MGMT 5900 Wal Mart Managing Stakeholder Relationships Case Study Case Study: Managing Stakeholder Relationships Wal-Mart is the world’s largest retailer a

MGMT 5900 Wal Mart Managing Stakeholder Relationships Case Study Case Study: Managing Stakeholder Relationships

Wal-Mart is the world’s largest retailer and a highly successful company, but it has faced many criticisms related to ethical issues. Read the case Wal-Mart: The Challenge of Managing Relationships with Stakeholders.

In an APA-formatted paper of at least 4 pages, not including the cover page and references, discuss the following:

Evaluate how Wal-Mart has prioritized and responded to various stakeholders.

What has driven Wal-Mart’s priorities and responses?

What can Wal-Mart do to develop an improved ethical culture?

Using your MBA brilliance, please create solutions as to what Wal-Mart could do to respond more positively to its diverse stakeholders.

How do you know your solutions will work? (i.e., Please use research to defend your ideas!)

Use concepts from course materials and other research you conduct to inform your paper. Be sure to cite sources that support/provide evidence for what you write. Wal-Mart: The Challenge of Managing
Relationships with Stakeholders
Business Ethics
Wal-Mart Stores Inc.—the world’s largest retailer—is possibly the most controversial
business in America. 1 With sales over $312,000 billion in 2006 and approximately 1.7
million employees worldwide (of these, 1.3 million are U.S. employees), managing
stakeholder relationships is a major challenge. The Wal-Mart that saves the average
family an estimated $2329 per year has its critics. There are concerns about Wal-Mart’s
treatment of employees, suppliers, the environment, and the overall economic impact on
communities. Feminists, human rights activists, anti-sprawl activists, and labor unions
believe that Wal-Mart has engaged in misconduct to provide low prices to consumers.
The company that banishes magazines with racy covers and CDs with edgy lyrics is seen
as attempting to dictate its vision of American culture.
Wal-Mart claims that it is committed to improving the standard of living for their
customers throughout the world. The key strategy is a broad assortment of quality
merchandise and services at everyday low prices (EDLP) while fostering a culture that
claims to reward and embrace mutual respect, integrity, and diversity. Wal-Mart has
three basic beliefs: respect for the individual, service to their customers, and striving for
excellence. How well the firm implements these beliefs is the focus of this case.
Wal-Mart, one of the most amazing success stories in the history of American business,
has also shaped debate over the relationships between corporations and their
stakeholders. Wal-Mart has excelled at market orientation, which is focusing on
consumers, defeating competitors, and increasing shareholder value. Only recently has
shareholder value lagged behind the major stock market–index performance. Other
stakeholders such as employees, suppliers, and communities have been viewed as
secondary to low prices for consumers. For example, the Fortune 100 best companies to
work for does not include Wal-Mart. Number one in 2005 and number two in 2006 on
the Fortune list was Wegmans Food Markets, with the very unusual motto of employees
first and customers second. Starbucks with its generous employee benefits, even for part
timers, was number two in 2005 but dropped to twenty-ninth in 2006.
The story of Wal-Mart and its low prices shows both good and bad outcomes for society.
The company has grown from a small chain to over five thousand stores in ten
countries, making its early investors and some employees financially successful. It has
been estimated that Wal-Mart saves consumers $100,000 billion a year. Wal-Mart’s
entrance into some markets lowers food prices 25 percent, including savings from
competitors’ price cuts. As competing supermarkets close, their union employees
sometimes lose their jobs. One study found that total payroll wages per person declined
by almost 5 percent where Wal-Mart stores are located due to Wal-Mart driving down
wages. In 2005 an internal document made public by Wal-Mart Watch showed that 46
percent of Wal-Mart employees’ children were on Medicaid or uninsured. Michael Hicks,
an economist at the Air Force Institute of Technology found that Wal-Mart increased
Medicaid costs an average of $1898 per worker. Armed with these alleged facts, the
Maryland General Assembly passed the “Wal-Mart Bill” requiring employers with more
than 10,000 workers to spend at least 8 percent of their payroll on employee health care
or pay into a fund for the uninsured. Wal-Mart challenged the law; it appears that the
law is not going to be implemented. Sarah Clark a Wal-Mart spokesperson was quoted
in USA Today: “Wal-Mart does believe that everyone should have access to affordable
healthcare, and this legislation adds nothing to accomplish this goal.” The debate goes
on with the question of the real costs to society for low prices.
History and Growth of Wal-Mart
Wal-Mart’s principal offices are in Bentonville, Arkansas. In 1945 in Newport, Arkansas,
Sam Walton, the store’s founder, opened a franchise Ben Franklin variety store. In 1946
