Ethics Case Study Walmart Case 3 16ki
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Case Analysis Walmart Team 3 Bloomsburg University
Dr. Lam Nguyen Managerial Ethics and CSR November 16, 2017
1
Table of Contents
Abstract
2
History & Development
3
Issues
4
Recommendations
7
Epilogue
10
2
Abstract Walmart has been a leader in the retail industry for nearly 55 years. From the opening of its first store in 1962 to today, Walmart has achieved much success and has become one of the world’s largest retail companies. Among this great success, however, Walmart has also acquired a lot of criticism and pitfalls over the years. As discussed in the case, one of the many grievances with Walmart are the burdens it puts on local business. A practice of Walmart’s that many have shown disapproval of is the pressures it places on its suppliers to meet their needs. Another major issue in this case is Walmart’s relationships with its employees and the conditions it provides to them. Other issues that have tarnished Walmart’s reputation in the past have been from misconduct and immoral behavior of leadership of the company, as well as unethical behavior of the company when it was found to be partaking in widespread bribery. Walmart did take steps to rectify these issues in the past and is continuing to strike for improvement of its company on future issues (Ferrell, Fraedrich, & Ferrell, 2017, p.407). This is a case analysis reviewing a detailed history of Walmart as well as a its progression throughout the years. It will also be analyzing and diving into the issues that Walmart is facing in this case. Our team then will be providing recommendations based off of our research as to the potential remedies Walmart possesses. Lastly, this paper will go over the most recent endeavors of Walmart in relation to our analysis.
3
History & Development Walmart was founded by Sam Walton in 1962. The first store was opened in Rogers, Arkansas. In the beginning there were doubts that the concept of his store would not succeed. However, the first store saw great success and the company would eventually go public in 1970 after recording nearly $13 million in sales in previous years. Following not too far after that Walmart began being traded on the New York Stock Exchange in 1972 and reached sales of $78 million. In the 1980’s Walmart continued to span its business ventures even further with new retail market innovation. Under the establish WalMart Stores, Inc. Walmart opened its first Sam’s Club in Oklahoma. Sam’s Club was a wholesale retail division of Walmart that serves both local business and households. At this time Walmart also revamped their checkout systems by installing computer point-of-sale systems (POS) in place of the traditional cash . This helped revolutionized Walmart stores by providing a precise and quicker check out. Another major development that helped propel Walmart to be the company it is today is their establishment of the largest private satellite communication systems in the U.S. at that time. It helped to connect all of Walmart's enterprises worldwide through various forms of communication. At the close of the 80’s Walmart developed and opened its first Walmart Supercenter in Washington, Missouri. This was another great innovative idea produced from Walmart, it provided a merchandise store and supermarket all in one to create a do-it-all store that consumers could satisfy all their shopping needs in one experience. The 90’s for Walmart was a decade of continued success, accomplishment and growth, as well as loss. At this point in time Walmart had risen to be the U.S.’s top retail store. Running with this success, Walmart decided to go global by expanding into Mexico, opening its first Sam’s Club in Mexico City. A year later the company suffered a great loss with the ing of Sam Walton. Walton’s son was appointed chairman of the board while the company also had reached 1,928 stores and 371,000 employees globally. The following years Walmart achieved $1 billion in sales in a week and expanded into markets into Canada and China. Continuing its growth, Walmart closed out the 90’s by celebrating a $100 billion sales year and entering markets in the United Kingdom. At the turn of the century Walmart founded Walmart.com
4
opening up online shopping from the company. This was another major innovation and step for the growth of the company. Walmart then had over 1 million employees and reached 3,989 stores worldwide. Growth-wise Walmart also expanded into the Japanese market as well with investments in the country’s retail businesses. Walmart also showed its philanthropic capacity following hurricane Katrina and Rita. It donated $18 million and more in supplies for disaster relief. Continuing its philosophy for being an everyday low price retailer, Walmart began a $4 generic-drug prescription program for their consumers. The following year, Walmart launched its online service, Walmart.com, which initially allowed customers to order online and pick their orders up in the stores. To close out the 2000’s, Walmart expanded its stores to Chile, in addition, Walmart hit a new record with over $400 billion in annual sales. Walmart started the new decade with a t venture in India, which opened its first Walmart in India called Bharti Walmart. Walmart followed up with expanding into South Africa and achieved 10,000 stores worldwide. In 2012 Walmart achieved a total of 50 years in industry. Following this, Walmart reached over two million employees worldwide and established over 11,000 stores worldwide in 27 different countries. The most recent major development involving Walmart was its new company wide policy of raising minimum wage to $9 an hour for its employees. Walmart has accomplished a lot in its operations for the last 50 years and continues to make strides towards becoming even better in the years to come (Walmart, 2017).
