Human Resource Homework help please!

CASE 3

Walmart Manages Ethics and Compliance Challenges *

Walmart Stores, Inc., is an icon of American business. From small-town business to multinational corporation, from a hugely controversial company to a leader in renewable energy, Walmart has long been a lightning rod for news and criticism. With 2012 net sales of more than $ 443 billion and more than 2 million employees, the world’s second largest public corporation must carefully manage many stakeholder relationships. It is a challenge that has sparked significant debate.

While Walmart’s mission is to help people save money and live better, the company has received plenty of criticism regarding its treatment of employees, suppliers, and economic impacts on communities. Walmart has the potential to save families hundreds of dollars a year, according to some studies. At the same time, however, research shows that communities can be negatively affected by Walmart’s arrival in their areas. Moreover, feminists, activists, and labor union leaders have all voiced their belief that Walmart has engaged in misconduct. Walmart has attempted to turn over a new leaf with emphases on diversity, charitable giving, support for nutrition, and sustainability, all of which have contributed to a revitalized image for Walmart. In fiscal year 2012, the company, along with its Walmart Foundation, donated more than $ 1 billion in cash and in-kind contributions. However, more recent scandals such as bribery accusations in Mexico have created significant ethics and compliance challenges that Walmart must address in its quest to become a socially responsible retailer.

This analysis begins by briefly examining the growth of Walmart; next, it discusses the company’s various relationships with stakeholders, including competitors, suppliers, and employees. The ethical issues concerning these stakeholders include accusations of discrimination, leadership misconduct, bribery, and safety. We discuss how Walmart deals with these concerns, as well as recent endeavors in sustainability and social responsibility. The analysis concludes by examining what Walmart is currently doing to increase its competitive advantage and repair its reputation.

HISTORY: THE GROWTH OF WALMART

The story of Walmart begins in 1962, when founder Sam Walton opened the first Walmart Discount Store in Rogers, Arkansas. Although it got off to a slow start, over the next 40 years the company grew from a small chain to more than 8,000 facilities in 27 countries. The company now serves more than 200 million customers weekly. Much of the success Walmart experienced can be attributed to its founder. A shrewd businessman, Walton believed in customer satisfaction and hard work. He convinced many of his associates to abide by the “10-foot rule,” whereby employees pledged that whenever they got within 10 feet of a customer, they would look the customer in the eye, greet him or her, and ask if he or she needed help with anything. Walton’s famous mantra, known as the “sundown rule,” was: “Why put off until tomorrow what you can do today?” Due to this staunch work ethic and dedication to customer care, Walmart claimed early on that a formal ethics program was unnecessary because the company had Mr. Sam’s ethics to follow.

In 2002 Walmart officially became the largest grocery chain, topping the Fortune 500. Fortune named Walmart the “most admired company in America” in 2003 and 2004. Although it has slipped since then, it remains high on the list. In 2012 Fortune ranked Walmart as the 24 th most admired company in the world.

Effects on Competitive Stakeholders

Possibly the greatest complaint against Walmart is it puts other companies out of business. With its low prices, Walmart makes it harder for local stores to compete. Walmart is often accused of being responsible for the downward pressure on wages and benefits in towns where the company locates. Some businesses have filed lawsuits against Walmart, claiming the company uses predatory pricing to put competing stores out of business. Walmart countered by defending its pricing, asserting that its purpose is to provide quality, low-cost products to the average consumer. Yet although Walmart has saved consumers millions of dollars and is a popular shopping spot for many, there is no denying that many competing stores go out of business once Walmart comes to town.

In order to compete against the retail giant, other stores must reduce wages. Studies show that overall payroll wages, including Walmart wages, are reduced by 5 percent after Walmart enters a new market. As a result, some activist groups and citizens have refused to allow Walmart to take up residence in their areas. This in turn brings up another social responsibility issue. While it is acceptable for stakeholder activists to protest the building of a Walmart store in their area, other actions may be questionable, especially when the government gets involved. When Walmart announced plans to open stores in Washington D.C., for instance, a chairman of the D.C. City Council attempted to pass a law that would require stores occupying more than 75,000 square feet to pay their employees a minimum of $ 11.75 per hour—despite the city’s minimum wage of $ 8.25 an hour. While supporters of the law state that it is difficult to live on a wage of $ 8.25 an hour, critics state that this gives employees at large retailers more of an advantage than those working at small retailers. Perhaps the most scathing criticism is that Walmart and other big-box retailers are being unfairly targeted by government bodies. As with most issues, determining the most socially responsible decision that benefits the most stakeholders is a complex issue not easily resolved.

Relationships with Supplier Stakeholders

Walmart achieves its “everyday low prices” (EDLPs) by streamlining the company. Well-known for operational excellence in its ability to handle, move, and track merchandise, Walmart expects its suppliers to continually improve their systems as well. Walmart typically works with suppliers to reduce costs of packaging and shipping, which lessens costs for consumers. Since 2009 the company has worked with The Sustainability Consortium to develop a measurement and reporting system known as the Sustainability Index. Among its many goals, Walmart desires to use the Sustainability Index to increase the sustainability of its products and create a more efficient, sustainable supply chain.