his brother opened a similar store in Versailles, Missouri. Until 1962 the business was
devoted entirely to the operation of variety stores. In 1962 the first Wal-Mart Discount
City was opened, which was the first Wal-Mart discount store. In 1984 the first three
Sam’s Clubs were opened, and in 1988 the first supercenter opened. In 1999 the first
neighborhood market was opened. Today the family of Wal-Mart founder Sam Walton
has a combined fortune estimated at $90 billion.
The Wal-Mart business model includes two main segments: Wal-Mart Stores and Sam’s
Clubs. The Wal-Mart Stores come in three sizes: discount stores, which are about
100,000 square feet; supercenters, which are about 187,000 square feet; and the
neighborhood markets, which are about 43,000 square feet in size. Sam’s Clubs are
membership warehouse clubs, which average 128,000 square feet and aim to provide
exceptional value on brand-name merchandise at “members only” prices for both small
businesses, nonprofit organizations, and personal use, especially large families.
Wal-Mart has continued to expand from its small roots in Arkansas, opening new stores
at an accelerated rate. At present, Wal-Mart operates 2640 discount stores, 2396
supercenters, 670 Sam’s Clubs, and 435 neighborhood markets in the United States. It
has continued to open new stores every year, not only in the United States but also
abroad. Much of the expansion overseas has been through acquisitions of existing
operations in other countries.
Over 138 million people visit Wal-Mart every week, and 84 percent of Americans have
shopped at Wal-Mart in the past year. People living in households with incomes of less
than $30,000 a year give Wal-Mart its highest marks, proving that those who value WalMart most need Wal-Mart’s low prices the most.
Wal-Mart’s first international initiative started in 1992 with a 50 percent joint venture
in Mexico with Cifera discount stores. In 1998 they acquired control of Cifera and
changed its name to Wal-Mart de Mexico. The first international venture was so
successful that today Wal-Mart has 774 stores in Mexico. In addition, the company
operates stores in Argentina (11), Brazil (295), Canada (278), Germany (88), South
Korea (16), Puerto Rico (54), and the United Kingdom (315). Their joint ventures in
China and Japan provide Wal-Mart with over 450 stores.
Wal-Mart became the largest grocery chain in 2002 with revenue larger than Safeway
and Albertson’s combined. It became the first retailer to be number one on
the Fortune 500 list in 2005, with sales over $300 billion; in 2006 Wal-Mart was number
two behind Exxon Mobil. Sales climbed 10 percent in 2005, and profits rose 13 percent
to more than $10 billion. In addition to being number two on the Fortune 500, Wal-Mart
was also named the “most admired company in America” in 2003 and 2004; in 2005,
however, it slipped and ranked fourth on the list behind Dell, General Electric, and
Starbucks; in 2006 it was ranked twelfth. Wal-Mart is the world’s largest retailer as well
as the largest employer.
Relationships with Supplier Stakeholders
Wal-Mart is focused on keeping its costs low for its EDLP. It does this by streamlining its
company and insisting its suppliers do the same. Wal-Mart is well known for its
operational excellence in its ability to handle, move, and track merchandise, and it
expects its suppliers to continually improve their systems too. It demands that its
suppliers consistently lower prices of products from one year to the next by at least 5
percent; if a supplier is unwilling or unable to do so, Wal-Mart will no longer carry the
product or will find another supplier for the product at the price they want.
Technology is a driving force in operational efficiency that lowers costs. The
merchandise-tracking system—radio-frequency identification (RFID)—ensures that a
product can be tracked from the time it leaves the supplier’s warehouse to the time it
enters and leaves a Wal-Mart store. In 2004 Wal-Mart insisted that its top one hundred
suppliers ensure that all their pallets and products being shipped to Wal-Mart had RFID
by January 2005. The cost to suppliers was much larger than the cost to Wal-Mart
because suppliers needed to continually buy the RFID tags while all Wal-Mart needed
was a system to read the tags. It has been estimated that the cost to one supplier could
be $9 million to install and implement the RFID technology. Smaller Wal-Mart suppliers
also have to install the tags, but they had until 2006 to comply.
RFID tags help Wal-Mart keep their shelves stocked and curbs the loss of retail products
as they travel through the supply chain. RFID at Wal-Mart has directly resulted in a 16
percent reduction in stock-outs and a 67 percent drop in replenishment times. As
customers go through checkout, the RFID system swiftly combines point-of-sale data on
their purchases with RFID-generated data on what’s available in the stockroom to
produce pick lists that are automatically created in real time, based on sales. It also
ensures that suppliers are notified when products are sold and can ensure that enough
of a product is always at a particular store. This strategy also results in time and labor
savings because associates (as employees are called at Wal-Mart) no longer need to scan