Issues Walmart faced four major issues in this case analysis. The first is ethical issues involving employee stakeholders. This is broken up into three different topics. Employee benefits is focused on first. In the past, Walmart has been criticized for paying low wages and offering few benefits. As a result of bad press, Walmart took strides to improve relations with their employee stakeholders. “In 2006 Walmart raised pay tied to performance is one-third of its stores” (Ferrell, Fraedrich, & Ferrell, 2017, p.410). The company also put together a new and improved health benefits package. They offered lower deductibles and a generic prescription plan. But along with improvements came some new limitations. For those who work less than thirty hours a week, the policy eliminated their healthcare (Ferrell,
5
Fraedrich,
&
Ferrell,
2017,
p.410).
Walmart was also criticized for decreases its workforce while they were expanding business. “In the United States, Walmart decreased its workforce by 1.4 percent while increasing its number of retail stores by 13 percent” (Ferrell, Fraedrich, & Ferrell, 2017, p.410). When employees are dissatisfied, most of the time customers are also dissatisfied. After decreasing the workforce there were less employees on the sales floor and less items on the shelves. Having fewer employees makes it harder to achieve high quality
customer
satisfaction
(Ferrell,
Fraedrich,
&
Ferrell,
2017,
p.410).
The next topic covered under ethical issues involving employee stakeholders is Walmart’s stance on unions. “Some critics believe Walmart workers’ benefits could improve if they unionized” (Ferrell, Fraedrich, & Ferrell, 2017, p.411). Founder Sam Walton believed that unions were a divisive force and might render the company uncompetitive. Walmart believes there is no need for a union to come between their workers and their managers. The company implements and s an “open-door” policy. This means that a concerned associate may bring issues to a manager without getting a third-party involved (Ferrell,
Fraedrich,
&
Ferrell,
2017,
p.411).
The last topic covered in this section is workplace conditions and discrimination. In 2005, Walmart had to give $172 million to more than 100,000 California workers in a class-action lawsuit. The lawsuit claimed that Walmart routinely denied meal breaks. “The California also alleged they were denied rest breaks and Walmart managers deliberately altered time cards to prevent overtime” (Ferrell, Fraedrich, & Ferrell, 2017, p.412). Then more cases popped up in several different states. In 2008, Walmart settled to pay up to $640 million to settle 63 different lawsuits pertaining this issue (Ferrell, Fraedrich, & Ferrell, 2017,
p.412). Walmart has also been accused of discrimination against women. Two-thirds of Walmart
employees are women, yet they make up less than 10 percent of store management. An internal study was done in 2001 which showed that female store managers were paid less than male store managers in the same position. “In 2004 a federal judge in San Francisco granted class-action status to a sexdiscrimination lawsuit against Walmart involving 1.6 million current and former female Walmart
6
employees” (Ferrell, Fraedrich, & Ferrell, 2017, p.412). Female workers claimed they were discriminated against for things such as promotions, pay, training, and job assignments. This case was taken to the Supreme Court and the Court decided the cases would need to re-filed as smaller class-action groups or individually
(Ferrell,
Fraedrich,
&
Ferrell,
2017,
p.412).
