Walmart's EthicsCase Study

On April 21, 2012,TheNew York Timesreported that a six-year internal investigation by Walmart had uncovered widespread evidence of bribery and corruption within its Mexican operations. The investigation discovered that Walmart employees had paid more than $24 million in bribes to promote the expansion of its business in Mexico. Furthermore,the Times reportedthatWal-Martexecutives in Mexico not only were aware of thebribes buthad intentionally hidden them from theWal-Martcorporate ofces in the United States.

More damaging than even the reports of bribery in Mexico,The New York Timesreport also alleged that when the internal investigation was shared with corporateheadquarters, Walmart executives terminated the investigation.The Times alsoreported than only upon learning of the newspaper's own investigation and plansto write story did Walmart executives notify legal authorities. As a result, the U.S. Justice Department began an investigation into possible violations of the U.S. Corrupt Foreign Practices Act in 2011.

Few corporations generate as much controversy and have as many vocal critics and defenders as Walmart. Few corporations would generate as much debate as Walmart on the question of corporate social responsibility. Part of this no doubt is due to its sheer size and inuence. Walmart is the world's largest retail business and claims to have more than 200 million customer visits per week at more than 8,100 retail stores in 15 countries. Its total sales for scal year 2011 were $418 billion. Worldwide, Walmart employs more than 2.1 million people. It is the largest private employer in both the United States and Mexico, and the single largest employer in 25 separate U.S. states.

In many ways, Walmart is a socially responsible corporation, describing itself as a business that "was built upon a foundation of honesty, respect, fairness and integrity." What is described as the "Walmart culture," is based on three "basic beliefs" attributed to founder Sam Walton: respect for individuals, service to customers, and striving for excellence. Defenders point out that Walmart is regularly recognized as among the "most admired" companies inFortunemagazine's annual survey.

By all accounts Walmart is among the most nancially successful companies in the world. Defenders would point out that this economic success is itself evidence ofhow well Walmart is fullling its social responsibility. Walmart has created immense value for shareholders, consumers, suppliers, and employees. Stockholdersboth individual and institutionalinvestors have received signicant nancial benets from Walmart. Consumers also receive nancial benets in the form of low prices,employee'sbenet from having jobs, many businesses benetfrom supplying Walmart with good andservices, and communities' benet from tax-paying corporate citizens.

Beyond these economic benets, Walmart regularly contributes to community and social causes. The Walmart Foundation, a philanthropic arm of Walmart, is the largest corporate cash contributor in the United States. For scal year 2009,Walmart donated more than $378 million in cash and in-kind gifts to charitable organizations. Walmart contributed more than $45 million to charities outside of the United States, and its in-store contribution programs added another $100 million to local charities. Walmart has focused its charitable giving in areas such as disaster relief, food and hunger programs, and education.

In October 2005,TheNewYorkTimespublisheda story detailing a Walmart internal memo that outlined various proposals for reducing health care costs paid for Walmart employees. The memo recommended two major areas for action: (1) increase reliance on part-time workers who do not qualify for health care benefits and (2) seek ways to encourage healthier and discourage unhealthy job applicants and employees. The memo also acknowledged long-lasting criticisms of Walmart's treatment of its employees and offered suggestions for a public relations strategy that would deflect criticism of these proposed changes.

The memo was written by Susan Chambers, Walmart's executive vice president for employee benefits, and pointed out that Walmart employees "are getting sicker than the national population, particularly in obesity-related diseases," including diabetes and coronary artery disease. In one passage, Chambers recommended that Walmart arrange for "all jobs to include some physical activity (e.g., all cashiers do some cart-gathering)" as a means of deterring unhealthy employees and job applicants. "It will be far easier to attract and retain a healthier work force than it will be to change behavior in an existing one," the memo said. "These moves would also dissuade unhealthy people from coming to work at Wal-Mart."

Recognizing that young workers are paid less and require fewer health benefits than older workers, and are equally productive, the memo recommended strategies-including reducing 401(k) retirement contributions and offered education benefits-for attracting younger employees and discouraging older employees. The memo stated "the cost of an associate with seven years of tenure is almost 55 percent more than the cost of an associate with one year of tenure, yet there is no difference in his or her productivity. Moreover, because we pay an associate more in salary and benets as his or her tenure increases, we are pricing that associate out of the labor market, increasing the likelihood that he or she will stay with Wal-Mart."

The memo pointed out that 46 percent of the children of Walmart's 1.33 million U.S. employees were uninsured or on Medicaid. "Wal-Mart's critics can easily exploit some aspects of our benets offering to make their case; in other words, our critics are correct in some of their observations.Specically, our coverage is expensive for low-income families, and Wal-Mart has a signicant percentage of associates and their children on public assistance."

Walmart has also been criticized for paying its workers poverty-level wages. The average annual salary for a Walmart sales associate in 2001 was $13,861, and the average hourly wage was $8.23. For the same year, the U.S. federal poverty level for a family of three was $14,630. Walmart offers health care benets to full-time workers but, relative to other employers, Walmart employees pay a disproportionately high percentage of the costs. According to critics, these lowwages and benets result in many Walmart employees qualifying for government assistance programs such as food stamps and health care, effectively creating a government subsidy for Walmart's low wages.

In addition, many local communities also criticize Walmart as a major factor in the demise of small towns and local businesses. Small retail businesses find it difficult to compete with Walmart's pricing and marketing strategies, and local communities suffer when Walmart builds giant stores in suburban and rural locations.This not only encourages sprawl and places additional burdens on roads and transportation,but it can alsoundermine the local tax base. Further, the loss of local business has a trickle-down effect when local suppliers and professionals such as accountants, lawyers, and banks suffer the loss of local business to Walmart's national and international suppliers. The problem is compounded when Walmart receives tax subsidies and tax breaks offered by local governments hoping to attract a Walmart store.

Walmart's aggressive strategy to lower costs also is criticized for the harm it can cause suppliers both nationally and internationally. Walmart has been known to force suppliers to bid against each other in a type of "reverse auction," in which suppliers compete to see who can offer their products at the lowest costs. Because Walmart controls such a large market segment, many suppliers cannot survive if Walmart declines to carry their product. This practice has caused some businesses to go out of business, and most others nd ways to send production offshore. One result is that Walmart, which promoted a "Buy American" marketing campaign in the 1980s, is responsible for the loss of uncounted American jobs as American businesses have been forced to outsource their production as the only means available to meet Walmart's price targets.Finally, the labor practices of Walmart suppliers in China, Central America, and Saipan have all been accused of sweatshop conditions in factories manufacturing clothing produced for Walmart.

1. Based on the cases described here, how would you describe the managerial philosophy of Walmart? What principles are involved? What are the overriding aims, values, and goals of Walmart?(CLO2) (5 Marks).

2. How would you decide, in any of the cases mentioned here, if Walmart had been acting in a socially responsible way or not? What considerations would help you to decide?(CLO3) (5 Marks).

3.Does it matter to you, as a potential customer or a potential employee, if Walmart has acted unethically? Why or why not? (CLO3) (5 Marks).