store shelves to determine what is out of stock, nor do they have to scan cartons and
cases arriving at the stockroom. The scanners tag incoming pallets and translate the
data into supply chain–management database-forecasting models to address out-ofstock items and reduce stock–restocking mix-ups.
The power Wal-Mart has over its suppliers is more to do with its size and volume of
products it needs than anything else. For example, Dial Corporation does 28 percent of
its business with Wal-Mart. If it lost that one account, it would have to double its sales to
its next nine customers just to stay even. Other companies that depend on Wal-Mart for
sales are Clorox, which does 23 percent of its business with Wal-Mart; Revlon, 22
percent; Proctor & Gamble, 17 percent; Kraft Foods, 12 percent; General Mills, 12
percent; and Kellogg, 12 percent. This ensures that Wal-Mart dictates terms to its
vendors rather than the other way around. However, there are benefits to suppliers
because they become more efficient and streamlined, which helps their other customers
too, as they improve their system for Wal-Mart.
Many companies believe that supplying Wal-Mart is the best thing for their business;
there are the few, however, who believe that Wal-Mart is hurting their business and
decide to no longer do business with them. An example of this is Snapper, a company
with a 50-year heritage of making high-quality residential and commercial lawn
equipment. CEO Jim Weir believed that Wal-Mart was incompatible with the company’s
strategy of high quality and, compared to Wal-Mart’s typical lawn mowers, high prices.
He felt that the long-term survival of the company meant that he should no longer sell to
Wal-Mart. Wal-Mart tried to convince him that making a low-cost version of Snapper
mowers specifically for Wal-Mart would be a good compromise, as Levi’s did with their
Levi’s Signature brand made specifically for the Wal-Mart market. However, Weir would
have none of it.
Weir said no to Wal-Mart and told his other customers about the decision. Wal-Mart
accounted for 20 percent of his business, but he wanted to focus more on the other 80
percent of the independent dealers. The other dealers were happy with Weir’s decision,
and Snapper got much of the lost business back from the independent dealers by
winning their hearts.
The constant drive by Wal-Mart for lower prices affects its suppliers in a more ominous
way too. Many suppliers have had to move production from the United States to cheaper
locations, such as China, to remain suppliers to Wal-Mart and maintain their business.
Wal-Mart imports over $18 billion dollars worth of goods from China and encourages its
suppliers to move their production operations to China to systematically lower cost.
China and Wal-Mart have developed a unique partnership, and Wal-Mart accounts for
10 percent of the U.S. trade deficit with China. China’s annual exports amount to $583
billion, and Wal-Mart ranks as China’s eighth-largest trading partner, ahead of Australia,
Canada, and Russia. Rubbermaid, once Fortune’s most admired company, has gone out
of business, and much of its manufacturing equipment was sold to a Chinese company.
Although the Rubbermaid brand name lives on, former Rubbermaid managers claim
that the low prices that Wal-Mart demanded, including their reluctance to allow
Rubbermaid to increase prices when the cost of raw materials increased, caused them to
close and sell to a competitor. Companies such as Master Lock, Fruit of the Loom, and
Levi’s—as well as many other Wal-Mart suppliers—have all moved production overseas
at the expense of U.S. jobs and all in the name of low prices for consumers.
Ethical Issues Involving Wal-Mart
Stakeholders
Employee Stakeholders
Discrimination
The U.S. Equal Employment Opportunity Commission (EEOC) has filed fifteen lawsuits
against Wal-Mart since 1994. Of these, ten are still pending, and five have been resolved.
Female Employees
Although women account for more than 67 percent of all Wal-Mart employees, women
make up less than 10 percent of top-store managers. Wal-Mart insists that it adequately
trains and promotes women, but in 2001 a Wal-Mart executive conducted an internal
study that showed the company paid female store managers less than men in the same
position.
In June 2004, a federal judge in San Francisco granted class-action status to a sexdiscrimination lawsuit against Wal-Mart. It is the largest class-action lawsuit and
involves 1.6 million current and former female employees at Wal-Mart. It claims that
Wal-Mart discriminated against women in promotions, pay, training, and job
assignments. Even Wal-Mart concludes in its annual report that if the company is not
successful in its appeal of the class-action certification of the case, the resulting liability
could be material to the company.
Disabled Employees
In January 2000, Wal-Mart agreed to pay two deaf applicants $132,500. The two applied
to work at a Wal-Mart in Tucson, Arizona, but were denied employment because of their
disabilities. Wal-Mart agreed to hire the two men as part of the settlement and to make
corporate-wide changes in the hiring and training of new employees who are deaf or
hearing impaired. However, in June 2001, for failure to comply with the original court
