Walmart's decision around 2006 and each quarter since then not to disclose potential compliance problems in Mexico is baffling.
In a post two years ago, we said there's really no downside risk in disclosing early and often. Even then, we'd been debating the point for years with securities lawyers. They'd ask why there was so much voluntary disclosure when it might not be legally required by the FCPA and the securities laws. We'd ask what's to be gained by not disclosing an internal investigation?
The Walmart execs and perhaps the company's board members left the cork in the disclosure bottle for a long time. They may have heard from top flight lawyers that silence was legally permissible. And, yes, that advice may have been technically correct.
But was it wise?
Prompt disclosure inoculates officers and directors from charges of a cover up. That's reason enough to be quick off the mark.
And bad news that's disclosed is dissipated. Once released through an SEC filing, it can be instantly 'priced' by shareholders, bankers, customers, and other stakeholders. Bad news that's bottled up smells worse as the quarters click by.
Disclosure can also reduce the chances of future compliance problems. Everyone inside a company can learn something about FCPA risks -- especially in challenging places like Mexico. Robust disclosures can read like compliance manuals, full of real-life warnings about what can go wrong, the damage caused, and the way to fix things.
And let's face it. How can a public company hope to keep dirty laundry secret these days? Whistleblowers are everywhere, and thanks to Dodd-Frank's reward program, they're ready to cash in if a company keeps silent.