Wal-Mart: The Business and Society Relationship


Wal-Mart is the largest retail corporation in the world. Wal-Mart’s successful domination of the retail market is the result of the company’s relentless push for “the lowest possible price” for consumers. Wal-Mart’s predatory pricing strategy is used to eliminate competition. The principle of cutting costs – at any cost – drives every aspect of how Wal-Mart does business. Wal-Mart exerts great pressure on suppliers to produce goods at rock-bottom prices, and it adopts extreme measures to keep the operating costs of its retail stores to a bare minimum. Wal-Mart wages are well below the industry standard and the company is characterized by a revolving door of part-time, temporary workers at the bottom of the pay scale, with restricted access to benefits.

Wal-Mart’s dominance of the retail industry also enables it to dictate both the cost and production timetable for every product. Only suppliers operating with the lowest labor costs and standards can meet the targets Wal-Mart sets. As a result, Wal-Mart imports most of its products from Asia and Latin America, with around 80% coming from China.

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Wal-Mart’s stranglehold on suppliers is ever-tightening. Its ‘Plus One’ mandate requires that every year suppliers must either lower the price or improve the quality of each item they produce for Wal-Mart. Ken Eaton, the head of Wal-Mart’s global procurement division, explains how Wal-Mart pits factories against each other by “putting our global muscle on them”. Suppliers have responded by cutting wages, ignoring health and safety regulations, and increasing hours. Factory owners in Bangladesh say that to keep Wal-Mart contracts they have been forced to cut prices by as much as 50%, while the US National Labor Committee found workers for Wal-Mart suppliers in China’s Guangdong Province working 130 hours per week for an average of 16.5 cents an hour.

Given this background on Wal-Mart, we realize that this company can go to any extent to provide its products at the cheapest rate and still reap enormous profit. Several lawsuits against Wal-Mart have accused it of its socially irresponsible policies and conducts. But is it acting socially irresponsibly? Friedman will probably not agree. He would say that as long as Wal-Mart is keeping its shareholders happy and keeping its profits running, it is acting responsibly. Thus, even though Wal-Mart has been accused of poor labor practices, yet the world’s largest and most successful company is rewarded by investors for driving down its costs and therefore its prices.

One assumption behind CSR is that business outcomes and social objectives can become more or less aligned. The rarely expressed reasoning behind this assumption goes back to the basic assumptions of free-market capitalism: People are rational actors who are motivated to maximize their self-interest. Since wealth, stable societies, and healthy environments are all in individuals’ self-interest, individuals will ultimately invest, consume, and build companies in both profitable and socially responsible ways. In other words, the market will ultimately balance itself. The market, quite frankly, adores Wal-Mart for always giving them higher value.

Wal-Mart has been reluctant to engage in stakeholder initiatives, instead of following the less restrictive standards of their internal; Wal-Mart certification System (Doherthy et al. 2006, p. 394). Consequently, the company has been heavily criticized for its failure to embrace more socially acceptable labor practices in the USA as well as abroad. As Bavaria (2005) has observed that Wal-Mart’s strategy has been to “reduce cost at all costs” irrespective of its social and environmental consequences. But if they continue with such practices it will make consumer opinion against the company for consumers today have become very aware of corporate responsibility (Doherty et al. p. 394).

To present a clear picture to the world Wal-Mart has made repeating efforts to change its policies and adopt stakeholder-friendly, ethical measures. Wal-Mart’s sustainability report 2007-08 shows the measures adopted by the company to build a socially responsible and ethical environment to erase their smeared reputation as a corporate autarkist. But the question arises why Wal-Mart needs to do so? If we follow Friedman’s theory on corporate social responsibility then the present strategy of Wal-Mart to concentrate only to reap profit for its shareholders was good enough and the company could be branded as socially responsible.

