On April 21, 2012, The New York Times reported 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 reported that Walmart executives in Mexico not only were aware of the bribes, but had intentionally hidden them from the Walmart corporate ofﬁ ces in the United States. More damaging than even the reports of bribery in Mexico, The New York Times report also alleged that when the internal investigation was shared with corporate headquarters, Walmart executives terminated the investigation. The Times also reported than only upon learning of the newspaper’s own investigation and plans to write a 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 inﬂ uence. 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 ﬁ 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 in Fortune magazine’s annual survey. By all accounts Walmart is among the most ﬁ nancially successful companies in the world. Defenders would point out that this economic success is itself evidence of how well Walmart is fulﬁ lling its social responsibility. Walmart has created immense value for shareholders, consumers, suppliers, and employees. Stockholders—both individual and institutional investors—have received signiﬁ cant ﬁ nancial beneﬁ ts from Walmart. Consumers also receive ﬁ nancial beneﬁ ts in the form of low prices, employees beneﬁ t from having jobs, many businesses beneﬁ t from supplying Walmart with good and services, and communities beneﬁ t from tax-paying corporate citizens. Beyond these economic beneﬁ ts, 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 ﬁ 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.
Opening Decision Point Walmart’s Ethics
More recently, Walmart began an initiative to promote sustainability both in its own operation and in the products it sells. In 2005, Walmart announced major sustainability goals for its own operations, including becoming more energy efﬁ cient, reducing its carbon footprint, reducing wastes and packaging, and ﬁ nding more sustainable sources for its products. Despite these positive aspects, not everyone agrees that Walmart lives up to high ethical standards. The allegations of widespread bribery in Mexico are only the most recent charges that have been raised against Walmart’s ethical standards. In contrast to Fortune magazine’s claim, critics portray Walmart as among the least admired corporations in the world. Ethical criticisms have been raised against Walmart on behalf of every major constituency—customers, employees, suppliers, competitors, communities—with whom Walmart interacts. For example, some critics charge that Walmart’s low priced goods, and even their placement within stores, are a ploy to entice customers to purchase more, and higher-priced, goods. Such critics would charge Walmart with deceptive and manipulative pricing and marketing. But perhaps the greatest ethical criticisms of Walmart have involved treatment of workers. Walmart is well known for its aggressive practices aimed at controlling labor costs. Walmart argues that this is part of its strategy to offer the lowest possible prices to consumers. By controlling labor costs through wages, minimum work hours and high productivity and by keeping unions away, Walmart is able to offer consumers the lowest everyday prices. One of the most infamous cases of employee treatment involved health care beneﬁ ts. In October 2005, The New York Times published a 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 beneﬁ ts and (2) seek ways to encourage healthier and discourage unhealthy job applicants and employees. The memo also acknowledged long-standing criticisms of Walmart’s treatment of its employees and offered suggestions for a public relations strategy that would deﬂ ect criticism of these proposed changes. The memo was written by Susan Chambers, Walmart’s executive vice president for employee beneﬁ ts, 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 beneﬁ ts than older workers, and are equally productive, the memo recommended strategies—including reducing 401(k) retirement contributions and offered education beneﬁ ts—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 (continued)
associate more in salary and beneﬁ ts 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 beneﬁ ts offering to make their case; in other words, our critics are correct in some of their observations. Speciﬁ cally, our coverage is expensive for low-income families, and Wal-Mart has a signiﬁ cant 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 beneﬁ ts to full-time workers but, relative to other employers, Walmart employees pay a disproportionately high percentage of the costs. According to critics, these low wages and beneﬁ ts 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. Walmart has also been sued by employees in nine separate U.S. states for illegally requiring employees to work overtime without pay and to work off-theclock. The U.S. National Labor Relations Board ﬁ led suit against Walmart stores in Pennsylvania and Texas, charging illegal anti-union activities. Maine’s Department of Labor ﬁ ned Walmart for violating child labor laws. Walmart has also been sued in Missouri, California, Arkansas, and Arizona for violating the Americans with Disabilities Act Walmart employs more women than any other private employer in the United States. Women comprise more than 70 percent of Walmart’s sales associates, but men hold 90 percent of the store manager positions. Less than one-third of all managerial positions are held by women, signiﬁ cantly lower than the 56 percent among Walmart competitors Target and Kmart. Only one of the top 20 positions at Walmart is held by a woman. In June 2004, a federal judge in California ruled that a class-action lawsuit could proceed on behalf of all female employees of Walmart, noting that “plaintiffs present largely uncontested descriptive statistics which show that women working at Wal-Mart stores are paid less than men in every region, that pay disparities exist in most job categories, that the salary gap widens over time, that women take longer to enter management positions, and that the higher one looks in the organization the lower the percentage of women.” U.S. federal agents raided 60 Walmart stores in 20 states in October 2003. The raids resulted in arrests of more than 250 illegal aliens who were working as janitors at Walmart stores. All of the workers were employed by third-party subcontractors that Walmart had hired for overnight janitorial services. A lawsuit was ﬁ led on behalf of several of these workers, claiming that Walmart knowingly employed illegal workers as part of a scheme to pay below minimum wages, deny overtime pay, and otherwise exploit their illegal status. Many local communities also criticize Walmart as a major factor in the demise of small towns and local businesses. Small retail businesses ﬁ nd it difﬁ cult to (continued)
(concluded) 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, it can undermine 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 ﬁ 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.