WAL-MART CASE STUDY

Wal-Mart Group Case Study

Team A

Westley Bisson, Leah Bond, Ken Chrapkowski, Lisa Cochran, Christopher Cooper

MGMT560PA – Ethics in a Global Marketplace

June 17, 2012

Dr. Roger Fuller

Southwestern College Professional Studies

WAL-MART CASE STUDY

Wal-Mart Group Case Study

Team A’s paper will provide an in-depth review of Wal-Mart’s ethical challenges at home

and abroad along with how Wal-Mart continues to make corporate social responsibility a priority

in its business across the globe. The teams review begins with the history of Wal-Mart, which

can be traced back to the 1940s when Sam Walton began his career in retailing. In May of 1950,

Walton purchased a store in Bentonville, Arkansas and opened Walton's 5 & 10 (Tribble, 1990).

The company steadily grew throughout the 60’s and 70’s through a combination of underselling

the competition at the expense of a smaller profit and by acquiring ownership of small regional

chains to expand their brand. To the present, where Wal-Mart has annual revenue near $387.69

billion and employs over 2.1 million people and maintains more than 6,200 facilities around the

world, including over 3,800 stores in the United States and 3,800 international units. In fact, their

U.S. presence has grown so rapidly that there are only small pockets of the country that remain

further than 60 miles away from the nearest Wal-Mart (Zook & Graham, 2006).

Despite Wal-Mart’s huge successes, there also have been many detractors who point to

disadvantages that have come along with their rise to prominence. Over the last decade or so,

Wal-Mart has become involved in thousands of lawsuits for a variety of reasons. The majority of

these suits are class action lawsuits in which Wal-marts employees claimed ethical violations and

sued for unpaid wages, race, age and gender discrimination among many other issues which have

been brought to light.

U.S. Ethical Challenges

Wal-Mart has faced numerous ethical lawsuits and issues over the years that have caused

much controversy for this world-renown company. There are several cases that will be examined

because of how they are controversial topics in general, not just for Wal-Mart, but for other

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businesses as well. There was a series of cases over the past several years, to include possibly

one of the most shocking cases in 2000, but the attention on Wal-Mart really started to ramp up

in 2005 when two advocacy groups came after the company for poor employee practices because

the employees and communities in which they operated had had enough. It only escalated after a

documentary by Robert Greenwald was released just a few months later. This documentary was

titled “Wal-Mart: The High Cost of Low Price” (Hagloch, 2006, p. 152).

Some of the main ethical issues scrutinized were what impact occurs when a Wal-Mart

store opens causing small town small business owners to close, establishment of unequal

employment opportunities, and poor health insurance plans for Wal-Mart employees. There were

thousands of lawsuits against the company because of these issues. The advocacy groups were

trying to get Wal-Mart to not only improve its business practices for its employees, but also for

the consumers and their local communities.

The shocking case referenced above when discussing Wal-Mart and their controversial

unethical practices occurred in 2000 when a Wal-Mart employee, Barbara Shank was hit by a

semi-trailer, which caused her permanent brain damage and bound her to a wheelchair for life.

Even after the settlement from the trucking company, Barbara still incurred hundreds of

thousands of dollars in medical bills and legal fees. Adding insult, six years after the accident,

her family received a bill from her health insurance, through Wal-Mart for almost $500,000 in

uncovered medical insurance bills, according to an article titled Did Wal-Mart Wake Up?

(Unknown). This is a perfect example of the poor healthcare coverage Wal-Mart provided for

their employees and goes to show the unethical, cruel and insensitive reaction by Wal-Mart to

Barbara’s case.

Another example of unethical behavior that tends to be very disturbing, not only to the

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employees that are only making on average $17,000 annually, but also to its investors and

stakeholders, is how Wal-Mart’s CEO’s are compensated (Frederichs, 2009, p. 49). It came out

that the top management of the company wages were costing its shareholders over $1 billion in

2006 (Frederichs, 2009, p. 50). If a company can pay their CEO and chief executives this much

money, they could easily increase the pay of the average employee, not to mention increase their

healthcare benefits. It is sad to think that people are so greedy and unethical to not see the

obvious injustice going on within this company in reference to wages and healthcare coverage.