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Then why Wal-Mart needs more ethical HR policies for itself as well as its suppliers, why it needs to go “green”, why it needs to change its policy to drive down prices and its handling of corporate taxes? This is because, as we saw Drucker pointing out, social responsibility cannot be restricted solely to earning profit. Corporate responsibility is not only towards shareholders but to all stakeholders of the company. Then why did the stakeholders stick to Wal-Mart? Wal-Mart followed a paternalistic approach towards stakeholder management where a firm makes decisions in isolation from stakeholder input and imposed outward with clear, specific implications.

It is mainly characterized by internal discussion and contest over how stakeholders should be treated. This give-and-take produces highly specific stakeholder policies. However, in the absence of information and pressing demands by stakeholders – who lack any avenue for voicing their concerns to the paternalistic firm—the policies, though specific, tend to allocate value narrowly among stakeholder groups. Indeed, by its relative distance from even its most preferred stakeholder group, the firm tends to impose its perceptions of its stakeholder group’s needs on them.

Here, again, we refrain from moral judgment, as a firm with narrow but specific policies at least allows stakeholders to predict accurately how the firm will behave toward it (and to act accordingly). Yet, as with the activist approach, paternalistic stakeholder management should not be seen as a particularly stable profile. The seeds of change are sown in the fact that stakeholders may ultimately find effective influence strategies for making firms attend more actively to their claims.

For instance, Wal-Mart had an extremely narrow set of stakeholders with which it was concerned, limited to customers and, secondarily, shareholders. The company’s slogan illustrates this emphasis perfectly: “Everyday low prices.” This narrow distributional pattern was apparent also in the cutthroat practices the company employed in negotiations with suppliers, wielding its purchasing power to bring lower prices to customers.

Similarly, Wal-Mart has faced criticism for its treatment of employees. To say that Wal-Mart privileged the claims of customers over other stakeholders, however, is not to say that the company had a high level of engagement with customers – or any other stakeholder group. The company did not engage actively with consumer groups, including those who were protesting many of its practices that played into providing lower prices.

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Research says that firms exhibiting a paternalist approach to stakeholder management will most likely transition to a functionalist approach. As Wal-Mart started through an activist approach, it then drifted to a pluralist approach. And hence it has started to make more competitive pay plans for its employees are employing more stringent HR regulations for its supplier. For instance, Wal-Mart severed all ties with its Bangladesh suppliers who were using child labor to meet Wal-Mart’s low-cost targets.

A 2007 report by a Switzerland-based research company shows that Wal-Mart along with Marks and Spencer’s is leading the ethical agenda for the retail sector. Wal-Mart is said to be a reactive leader. Having received many critical comments the company is making progress in the area of Corporate Social Responsibility (CSR). Wal-Mart had announced some CSR initiatives which included its “Preferred Chemical Principles” program, aimed at establishing a “clear set of preferred chemical characteristics for product ingredient.” Wal-Mart Stores Inc will meet with its thousands of Chinese suppliers this fall as part of a big push to reduce waste and emissions at factories that make its products.

Mention a few CSR initiatives by Wal-Mart are as follows:

Environment

As a large international company Wal-Mart is aware of its impact on the environment and the ongoing changes and challenges with which businesses are faced in a fast-changing world. Wal-Mart has launched a company-wide, long-term initiative to adapt its business practices about environmental restoration and sustainability. Some of the company’s goals include: relying 100% on renewable energy, creating zero waste, and selling products that sustain resources and the environment.

Recent activities include an initiative to reduce packaging from 2008 onwards. Wal-Mart is looking for suppliers who can develop new packaging and conserve natural resources at the same time. Through this initiative, the company aims at reducing packaging by 5%. In addition to reducing millions of pounds of trash the initiative also decreases carbon dioxide emissions.

Community

In addition to its commitment to the Children’s Miracle Network and job creation initiatives the company engages in activities covering topics such as education, children, or volunteering. Through its community giving scheme, the company supports literacy programs and community scholarships and makes contributions to many national and international organizations and networks such as the American Cancer Society, the American Red Cross, the National Fish, and Wildlife Foundation or the United Way, and Special Olympics. In times of disasters, Wal-Mart provides resources to help affected communities by making cash donations to local charitable organizations such as the American Red Cross or providing victims with necessary supplies.