In 2008 Walmart introduced its “Global Responsible Sourcing Initiative,” a list providing details of the policies and requirements included in new supplier agreements. In 2012 CEO Mike Duke expanded upon these initiatives to set improved goals for increasing the sustainability of the company’s supply chain. He highlighted four main sustainability goals: (1) purchase 70 percent of merchandise sold in U.S. Walmart stores and Sam’s Clubs from global suppliers that use the Sustainability Index to assess and share information about their products by 2017; (2) use the Sustainability Index as a model for U.S. private brands; (3) apply new evaluative criteria for key sourcing merchants to encourage sustainability to become a more important consideration in buyers’ daily jobs; and (4) donate $ 2 million to fund The Sustainability Consortium. 1  If fully achieved, these goals will increase the sustainability of Walmart suppliers significantly. Some critics, however, believe pressures to achieve these standards will shift more of a cost burden onto suppliers. When suppliers do not meet its demands, Walmart may cease to carry the supplier’s product or, often, will find another supplier for the product at the desired price.

Walmart’s power centers around its size and the volume of products it requires. Many companies depend on Walmart for much of their business. This type of relationship allows Walmart to influence terms with its vendors, and indeed, there are benefits to being a Walmart supplier; as suppliers become more efficient and streamlined for Walmart, they help other customers as well. Numerous companies believe supplying Walmart has been the best thing for their businesses.

However, many others found the amount of power Walmart wields to be disconcerting. The constant drive by Walmart for lower prices can negatively affect suppliers. Many have been forced to move production from the United States to less expensive locations in Asia. Companies such as Master Lock, Fruit of the Loom, and Levi’s, as well as many other Walmart suppliers, moved production overseas at the expense of U.S. jobs.

This was not founder Sam Walton’s original intention. In the 1980s, after learning his stores were putting other American companies out of business, Walton started his “Buy American” campaign. However, the quest to maintain low prices has pushed many Walmart suppliers overseas, and some experts now estimate as much as 80 percent of Walmart’s global suppliers are stationed in China. The challenges and ethical issues associated with managing a vast network of overseas suppliers will be discussed later in this case.

Ethical Issues Involving Employee Stakeholders

EMPLOYEE BENEFITS Much of the Walmart controversy over the years has focused on the way the company treats its employees, or “associates” as Walmart refers to them. Although Walmart is the largest retail employer in the world, it has been roundly criticized for low wages and benefits. Walmart has been accused of failing to provide health insurance for more than 60 percent of its employees. In a memo sent to the board of directors by Susan Chambers, Walmart’s executive vice-president for benefits, she encouraged the hiring of more part-time workers while also encouraging the hiring of “healthier, more productive employees.” After this bad publicity, between 2000 and 2005 Walmart’s stock decreased 27 percent.

As a result of the deluge of bad press, Walmart took action to improve relations with its employee stakeholders. In 2006 Walmart raised pay tied to performance in about one-third of its stores. The company also improved its health benefits package by offering lower deductibles and implementing a generic prescription plan estimated to save employees $ 25 million. Walmart estimates over three-fourths of its employees have insurance (though not always through Walmart). Walmart is quick to point out that the company offers health care benefits competitive in the retail industry.

Despite these improvements, a new Walmart policy eliminates healthcare coverage for new hires working less than 30 hours a week. Walmart also states that it reserves the right to cut healthcare coverage of workers whose work week goes below 30 hours. Some analysts claim that Walmart might be attempting to shift the burden of healthcare coverage onto the federal government, as some employees would make so little that they would qualify for Medicaid under the new healthcare law. It is important to note that Walmart is not alone in this practice; many other firms are moving their workforces to part-time to avoid having to pay healthcare costs. However, as such a large employer, Walmart’s actions are expected to have more of a ripple effect on the economy.

Another criticism levied against Walmart is that it decreased its workforce at the same time it expanded. In the United States Walmart decreased its workforce by 1.4 percent while increasing its retail stores by 13 percent. Employee dissatisfaction often translates to customer dissatisfaction. With fewer employees it is harder to provide quality customer service. This led some customers to complain of longer lines and fewer items on shelves. In the American Customer Satisfaction Index, Walmart placed the lowest among discount stores and department stores on customer satisfaction. On the other hand, Walmart claims the dissatisfaction expressed by some customers is not reflective of the overall shopping experience of customers as a whole.

WALMART’S STANCE ON UNIONS Some critics believe workers’ benefits could improve if workers become unionized. Unions have been discouraged since Walmart’s foundation; Sam Walton believed they were a divisive force and might render the company uncompetitive. Walmart maintains that it is not against unions in general, but it sees no need for unions to come between workers and managers. The company says it supports an “open-door policy” in which associates can bring problems to managers without resorting to third parties. Walmart associates have voted against unions in the past.