The second major issue discussed in this case analysis has to do with ethical leadership. One of Walmart’s top executives was forced to resign in March of 2005. Thomas Coughlin stole as much as $500,000 from Walmart through bogus expenses, reimbursements, and the unauthorized use of gift cards. His actions were discovered when he asked a subordinate to approve an expense of $2,000 without any proof of receipts. In 2006, he plead guilty to wire-fraud and tax-evasion charges (Ferrell, Fraedrich, & Ferrell,
2017,
p.413).
Bribery was the third issue covered in this case analysis. The bribery scandal with Walmart’s Mexico division, Walmex, was one of the biggest blows to Walmart’s reputation. Executives from Walmex allegedly paid millions of dollars in bribes to obtain licensing and zoning permits for store locations in Mexico. “The Mexican approval process for zoning licenses often takes longer than in the United States; therefore, paying bribes to speed up the process is advantageous for Walmart but places competing retailers who do not offer bribes at a disadvantage” (Ferrell, Fraedrich, & Ferrell, 2017, p.414). Executives used fraudulent reporting methods to cover up their actions. Two large considerations made this scandal worse. The first was that the evidence concluded that executives from both Walmex and Walmart knew about the bribery and turned a blind eye to it. The second was that it made it seem like bribery was accepted in the company’s culture (Ferrell, Fraedrich, & Ferrell, 2017, p.414). Walmart had received an email containing cold hard facts which included names, dates, bribery amounts, and other information from a former Walmex executive who claimed to be involved. After that, investigators were sent to Mexico City. They found that $24 million in bribes had indeed been paid to public officials to be able to get the necessary building permits. Walmart’s top executives that were made aware of the investigation did not want to report the bribery because they feared the company’s reputation. The investigation was then turned over to Walmex general counsel where the final report
7
found no evidence of bribery or wrongdoing by Walmex executives. The case was closed without any disciplinary
action
(Ferrell,
Fraedrich,
&
Ferrell,
2017,
p.414-415).
The final issue addressed in this case study was safety. Walmart has face trouble using suppliers overseas. Many of their suppliers, both inside and outside the United States, hire subcontractors to manufacture certain products. Therefore, Walmart’s supply chain can become very complex very quickly. A company called Tazreen Fashions Ltd. had many assembly lines dedicated to Walmart apparel. One of Walmart’s suppliers used Tazreen’s factory to subcontract work. “Walmart claims the supplier was unauthorized to do so as Walmart had removed Tazreen Fashions from its list of approved factories months before the incident” (Ferrell, Fraedrich, & Ferrell, 2017, p.416). Inspections showed that the factory had many fire hazards including blocked stairwells and a lack of fire equipment. The building burned down and took 112 employee lives (Ferrell, Fraedrich, & Ferrell, 2017, p.416). Walmart was criticized for not doing a better job of ensuring safety for those who manufacture their products. “While Walmart does have auditing and approval mechanisms for subcontracted facilities, third parties usually perform the audits” (Ferrell, Fraedrich, & Ferrell, 2017, p.416). This means that as the parent company, Walmart is limited in the amount of information they receive. Critics have said that Walmart advocates against equipping factories with better safety protocol because of the high costs involved (Ferrell, Fraedrich, & Ferrell, 2017, p.416).
Recommendations Since its early years Walmart’s biggest threat and issue has been its unethical practices involving employee stakeholders. Although walmart’s employees or “associates” how they are called have the largest workforce of employees in the world, it also has been been one of the most criticized company for their employee treatment. According to the case study, low wages, and minimal benefits have been the biggest points of protest for Walmart associates. From the early 2000s to the end of 2005 Walmart’s stock went down 27 percent due to the publication that more than 60 percent of their employees are not offered healthcare (Ferrell, Fraedrich, & Ferrell, 2017, p.410).