order, Wal-Mart was fined $750,200, ordered to produce and air a TV ad stating that it
had violated the Americans with Disabilities Act (ADA), reinstate William Darnell (one of
the disabled workers), and create computer-based learning modules in American Sign
Language and provide ADA training.
Another EEOC case took place in December 2001. The lawsuit alleged that Wal-Mart’s
preemployment questionnaire “Matrix of Essential Job Functions” violated the ADA, and
the EEOC resolved the suit with a $6.8 million consent decree. In 2002 Wal-Mart agreed
to pay $220,000 for rejecting a pregnant applicant. In February 2005, Wal-Mart paid a
$7.5-million jury-verdict fine to a disabled former employee in a class-action lawsuit.
Sweatshop Workers
Another class-action lawsuit accuses Wal-Mart Stores Inc. of failing to monitor labor
conditions at overseas factories that allegedly maintained sweatshop conditions. The
plaintiffs are fifteen workers in Bangladesh, Swaziland, Indonesia, China, and Nicaragua
who claim they were paid below minimum wage in their country, forced to work unpaid
overtime, and in some cases even endured beatings by supervisors. It also includes four
California workers who claim that Wal-Mart’s entry into southern California forced their
employers to reduce pay and benefits. The lawsuit could cover a class of anywhere from
one hundred thousand to five hundred thousand workers.
Illegal Immigrants
In October 2003, federal officials raided Wal-Mart stores across the United States and
arrested 250 illegal immigrants working on cleaning crews at sixty-one stores in
twenty-one states. The undocumented workers were from Mexico, eastern Europe, and
other countries and were employed by several contractors used by Wal-Mart.
The investigation by the U.S. Immigration and Customs Enforcement evolved out of two
earlier immigration probes in 1988 and 2001 and ended in March 2005 with a landmark
$11 million civil settlement. Twelve corporations that provided janitorial services to
Wal-Mart stores agreed to forfeit an additional $4 million and to enter corporate guilty
pleas to criminal immigration charges.
However, according to a Wall Street Journal article in November 2005, three top WalMart executives knew that its cleaning contractors used illegal immigrants who worked
as many as seven days a week for less than the minimum wage. The executives allegedly
encouraged the cleaning contractor to make “shells” of the company so that they could
continue to hire the contractor if one of the companies was closed for hiring illegal
workers. (Shell companies are created for either hiding something illegal or unethical.
The company is called a shell because outsiders see it as a company, but in reality, many
are just mail drops.)
Even after agreeing to make sure that no people working for Wal-Mart were illegal
immigrants, another raid by federal, state, and local authorities in November 2005
netted 125 illegal immigrants. The illegal immigrants were arrested at a Wal-Mart
construction site. The workers had been building a 1 million-square-foot distribution
center in eastern Pennsylvania. In December 2005, another 14 illegal immigrants were
arrested while installing shelves at one of Wal-Mart’s distribution centers in Nebraska.
Low Benefits
To work full time at Wal-Mart, an employee works a minimum of just 28 hours.
Although wages tend to be higher than minimum wage, the few hours that employees
are allowed to work ensures that associates can barely cover living expenses. This
means that the taxpayer has to pay the difference. According to “The Case Against WalMart,” a typical Wal-Mart store with two hundred employees costs federal taxpayers
$420,750 per year—about $2103 per employee. This pays for free and reduced lunches
for Wal-Mart families, housing assistance, federal tax credits and deductions for lowincome families, additional child tax credits, federal health-care costs of moving into
state children’s health insurance programs, and low-income energy assistance (electric
and gas bills).
Wal-Mart fails to provide health insurance to more than 60 percent of its employees.
Part-time employees are excluded from Wal-Mart’s health program, and the company
has an extra-long waiting period before employees become eligible for its health-care
program. Even then, many are not eligible if they work part time, and those who are
covered are underinsured. For employees who can get coverage, the deductibles can be
prohibitively high for such low-income families, who then have to pay for most of the
expenses themselves.
In a leaked Wal-Mart memo to the board of directors, Susan Chambers, Wal-Mart’s
executive vice president for benefits, described how 46 percent of Wal-Mart employees
are uninsured or on Medicaid. The memo detailed how Wal-Mart’s health plan requires
such high out-of-pocket payments that the small number of employees hit by a very
costly illness “almost certainly end up declaring personal bankruptcy.” The memo also
proposed that Wal-Mart rewrite job descriptions to involve more physical activity, in
part to “dissuade unhealthy people from coming to work at Wal-Mart.”
Another influence of Wal-Mart is the d…
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