In 2008, Wal-Mart was tied up in over 80 different labor rights’ lawsuits. These lawsuits

varied from managers forcing employees to work off the clock, not allowing employees’ lunch

breaks, and manager altering employees’ time cards, as was highlighted in a research article

titled Top 10 Unethical Business Actions (2011). This was not something that had just started

recently for the company. This evidenced can be traced back to as early 2000, when an audit was

performed on the company, which gave light to over 75,000 violations, which were found in just

a week long period. (Did Wal-Mart Wake Up?, p. 9-10). The report gave way to the declaration

that “Wal-Mart may face several adverse consequences as a result of staffing and scheduling not

being prepared appropriately” (Friedman, 2008, p. 5). That number is shocking, but what is

more shocking is those 75,000 violations are only from 128 of their stores (Did Wal-Mart Wake

Up?, p. 10).

Wal-Mart not only has been labeled as unfair and scandalous towards labor acts as well

as infamously poor healthcare plans and unfair wages, but they also have had noted problems

with gender discrimination among women employees. In 2007, a court of appeals found that

Wal-Mart “must face a class-action lawsuit of 1.6 million female workers who claim that they

were not treated fairly in terms of pay and promotions” (Did Wal-Mart Wake Up?, p. 10). Wal-

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Mart was dealing with the largest class action lawsuit in U.S. history of damages near $10 billion

(Did Wal-Mart Wake Up?, p. 10). This is a very broad overview of a disturbing gender

discrimination case, where, if the facts are true, Wal-Mart could lose the case.

When Wal-Mart stores are planted in small, rural towns, the small business owners are

greatly impacted in a very negative way because they cannot compete with the deals Wal-Mart

can offer. A study on the impact of Wal-Mart stores in rural communities found that small towns

can lose up to 47 percent of their retail trade within 10 years after a Wal-Mart had opened (Stone,

1995). The small business owners have gone through different advocacy groups to seek

protection from taking away all of their business, but there is only so much protection they can

provide, while the business owners are still losing a lot of business, if not completely going out

of business all together.

These mentioned are just a few of the many different ethical issues Wal-Mart has faced in

the past due to controversial unethical business practices. There are several labor unions and

advocacy groups that continually try to bring justice for Wal-Mart employees, customers, and

small business owners. One of the groups’ main objectives is to increase negative attention on

the company to where consumers will stop funding them by shopping there until they change

their ways and implement a way forward to prevent unethical practices in the future from taking

place again. This just highlights a few of the unethical claims that this company is facing

stateside. Wal-Mart’s problems do not stop at our borders as they have become an international

and global company their ethical issues have become global as well.

Overseas Ethical Challenges

Wal-Mart faces many ethical challenges in the overseas marketplace as well, ranging

from poor labor standards to low quality assurance as they strive to keep competitive and cut

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prices. These corner cutting tactics has led to increased dissatisfaction of the corporation among

the eyes of the communities they serve, often leading them to boycott the store and in some cases

even forbid them from setting up shop at all (Smith, 2011; Clifford, 2012).

Wal-Mart has been involved with sweatshop abuses overseas (Global Ethics, 2005)

involving overworking employees, not paying employees required wages, physically abusing

them and locking them in the workshop. Although they have made strides in the United States

(Birchall, 2011) and overseas (Martin, 2012), the key difference will be the follow-up. It is far

easier to report information in the United States compared to eastern countries, which can have

an effect on interested parties following up on their promises. A follow-up 2006 Ethical

Sourcing report, Wal-Mart states that only 30% of its audits were unannounced compared with

Reebok which announced a 46% rate (Webteam, 2007). There were no independent audits for

Wal-Mart and it was unclear if there were for Reebok. Wal-Mart stores in every country outside

of the United States are unionized, according to one Washington Post (2011) report. In countries

such as China, labor unions must be recognized by law and Wal-Mart reports a 70%

membership. Upon further research, it was found that the All-China Federation of Trade Unions

sets 70% as the goal for foreign companies. Though the wages are considered low by our

standards, the cost of living is also comparably low. Wal-Mart insists that they are paying above

the average wage for many areas in China. This leads to skepticism regarding labor laws in

China and the effectiveness of unions. Further supporting their stance against labor unions, a

Canadian store was closed just as the union was near winning a contract citing that “it would

make it impossible for the store to sustain itself” (Common Dreams, 2005).

Stretching back until around the mid-nineties, Wal-Mart had the practice of purchasing

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life insurance policies for low-level employees such as maintenance crew and cake decorators

(Stone, 2009). This practice was commonly used for key employees to cover the high costs of

their absence and came with certain tax breaks. By using it on the low-level workers, they

utilized a loophole to cash in on often high-health risk employees (further perpetuated by the

lack of insurance, long hours, physical strain, mental strain, etc.) until the government closed the

loophole. This practice may, however, continue overseas where corporate tax breaks are achieved

far easier due to the closer government-business relationship. Soon after in 2003, 61 stores were

raided in 21 states resulting in the arrests of 250 undocumented nightshift janitors (CNN, 2003).