8
In order to improve their brand image once again and form a better relationship with its associates, Walmart needs to reevaluate their “Employee Benefit & Conditions.” This new forum should be applied to all associates on a nationwide coverage. It is unethical and unfair that employees at one store are not receiving the same benefits as other stores. In order to provide healthcare for all employees, Walmart should implement a copay system. The higher amount of hours you devote to the company the lower your copay will be. Giving everyone the same access to the benefits will immensely improve the ethical relationship between the company and the employee stakeholders. Through the years Walmart’s brand image has also taken several hits with their issues in their unethical leadership practices. Unfortunately following their stock decrease in 2006, Walmart’s board vice chair Thomas Coughlin plead guilty to several federal crimes dealing with the Walmart Company. According to the New York Times, “Mr. Coughlin pleaded guilty to stealing items from Walmart worth just a fraction of the millions of dollars he earned in salary, bonuses and stock options (“Ex-Executive of Wal-Mart”, 2006).” Wire-fraud and tax-evasion charges , 27 months of home confinement, $444,000 in fines and 1,500 hours of community service,
were some of the repercussions Coughlin received.
Although he was asked to step down it created a lack of trust in the organization. Following his step down from the position, many of the board were hesitant to allow the chief executives Lee Scott, Mike Duke and chairman Robson Walton back on the board because they had not been able to prevent the unethical practices taking place within their company in the last decade (Ferrell, Fraedrich, & Ferrell, 2017, p.413). In order to prevent this issue from repeating itself the company should implement an extensive executive training program and an incentive based whistleblower program. The extensive executive training would should be a minimum of 2 years. This training would be essential for the board when it comes to elections and reelection of board . Within the two years the individual will be expected to learn and master the skills necessary to be a Chief Executive Officer. These training would be formulated and conducted by executives already on the board. Also with incentive based whistleblower
9
programs, employees on all level would be motivated to keep the company running ethically. Conduct Supervisory Audits of departments internally every five months to ensure transparency. Walmart had already taken their on steps in recovering for the bribery scandal in the case (Ferrell, Fraedrich, & Ferrell, 2017, p.414). The remedies discussed here will be mainly focused on preventing similar situations in the future. To start, Walmart could begin looking more into the culture of a country they are trying to expand into. Even though the expansion would be an extension of the Walmart brand, the day-to-day activities would still be heavily influenced by that country’s culture since the leaders for that branch could be from there and became accustomed to it. Since Walmart is based in the U.S., one solution to this would be to bring in outside leadership to their foreign branches. The outside executive would have already been trained in ethical leadership and have a clear following of Walmart’s code of ethics. This would ensure that their company-wide code of ethics is followed, it would be an effective way of making sure that their company culture is adopted throughout the company globally. This may be a tough policy to institute and may receive some kick back from countries because some countries may argue it takes away jobs from the citizens of that country. To help smooth things out there could be a potential give and take. One example of this would be; “Follow local customs and traditions at your discretion. Decided on a case-by-case basis which local customs to follow and which to avoid when it comes to victimless issues”(Ingram). Pulling from this Walmart would be able to structure their foreign businesses after the cultures they are located in as long as they are legal. Bringing in outside leadership to these foreign branches could also be temporary, one Walmart headquarters felt that a branch was ethically sound they could hire local leadership to take over. Bringing in someone who solid in following the Walmart's code of ethics but also familiar with the culture of business where they are located. Having an executive who is adamant in following the company code of ethics will allow those values to trickle down throughout the foreign branch. Safety is something every business should have a strong foundation in. Walmart had its own remedy for this issue but there were better options they could have chosen (Ferrell, Fraedrich, & Ferrell, 2017, p.416). One option, would have been to the Bangladesh workplace safety agreement (Ferrell,
10
Fraedrich, & Ferrell, 2017, p.417). It was more effective solution because it would have put suppliers in a better position to improve their workplace conditions. Since Walmart did not sign, a remedy out team came up with for this would be for Walmart to use an approach similar to strategic philanthropy (Ferrell, Fraedrich, & Ferrell, 2017, p.116). It would allow Walmart to solve this issue in a more ethical way in the public-eye, while also bettering the workplace safety for their employees in Bangladesh. To implement this Walmart could donate to better the communities of its workers by first improving their living conditions through better house and community centers. To follow up, Walmart could donate the safety supplies workers need to improve their workplace safety. These things could fire extinguishers, fire escapes, fire blankets, emergency eyewashes and showers, etc. This seems to be the best solution as Walmart did not want to directly pay their facilities more, and offered a more ethical solution.
