Board Briefing Paper: Walmart's Ethical and Governance Challenges

This board briefing paper analyzes the ethical and governance failures within Walmart, specifically focusing on the foreign corruption charges and their implications. It examines the roles and responsibilities of the directors, highlighting shortcomings in ethical conduct and compliance with director duties, particularly in light of the agency relationship. The paper discusses the challenges faced by directors in a globalized business environment and offers recommendations for improved ethical decision-making. It explores the ethical relativism concept, the application of ethical theories (utilitarianism, Kantian analysis, virtue theory), and the importance of corporate social responsibility. The report concludes by emphasizing the need for directors to prioritize ethical principles, transparency, and compliance to ensure long-term sustainability in the current global corporate scenario. It also underscores the importance of a well-developed code of ethics, accountability, and understanding the impacts of corporate actions on stakeholders.

BUSINESS ETHICS

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Agenda Item: Walmart and Foreign Corruption
Paper Type: Discussion Paper for the board of directors
Sponsor: Chairman of Board of Directors
Draft Resolution: Discussion paper for examining the roles and responsibilities of the
directors within ethical, legal and moral frameworks.
Executive Summary: One of the most significant groups in a company is that of the
directors who are entrusted with the responsibility of the management of the affairs
of the company while paying attention to the stakeholders needs. The case of the
corruption charges in context of the company Walmart Inc. highlights the short
comings in the roles and responsibilities of the directors, as they failed to act
ethically. In addition, the director duties in light of the agency relationship are not
complied with. Thus, the challenges faced by the directors in globalised business
environment are highlighted together with the recommendations. Hence, the board
briefing paper involves a comprehensive analysis of various aspect of global
business functioning.
Background
A board briefing paper is presented for the discussion of the board of directors. The
aim of the paper is to evaluate the various aspects of the ethics and governance in
the wake of increased number of corporate collapses and corporate scandals. The
most recent corporate scandal of the company Walmart Inc. The organisation has
been in news for various issues since the year 2011, when the inadequacies were
identified in the internal operations of the company as company was undergoing
expansion (Merle, 2019). Hence, it is imperative to understand the various issues
involved in the case as a guide to the directors and senior management of the
company.
Issue
Ethics denotes the collection of the moral guiding principles and the statutory
guidelines to act in a manner that is right. Thus, the principles of ethics guide the
managers to act on behalf of the company in a legitimate manner. However, in spite
of the presence of the ethical guidelines, there are instances of corporate scandals
and collapses due to abuse of power and conflict of interests of the directors.
Recently, the retail global organisation Walmart Inc. has entered into an agreement

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with the regulators namely the Securities and Exchange Commission and the Justice
Department against the corruption charges. The said scandal is not only significant
because of the involvement of the one of the most prominent global entity, but also
because of the amount of the fines and penalties that is $ 407 million (Barakat,
2019). The said penalties are levied under the breach of the Foreign Corrupt
Practices Act. The said act lays down the prohibition on the US companies to
operate abroad with the aid of the bribery activities.
In the mentioned case, the directors and other senior executives of the company
played a critical role by not only extending illicit payments to the third parties, but
also by hiding the facts of the discrepancies in the functioning of the company for
about seven years. In addition to the above, the directors of the company were made
aware of the critical risks in the internal accounting and reporting systems as the
payments made to the third parties for facilitating the international expansion
objectives of the company were show in the financial statements as miscellaneous
payments, without the proper justification of the same. This highlights the lack of
transparency in the financial statement preparation and reporting of Walmart Inc
(Bose, 2019).
Implications
The varied implications of the above mentioned issue are essential to be evaluated
to understand the roles and responsibilities of the directors of the company in
present times. One of the critical concepts of ethics that was widely abused by the
corporate executives was that of the ethical relativism. The concept states that there
is no single universally applicable code of ethics and which implies, an act which are
immoral or unethical in one society may be ethical or legal in other. It is crucial to
note that in earlier times, it was easier for the organisations to take the shelter of
different ethical stances to judge the legitimacy of the acts of the corporation and
thus, get away with the irregularities (Kolodinsky et. al, 2010). However, this is not
the case in the present globalised business environment. There is greater degree of
responsibility demanded from the directors of the company by the various
stakeholder groups and failure to fulfil the same cannot sustain the entity in long
time. Some of the universally accepted legal, moral and ethical standards are
presented as follows.