Although Wal-Mart places blame on the contractor that hired the workers, further investigation

found the very employees of the store were key players in the contracted company.

This lends to the assumption that Wal-Mart was taking advantage of the American-

Mexican immigration issue, seeking to take advantage of the cost savings undocumented

immigrants provided. Further harming their image were stints such as their hesitation in 2010 to

remove a plate dedicated to Augusto Pinochet, an ex-Chilean dictator responsible for several

human rights violations (The Clinic, 2011). These many ethics violations are due mostly in part

to differing standards, laws, cultural beliefs and the flow of information. While America may see

low dollar wages as inhumane, they forget the differing cost of living and may not understand the

additional benefits citizens in other countries may have such as healthcare or other assistance. In

addition, many wages are often competitive despite being still sub-par.

Why would Wal-Mart, a multi-national corporation, decide to pay workers more when

all it would do is push their prices higher and make them less competitive? This could possibly

trigger events that could lead to the downfall of the business and the loss of even more jobs, so

they just stay at the average. This allows them to keep the standard of living low (along with

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other companies) in order to keep costs low.

Wal-Mart’s Response and Changes to Ethical Company Practices

Wal-Mart is such a powerfully large multi-national corporation that it could probably get

away with some immoral practices here and there as long as it continues to save its consumers

money at the register. However, Wal-Mart continues to make corporate social responsibility a

priority in its business across the globe. It keeps its suppliers in check by conducting random

inspections at their facilities to make sure employees are being treated fairly and that there are no

illegal or under-age workers. But because it has so many suppliers in various countries, Wal-Mart

mostly relies on its suppliers to honor its codes. "Obviously you can't be in every place at all

times," says Don Shinkle, a vice president. "We have to rely on our vendors to make sure our

standards are met fully" (Ortega, 1995, p. 2).

One example of how Wal-Mart handles code violations is that of one of its women’s

clothing line suppliers, Sam Lucas, designer of the brand White Stag. When Wal-Mart

contracted with Sam Lucas, he was required to sign a code of conduct concerning the treatment

of workers who design and make White Stag clothing (Ortega, 1995). “When told that under-

aged workers have been found at Sam Lucas, Mr. Shinkle, the vice president, said Wal-Mart will

immediately cancel its order from the factory” (Ortega, 1995, p. 3). Instead of punishing the

supplier that subcontracted with Sam Lucas to make the clothing, Wal-Mart would punish the

main contractor, Sam Lucas, even though the subcontractor, in this case, Next Day Apparel, Inc.,

is legally obligated to abide by Wal-Mart’s code as well.

In this example Wal-Mart did not cancel its orders with Sam Lucas or his subcontractor,

though because Mr. Shinkle, vice president of Wal-Mart said “Wal-Mart is satisfied with Next

Day's efforts to comply with the code, and that ‘the factory has to take responsibility’” (Ortega,

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1995, p. 3). Wal-Mart agreed not to cancel its orders in this instance because Next Day Apparel,

Inc. had moved all of its operations to the Dominican Republic immediately after it discovered

there were under-aged workers at its factory. This was a desperate effort made in order to avoid

losing its contract with Sam Lucas and Wal-Mart. Sam Lucas also required all of the workers to

provide proof-of-age evidence and laid-off those unable to provide proper documentation. Sam

Lucas and Next Day Apparel, Inc. were in a tough position because many people do not have

proof-of-age documentation in the countries where their factories operate at and they are forced

(Ortega, 1995).

Wal-Mart also strives to be a leader in environmental sustainability and donates millions

towards several sustainability causes. CEO Scott stated “We’re keeping our commitment to be a

responsible citizen. Responsible citizenship means that we contribute to the charities and

organizations in our communities” (“Wal-Mart,” 2011, p. 21).

For the past several years, Wal-Mart has proudly been named by the Chronicle of

Philanthropy as the largest corporate cash contributor in America (“Wal-Mart,” 2011).

Approximately 90 percent of Wal-Mart’s charitable cash donations are made at the local level

(“Wal-Mart,” 2011). Wal-Mart’s response to Hurricane Katrina in 2005 is a good example of the

company’s corporate social responsibility priorities. As local, state and federal officials

prepared for the nation’s worst natural disaster in history, Wal-Mart readied 45 truckloads of

relief supplies to be shipped before Katrina struck the mainland. By the end week one post

Katrina, Wal-Mart had delivered 1,900 trailer loads of emergency supplies to affected areas.