Military Families Outreach Project

On August 1st, 2006 Walt-Mart started its Military Family project with Sesame Workshop, a not-for-profit organization focusing on educational projects for children around the world. Wal-Mart and Sesame Workshop distribute bilingual, multi-media outreach kits entitled “Talk, Listen, Connect: Helping Families During Military Deployment”. Due to an overwhelming response to the project and feedback from Talk, Listen, Connect’s advisory board, Wal-Mart has donated an additional $575,000, for a total of nearly $1.5 million in funding.

People

Wal-Mart’s commitment to diversity enables the company to better serve its customers and to establish a positive work environment for its employees. The company has established a set of diversity goals and supports its employees and associates through diversity and inclusion training, scholarship programs, and other events and programs.

Scholarship Programs

Wal-Mart offers several scholarship programs to increase diversity in specific areas of work. Through the UNITY Scholarships Programme, the company offers scholarships to minority college journalism students to increase diversity in the newsrooms around the country. The Wal-Mart Foundation, in cooperation with the SAM’S CLUB Foundation, will run this three-year program with a financial commitment of $500,000. Through this initiative, ten universities will receive financial support for their journalism programs.

To do a stakeholder analysis of Wal-Mart we find the following stakeholders of the company:

  • Producers/ suppliers
  • Customers
  • Employees
  • Government
  • Competitors
  • Environment

The CSR practice being adopted by Wal-Mart is not affecting any of its stakeholders. The suppliers are still being hankered for producing at lower costs. Employees are still being hired for long hours and low wages. The company is still making plans to evade taxes. So how are they being socially responsible? Just by doing a few philanthropic works, a corporate cannot become socially responsible.

In its 2005 “Standards for Suppliers,” Wal-Mart claims to be committed to workers’ rights to “freedom of association” but workers argue the opposite. But still, the company is practicing policies that are driving suppliers to adopt unethical labor conditions and norms. In China SACOM research shows detailed accounts concerning wage and hour violations, unsafe working conditions, unsanitary worker housing, harsh punishments and heavy fines, deprivation of labor contract protection, non-provision of social security, illegal firings, and suppression by factory management. Customers experience bad customer service while employees feel customers have more power over the company than the employees themselves.

Wal-Mart’s initiative to go green has been highly debated. Though the company has made it clear that they will ensure that their suppliers from China are more environmentally friendly and the toy factories do not emit toxic waste into the environment. But still, the problem of toxic factory pollution is facing the company. The problem of child labor is still rampant. So clearly the question that arises is that has the company become socially responsive or is it practicing its previous policies in the garb of Corporate Social Responsibility?

Wal-Mart’s case demonstrates that CSR has become a strategic tool to be differentiated from its competitor. But the question still lingers if a corporate can really be socially responsive and still be profit-making, like Wal-Mart, is uncertain. It is really difficult to answer the question that if Wal-Mart was socially responsive from the very beginning could it become the world’s retail giant? Or, could it successfully reap all that share value for its shareholders? So how may we label Wal-Mart’s actions: as ethical or non-ethical?

Wal-Mart’s previous policy was targeted to make its shareholders happy but now they are trying to be a more socially responsible company to gain the trust and faith of its internal stakeholders. This is important for Wal-Mart’s sustenance of its company status.

Reference

Cleeland, N. Iritani, E. and Marchall, T. (2003) ‘Scouring the Globe to Give Shoppers a $8.63 Polo Shirt’, Los Angeles Times.

Anderson, S. (2005) ‘Wal-Mart’s Pay Gap’, Institute for Policy Studies. Web.

Doherty, B. and Thompson, J. (2006) “Social Enterprise Management”, Social Enterprise Management.

Friedman, M. (1970) “The Social Responsibility of Business is to Increase its Profits”, The New York Times Magazine, pp. 32-33.

Drucker, P. F. (1981) “What is business ethics?” The Public Interest.

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