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As mentioned earlier, ethical principles guide the individuals to do the right actions.
These principles are mentioned in various ethical theories such as Kantian analysis,
ethical theory of utilitarianism, virtue theory and others. The purpose of each of the
above mentioned theories is to guide the agents to be considerate of the interests of
the diverse stakeholder groups. The principles of utilitarianism theory regard an act
as ethical when the outcome of the same is useful for community as a whole and not
just the agents (Hartman and Desjardins, 2008). The Kantian analysis regard the
acts to be ethical if the same fall in the ambit of the duties and responsibilities
prescribed by law or other standards. The virtue theory regards an act to be ethical if
the same is inclusive of the basic virtues such as harmony, justice, fidelity, prudence
and others. On the application of the above mentioned ethical theories to the
corruption case of Walmart, it is evident that neither the said extension of bribery led
to the utility at large, nor the fact of the failure to transparently report and maintain
internal controls abides by the duties of the directors of the company. In addition, the
fact that the said activities were known to directors, no mitigation of the risks were
conducted and the facts were hidden from the stakeholders undermines the various
virtues such as fidelity and prudence. Thus, it is clearly evident that the directors of
the company Walmart failed to act ethically as per the general ethical theories and
principles stated therein.
In addition to the above, it is essential for the directors of the company to understand
their roles and responsibilities in a company. In Australia, the directors of a company
are stated to be in a fiduciary relationship with not just the company, but in practical
application towards the stakeholders as well. The Corporations Act, 2001 (Cth),
clearly states the mandatory duties of the directors through the sections 180, 181,
182 and 183 that the directors must act in the good faith and the best interest of the
company as a whole and every connected member (Australian Institute of Company
Directors, 2019). This implies, the interests of stakeholders such as provision of safe
good and services, compliance with the laws, fair dealings, and avoidance of the
conflict of the interests, transparency in recording and reporting are complied with.
The other sections of the act such as section 344 for the maintenance of financial
data, section 588G for insolvent trading, section 191 for disclosing the directors
interests, section 188 for lodging information with the company regulators and others
additionally state that the directors must not indulge in unfair and fraudulent

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transactions. The duties must be at all times be discharged with diligence and care
(Australian Institute of Company Directors, 2019). The analysis of the Walmart
corruption issue in light of the role of the directors, lead to the conclusion that the
directors of the company Walmart failed to carry their duties diligently and did not act
in the best interest of the stakeholders and company.
The moral implications of the acts of the directors is further essential to be
understood. As stated earlier, that the directors of the company must act in the ambit
of the agency relationship. The moral virtues of an individual and the environment
within the enterprise plays a key role in such acts. Morals are the set of the individual
principles as comprises of integrity, cultural norms, experience and intentions; that
guide the individuals when faced with ethical dilemmas in business conduct. The
more an individual’s moral cognitive skills are developed, the more likely they would
be considerate of the interests of others, as pointed out by Jones and Ryan (1998).
In addition, when the leaders of the company act in a particular way, the same leads
to the development of policies on a particular line and setting up of an overall culture
in the entity. Thus, it can be rightly stated that the acts and conducts of the directors
ta top, motivate the other member of the corporation. Thus, a situation must be
examined in the light of the ethical and moral principles of accountability, which
would lead to ethical decision-making. Walmart has been in news for several
irregularities including the present case of the corruption charges which indicates a
relatively weaker moral stance of the directors of the company.
Apart from the duties as prescribed by law, ethical and moral principles, the yet
another crucial aspect of the functioning of the present globalised businesses is that
of the corporate social responsibility. The CSR frameworks encourages the
organisations to be accountable towards the society, as the former derive its
business resources from the latter. Thus, it is the responsibility of the businesses to
not just report on the economic impacts of the business functions, but also the social
and environmental impact (Scherer and Palazzo, 2011). The corruption denotes
abuse of power and acting in an unjustified manner to carry out the transactions,
which are otherwise not available (De Cremer et.al, 2011). Thus, the acts of
corruption are against the principles of the corporate social responsibility in context
of the Walmart Inc. The outcome of the same is that not only the company has faced

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severe penalties and fines by the regulators, followed by the media backlash, but
also the brand of the organisation and the individuals in power is affected severely.
Thus from the discussion of corruption issue of the company Walmart, the
implications in the previous part, it must be essentially noted that the compliance
with the ethical principles, moral guideline, statutory frameworks is a significant part
of the role of being the directors of a company. It is the duty of the directors to
implement the above mentioned in the conduct of their duties. Nevertheless,
sometimes the directors are exposed to certain challenges such as the conflicts with
the individual interests, the diverse expectations, and the change in the external
environment of the enterprise, change in laws, and others.
Recommendations
The board paper additionally extends certain recommendations as stated below
which would facilitate the ethical decision-making. A well developed code of ethics
for the members of the company, plays a key role in the regulation of the activities
(Singh, 2011). Thus, the recommendation is extended to clearly specify the
individual roles, legal duties, responsibilities and the disciplinary procedures to
strengthen the internal controls of the company. Further, the directors are
recommended to be more accountable in their business dealings, risks and the
individual interests. The financial statements must clearly set out the same to be
evaluated by the stakeholders and their more efficient decision-making. In addition,
the directors must understand the significance of the
Conclusion
The board briefing paper concludes by stating that the directorship of a company is a
crucial role and involves a range of ethical, legal, and moral compliances as
mentioned in the earlier segments. Hence, the directors are suggested to review
their responsibilities of being the agents of the company and employing ethical
principles of compliance with duties, transparency, prudence and others as they
conduct the business on behalf of the organisation and other members. The
conclusion is further reached that in order to survive in long run in present global
corporate scenario, the corporate social responsibility principles must be necessary
adhered with.

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