Epilogue Surprisingly, after the 2008-2009 economy meltdown Walmart continued to grow as a company. There net sales from 2007 – 2017 increased from $344 billion to $481 billion due to Sam Walton’s vision of everyday low prices; particularly to everyone (Walmart, 2011, p. 15). There dramatic increase was carried out by growing their operating income faster than sales at Sam’s Club and Walmart and by investing internationally, owning 21 million square feet of retail space (Walmart, 2011, p. 9). To continuously grow and rise above their competitors they had to successfully overcome their issues. An issue which they addressed and drastically changed was stakeholders’ relationships. To help associates succeed and better serve their customers they invested $2.7 billion over two years in higher wages, education and training to make Walmart U.S. a better place to work and shop (Walmart, 2017, p. 8). Their purpose of investing is to not only increase their employees’ loyalty and productivity but to see if they see a change in behavior. With loyal employees’, unionization will fail to exist since their full performance will
11
be engaged in customer service. The first program which employees go through is program pathway. In order to graduate from the program they must complete six to 18 hours of training depending on their role. Then they go through nine retail modules that take about 4 ½ hours all together to complete. After that they the building goes on lockdown for 6 weeks and it is up for the employees to show what they have learned over their course of training. lastly , the manager then gives them a computer-based test to check to see if there is any improvement or change in the employee's character, performance or customer service. In addition, employees can now receive the “full benefits of their training, work directly with and build a relationship with a supervisor, and show their higher-ups what they have learned” (Gustafson, 2016). Therefore, you cannot measure how much a person has absorbed until you see that learning in action (Gustafson, 2016). However, management at Walmart is still not addressing discrimination issues. For example, Walmart discriminatory pregnancy policy which “rejected their requests to limit heavy lifting, climbing on ladders and other potentially dangerous tasks” (Wiessner, 2017). Additionally, they were also same sex discrimination lawsuit last year by denying gays and lesbians employees spouses health insurance benefits. Ethically they can go through there policy and change anything that shows discrimination to they stakeholders, so they will not face any more lawsuits. In addition, the last two issues they tried to improve was there ethical leadership and bribery policies. To improve they adopted the Global Statement of Ethics which promoted Walmart’s culture of integrity. This includes developing and upholding their policies for ethical behavior for all their stakeholders everywhere they work (Walmart, 20016). The statement of ethics is organized to show Walmart’s fundamental for all conducts when acting with integrity. Also, it shows how one who is in concern of an ethical issue or an issue which might be violation of ethics can address the issue publicly or privately. In order, to not create scarce, rumors or
12
others falsely making reports. Regarding bribery Walmart prohibits anyone acting on their behalf behalf, whether directly or indirectly, from making or receiving bribes or improper payments. However, it appears they have more to show for with bribery issues because they are still having them. Therefore, for all issues to be addressed and attainable to conquer they must be addressed from top to bottom. Not only that is must be addressed globally through face to face meetings or virtually, so the company can stop losing money through lawsuits and use that money to rebuild and expand Walmart.