Although the company officially states that it is not opposed to unions, Walmart often seems to fight against them. Critics claim that when the word “union” surfaces at a Walmart location, the top dogs in Bentonville are called in. In 2000 seven of ten Walmart butchers in Jacksonville, Texas, voted to join the United Food Workers Union. Walmart responded by announcing it would only sell precut meat in its Supercenters, getting rid of its meat-cutting department entirely. Although Walmart offers justifications for actions such as this, many see the company as aggressively working to prevent unionization in its stores.

However, Walmart’s stance against unions has not always held up in foreign countries. In China, Walmart faced a similar decision regarding unions. To grow in China, it appeared necessary to accept a union. Poor working conditions and low wages generated social unrest, and the government attempted to craft a new set of labor laws giving employees greater protection and giving the All-China Federation of Trade Unions (ACFTU) more power. In 2004 the Chinese Labor Federation pushed Walmart to allow the formation of unions. As a result, Walmart technically allowed this, but critics claimed Walmart made it increasingly difficult for workers to join a union. In 2006 a district union announced the first formation of a Walmart union at a store in China, and within a week, four more branches announced their formations of unions. Walmart initially reacted to these announcements by stating it would not renew the contracts of unionized workers. However, the pressure mounted, and later that year Walmart signed a memorandum with the ACFTU allowing unions in stores. Walmart also negotiates with unions in Brazil, Chile, Mexico, Argentina, the United Kingdom, and South Africa.

WORKPLACE CONDITIONS AND DISCRIMINATION Despite accusations of low employee benefits and a strong stance against unions, Walmart remains the largest nongovernment employer in the United States, Mexico, and Canada. It provides jobs to millions of people and is a mainstay of Fortune’s “Most Admired Companies” list since the start of the twenty-first century. However, in December 2005, Walmart was ordered to pay $ 172 million to more than 100,000 California employees in a class-action lawsuit claiming that Walmart routinely denied meal breaks. The California employees also alleged that they were denied rest breaks and Walmart managers deliberately altered time cards to prevent overtime. Similar accusations began to pop up in other states as well. Walmart denied the allegations and filed an appeal in 2007. In 2008 Walmart agreed to pay up to $ 640 million to settle sixty-three such lawsuits.

Walmart has also been accused of discrimination by employees. Although women account for more than two-thirds of all Walmart employees, they make up less than 10 percent of store management. Walmart insists it trains and promotes women fairly, but in 2001 an internal study showed the company paid female store managers less than males in the same positions. In 2004 a federal judge in San Francisco granted class-action status to a sex-discrimination lawsuit against Walmart involving 1.6 million current and former female Walmart employees. The plaintiffs claimed Walmart discriminated against them in regard to promotions, pay, training, and job assignments. Walmart argued against the class-action suit, claiming promotions were made on an individual basis by each store. Walmart took the case to the Supreme Court, claiming the suit violates the company’s right of due process. The Supreme Court determined that the women in the lawsuit do not have enough in common to classify for class-action status. Although the women can sue Walmart individually, the impact on the company will be far less than if a class-action lawsuit had been allowed to proceed.

In 2010 dissatisfied employees at Walmart started the Organization United Respect Walmart, or OUR Walmart. Although not a labor union, OUR Walmart receives much of its funding from the United Food and Commercial Workers International Union (UFCW). According to OUR Walmart, it has 5,000 members who desire to change working conditions at Walmart. Their grievances against Walmart include raising the number of hours needed for part-time workers to qualify for benefits, capping the wages of some long-time workers, and using its work-scheduling systems to decrease hours for employees so they will not qualify for benefits. OUR Walmart arranged protests and picketing at Walmart stores for six months, with a major protest scheduled for the 2012 Thanksgiving holiday. Walmart complained to the National Labor Relations Board and accused the UFCW of anti-labor practices. According to Walmart, OUR Walmart violated rules because, since it is not a union, it is allowed to protest only 30 days before gathering signatures for an employee vote. While the protests did occur, not as many Walmart employees participated as anticipated. Walmart claims this demonstrates that the movement is not as popular as it tries to appear. Walmart filed a lawsuit against the UFCW and others who protested around its Florida stores for illegal trespassing and disrupting customers.

Ethical Leadership Issues

Aside from Sam Walton, other distinguished people have been associated with Walmart. One of them is Hillary Clinton, who served on Walmart’s board for six years before her husband assumed the presidency. However, the company has not been immune from scandal at the top. In March 2005, board vice chair Thomas Coughlin was forced to resign because he stole as much as $ 500,000 from Walmart in the form of bogus expenses, reimbursements, and the unauthorized use of gift cards. Coughlin, a protégé and hunting buddy of Sam Walton, was a legend at Walmart. He often spent time on the road with Walton expanding the Sam’s Club aspect of the business. At one time, he was the second highest-ranking Walmart executive and a candidate for CEO.

In January 2006 Coughlin agreed to plead guilty to federal wire-fraud and tax-evasion charges. Although he took home millions of dollars in compensation, Coughlin secretly used Walmart funds to pay for a range of personal expenses including hunting vacations, a $ 2,590 dog enclosure at his home, and a pair of handmade alligator boots. Coughlin’s deceit was discovered when he asked a subordinate to approve $ 2,000