Wal-Mart also pledged more than $2 million towards the relief funds and local Wal-Mart stores

were giving away free merchandise in several evacuation areas (“Wal-Mart,” 2011).

“Other charitable contributions made in 2007 include $5 million coupled with $35

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million in product donations to America’s Second Harvest, the nation’s largest hunger relief

organization; $67 million towards supporting education through literacy and scholarships; $32.5

million in donations to The Salvation Army’s bell-ringers in front of Wal-Mart stores; and $39

million to the Children’s Miracle Network in support of local children’s hospitals and healthcare

initiatives” (“Wal-Mart,” 2011, p. 20).

Conclusion

Team A’s paper provided a critical review of Wal-Mart’s meteoric rise from one nickel

and dime store to company that maintains more than 6,200 facilities around the world, including

over 3,800 stores in the United States and 3,800 international units. Most prominent in their

geographic saturation is their U.S. presence has grown so rapidly that there are only small

pockets of the country that remain further than 60 miles away from the nearest Wal-Mart (Zook

& Graham, 2006).

The paper also provided an in-depth view of ethical challenges at home and abroad. On

the home front this paper reported, a court of appeals found that Wal-Mart “faced a record class-

action lawsuit of 1.6 million female workers who claim that they were not treated fairly in terms

of pay and promotions” (Did Wal-Mart Wake Up?, p. 10). Wal-Mart was dealing with the largest

class action lawsuit in U.S. history of with damages near $10 billion (Did Wal-Mart Wake Up?,

p. 10). Our border was not the end of Wal-Mart’s ethical challenges as reported in 2003, 61

stores were raided in 21 states resulting in the arrests of 250 undocumented nightshift janitors

(CNN, 2003). This perpetuated the assumption that Wal-Mart was taking advantage of the

American-Mexican immigration issue, seeking to take advantage of the cost savings

undocumented immigrants provided.

The review then turned to Wal-Mart’s responses to a myriad of ethical issues. While Wal-

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Mart’s critics have been just and Wal-Mart’s ethical actions or lack of them have been suspect,

recent history and where they are at now should be emphasized. Wal-Mart looks to be a modern

model of working to balance employee and customer needs without sacrificing one for the other.

Wal-Mart’s early orientation to the customer is why it has become the world’s largest retailer. It

has built an empire of loyal customers who have grown to rely on the inexpensive brands that

they provide.

Key to Wal-Marts continued growth was a shift, albeit forced, through litigation in their

orientation becoming more equitable among employees, community and their consumer. The

public is now much more conscience of large companies being good stewards in all areas. As

the paper reported, Wal-Mart has proudly been named by the Chronicle of Philanthropy as the

largest corporate cash contributor in America (“Wal-Mart,” 2011). Approximately 90 percent of

Wal-Mart’s charitable cash donations are made at the local level (“Wal-Mart,” 2011). Wal-Mart’s

response to Hurricane Katrina in 2005 is a good example of the company’s corporate social

responsibility priorities. “As local, state and federal officials geared up for the nation’s worst

natural disaster in history, Wal-Mart had 45 truckloads of relief supplies ready to be shipped

before Katrina hit the mainland. A week after Katrina hit, Wal-Mart sent 1,900 trailer loads of

emergency supplies to affected areas.

Wal-Mart also pledged more than $2 million in contributions towards the relief fund and

stores, giving away free merchandise in several evacuation areas” (“Wal-Mart,” 2011, p. 20).

The good they are now doing now is amazing and illustrates how vital it is to fully look at issues

and not make assessments based off of an initial view or bias perspective. The flexibility that is

needed in adapting to changing social expectations that had guided Wal-Marts initial approach

and probably led them to neglect their employees looks to have taken an ethical turn toward the

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good.

Much like the world has viewed the role of the United States in global affairs with higher

expectations. Entities as large as Wal-Mart have an even higher expectation to be just and

correct in their actions. Wal-Mart’s employment and ethical problems along their subsequent

corrective efforts have begun to dispel the negative view of Wal-Mart as a bottom line money

and profit, at all costs to employee and the environment type of company. Team’s A’s belief is

Wal-Mart’s ethical outlook has evolved from possibly a true amoral position, where their only

consideration was profit and expansion to consequentialist view of promotion of common good

and sound corporate citizenship.

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