13
References Ex-Executive of Wal-Mart Is Sentenced to Home Detention. (2006, August 12). The New York Times. Retrieved from http://query.nytimes.com/gst/fullpage.html?res=9B07E7D9163EF931A2575BC0A9609C 8B63 Ferrell, O. C., Fraedrich, J., & Ferrell, L. (2017). Business ethics: Ethical decision making and cases (Eleventh edition. ed.). Boston, MA: Cengage Learning. Gustafson, K. (2016, July 11). The real test of Wal-Mart's $2.7 billion wage investment is about to begin. Retrieved from CNBC: https://www.cnbc.com/2016/07/11/the-real-test-of-wal-marts-27-billion-wage-investment -is-about-to-begin.html Ingram, D. How to Address Differences in Ethical Standards and International Businesses. Retrieved November 27, 2017, from Chron website: http://smallbusiness.chron.com/address-differences-ethical-standards-internationalbusinesses-5254.html Our History. (2017). Retrieved November 27, 2017, from Walmart website: https://corporate.walmart.com/our-story/our-history ing the safety and dignity of workers everywhere. (2017). Retrieved November 27, 2017, from Walmart website: https://corporate.walmart.com/2016grr/enhancingsustainability/ing-worker-safety-and-dignity Walmart. (20016). Ethics and Integrity. Retrieved from Walmart: https://www.walmartethics.com/edFiles/Content/U.S.%20-%20English.pdf Walmart. (2011). Walmart Annual Report 2010. Retrieved from Walmart:
14
http://s2.q4cdn.com/056532643/files/doc_financials/2010/Annual/2010annual-report-for-walmart-stores-inc_130221021765802161.pdf Walmart. (2017). Walmart 2016 Annual Report. Retrieved from Walmart: http://s2.q4cdn.com/056532643/files/doc_financials/2016/annual/2016-AnnualReport-PDF.pdf Wiessner, D. (2017, May 15). Workers say Wal-Mart discriminated against thousands of pregnant women. Retrieved from Reuters: https://www.reuters.com/article/uswalmart-lawsuit-pregnancy/workers-say-wal-mart-discriminated-againstthousands-of-pregnant-women-idUSKCN18B23I
Dr. Lam Nguyen Managerial Ethics and CSR November 16, 2017
1
Table of Contents
Abstract
2
History & Development
3
Issues
4
Recommendations
7
Epilogue
10
2
Abstract Walmart has been a leader in the retail industry for nearly 55 years. From the opening of its first store in 1962 to today, Walmart has achieved much success and has become one of the world’s largest retail companies. Among this great success, however, Walmart has also acquired a lot of criticism and pitfalls over the years. As discussed in the case, one of the many grievances with Walmart are the burdens it puts on local business. A practice of Walmart’s that many have shown disapproval of is the pressures it places on its suppliers to meet their needs. Another major issue in this case is Walmart’s relationships with its employees and the conditions it provides to them. Other issues that have tarnished Walmart’s reputation in the past have been from misconduct and immoral behavior of leadership of the company, as well as unethical behavior of the company when it was found to be partaking in widespread bribery. Walmart did take steps to rectify these issues in the past and is continuing to strike for improvement of its company on future issues (Ferrell, Fraedrich, & Ferrell, 2017, p.407). This is a case analysis reviewing a detailed history of Walmart as well as a its progression throughout the years. It will also be analyzing and diving into the issues that Walmart is facing in this case. Our team then will be providing recommendations based off of our research as to the potential remedies Walmart possesses. Lastly, this paper will go over the most recent endeavors of Walmart in relation to our analysis.
