropped below $58. Now, however, the stock has reached a five-year high of $68.92. Financial results trump ethics problems, Walmart’s share price seems to prove.

Investors may be temporarily fascinated by scandal but are ultimately in the stock market for no other reason than to make money. And Walmart results for the latest quarter were particularly strong. International sales remained robust, and for the first time in three years the company began to regain ground in the United States. Walmart’s efforts to move into large urban areas have been moderately successful, providing access to millions of customers it did not serve before. Walmart’s experiments with smaller stores have shown promise as well.

The ethics investigations of Walmart could take years, and there is little evidence that anyone in senior management will be forced to leave. The board of directors certainly has probed the bribery accusations, and it must be satisfied that Duke was not involved. Keeping him would be too much of a risk if there was evidence to the contrary. Walmart said it would examine its operations in other countries in which it does business. Despite relentless press scrutiny, nothing has shown up so far because of those investigations.

It has become clear also that investigations by federal officials in the U.S. and in other nations in which Walmart does business will be protracted. Few seem worried that the results of these inquiries will cause Walmart to be thrown out of any of these places. That means all the company faces are fines, and perhaps the dismissal of some executives. Walmart has enough senior management and cash reserves to easily handle either of those problems.

The other critical worry about the bribery charges is that they might have kept customers away. There is not a single sign of that. “Everyday low prices” still attract the budget conscious where ever Walmart does business.

For customers and shareholders, the issue of ethics does not count for much.

Douglas A. McIntyre