3
History & Development Walmart was founded by Sam Walton in 1962. The first store was opened in Rogers, Arkansas. In the beginning there were doubts that the concept of his store would not succeed. However, the first store saw great success and the company would eventually go public in 1970 after recording nearly $13 million in sales in previous years. Following not too far after that Walmart began being traded on the New York Stock Exchange in 1972 and reached sales of $78 million. In the 1980’s Walmart continued to span its business ventures even further with new retail market innovation. Under the establish WalMart Stores, Inc. Walmart opened its first Sam’s Club in Oklahoma. Sam’s Club was a wholesale retail division of Walmart that serves both local business and households. At this time Walmart also revamped their checkout systems by installing computer point-of-sale systems (POS) in place of the traditional cash . This helped revolutionized Walmart stores by providing a precise and quicker check out. Another major development that helped propel Walmart to be the company it is today is their establishment of the largest private satellite communication systems in the U.S. at that time. It helped to connect all of Walmart's enterprises worldwide through various forms of communication. At the close of the 80’s Walmart developed and opened its first Walmart Supercenter in Washington, Missouri. This was another great innovative idea produced from Walmart, it provided a merchandise store and supermarket all in one to create a do-it-all store that consumers could satisfy all their shopping needs in one experience. The 90’s for Walmart was a decade of continued success, accomplishment and growth, as well as loss. At this point in time Walmart had risen to be the U.S.’s top retail store. Running with this success, Walmart decided to go global by expanding into Mexico, opening its first Sam’s Club in Mexico City. A year later the company suffered a great loss with the ing of Sam Walton. Walton’s son was appointed chairman of the board while the company also had reached 1,928 stores and 371,000 employees globally. The following years Walmart achieved $1 billion in sales in a week and expanded into markets into Canada and China. Continuing its growth, Walmart closed out the 90’s by celebrating a $100 billion sales year and entering markets in the United Kingdom. At the turn of the century Walmart founded Walmart.com
4
opening up online shopping from the company. This was another major innovation and step for the growth of the company. Walmart then had over 1 million employees and reached 3,989 stores worldwide. Growth-wise Walmart also expanded into the Japanese market as well with investments in the country’s retail businesses. Walmart also showed its philanthropic capacity following hurricane Katrina and Rita. It donated $18 million and more in supplies for disaster relief. Continuing its philosophy for being an everyday low price retailer, Walmart began a $4 generic-drug prescription program for their consumers. The following year, Walmart launched its online service, Walmart.com, which initially allowed customers to order online and pick their orders up in the stores. To close out the 2000’s, Walmart expanded its stores to Chile, in addition, Walmart hit a new record with over $400 billion in annual sales. Walmart started the new decade with a t venture in India, which opened its first Walmart in India called Bharti Walmart. Walmart followed up with expanding into South Africa and achieved 10,000 stores worldwide. In 2012 Walmart achieved a total of 50 years in industry. Following this, Walmart reached over two million employees worldwide and established over 11,000 stores worldwide in 27 different countries. The most recent major development involving Walmart was its new company wide policy of raising minimum wage to $9 an hour for its employees. Walmart has accomplished a lot in its operations for the last 50 years and continues to make strides towards becoming even better in the years to come (Walmart, 2017).
Issues Walmart faced four major issues in this case analysis. The first is ethical issues involving employee stakeholders. This is broken up into three different topics. Employee benefits is focused on first. In the past, Walmart has been criticized for paying low wages and offering few benefits. As a result of bad press, Walmart took strides to improve relations with their employee stakeholders. “In 2006 Walmart raised pay tied to performance is one-third of its stores” (Ferrell, Fraedrich, & Ferrell, 2017, p.410). The company also put together a new and improved health benefits package. They offered lower deductibles and a generic prescription plan. But along with improvements came some new limitations. For those who work less than thirty hours a week, the policy eliminated their healthcare (Ferrell,
5
Fraedrich,
&
Ferrell,
2017,
p.410).
Walmart was also criticized for decreases its workforce while they were expanding business. “In the United States, Walmart decreased its workforce by 1.4 percent while increasing its number of retail stores by 13 percent” (Ferrell, Fraedrich, & Ferrell, 2017, p.410). When employees are dissatisfied, most of the time customers are also dissatisfied. After decreasing the workforce there were less employees on the sales floor and less items on the shelves. Having fewer employees makes it harder to achieve high quality
customer
satisfaction
(Ferrell,
Fraedrich,
&
Ferrell,
2017,
p.410).
The next topic covered under ethical issues involving employee stakeholders is Walmart’s stance on unions. “Some critics believe Walmart workers’ benefits could improve if they unionized” (Ferrell, Fraedrich, & Ferrell, 2017, p.411). Founder Sam Walton believed that unions were a divisive force and might render the company uncompetitive. Walmart believes there is no need for a union to come between their workers and their managers. The company implements and s an “open-door” policy. This means that a concerned associate may bring issues to a manager without getting a third-party involved (Ferrell,
Fraedrich,
&
Ferrell,
2017,
p.411).
The last topic covered in this section is workplace conditions and discrimination. In 2005, Walmart had to give $172 million to more than 100,000 California workers in a class-action lawsuit. The lawsuit claimed that Walmart routinely denied meal breaks. “The California also alleged they were denied rest breaks and Walmart managers deliberately altered time cards to prevent overtime” (Ferrell, Fraedrich, & Ferrell, 2017, p.412). Then more cases popped up in several different states. In 2008, Walmart settled to pay up to $640 million to settle 63 different lawsuits pertaining this issue (Ferrell, Fraedrich, & Ferrell, 2017,
p.412). Walmart has also been accused of discrimination against women. Two-thirds of Walmart
employees are women, yet they make up less than 10 percent of store management. An internal study was done in 2001 which showed that female store managers were paid less than male store managers in the same position. “In 2004 a federal judge in San Francisco granted class-action status to a sexdiscrimination lawsuit against Walmart involving 1.6 million current and former female Walmart
6
employees” (Ferrell, Fraedrich, & Ferrell, 2017, p.412). Female workers claimed they were discriminated against for things such as promotions, pay, training, and job assignments. This case was taken to the Supreme Court and the Court decided the cases would need to re-filed as smaller class-action groups or individually
(Ferrell,
Fraedrich,
&
Ferrell,
2017,
p.412).
The second major issue discussed in this case analysis has to do with ethical leadership. One of Walmart’s top executives was forced to resign in March of 2005. Thomas Coughlin stole as much as $500,000 from Walmart through bogus expenses, reimbursements, and the unauthorized use of gift cards. His actions were discovered when he asked a subordinate to approve an expense of $2,000 without any proof of receipts. In 2006, he plead guilty to wire-fraud and tax-evasion charges (Ferrell, Fraedrich, & Ferrell,
2017,
p.413).
Bribery was the third issue covered in this case analysis. The bribery scandal with Walmart’s Mexico division, Walmex, was one of the biggest blows to Walmart’s reputation. Executives from Walmex allegedly paid millions of dollars in bribes to obtain licensing and zoning permits for store locations in Mexico. “The Mexican approval process for zoning licenses often takes longer than in the United States; therefore, paying bribes to speed up the process is advantageous for Walmart but places competing retailers who do not offer bribes at a disadvantage” (Ferrell, Fraedrich, & Ferrell, 2017, p.414). Executives used fraudulent reporting methods to cover up their actions. Two large considerations made this scandal worse. The first was that the evidence concluded that executives from both Walmex and Walmart knew about the bribery and turned a blind eye to it. The second was that it made it seem like bribery was accepted in the company’s culture (Ferrell, Fraedrich, & Ferrell, 2017, p.414). Walmart had received an email containing cold hard facts which included names, dates, bribery amounts, and other information from a former Walmex executive who claimed to be involved. After that, investigators were sent to Mexico City. They found that $24 million in bribes had indeed been paid to public officials to be able to get the necessary building permits. Walmart’s top executives that were made aware of the investigation did not want to report the bribery because they feared the company’s reputation. The investigation was then turned over to Walmex general counsel where the final report
7
found no evidence of bribery or wrongdoing by Walmex executives. The case was closed without any disciplinary
action
(Ferrell,
Fraedrich,
&
Ferrell,
2017,
p.414-415).
The final issue addressed in this case study was safety. Walmart has face trouble using suppliers overseas. Many of their suppliers, both inside and outside the United States, hire subcontractors to manufacture certain products. Therefore, Walmart’s supply chain can become very complex very quickly. A company called Tazreen Fashions Ltd. had many assembly lines dedicated to Walmart apparel. One of Walmart’s suppliers used Tazreen’s factory to subcontract work. “Walmart claims the supplier was unauthorized to do so as Walmart had removed Tazreen Fashions from its list of approved factories months before the incident” (Ferrell, Fraedrich, & Ferrell, 2017, p.416). Inspections showed that the factory had many fire hazards including blocked stairwells and a lack of fire equipment. The building burned down and took 112 employee lives (Ferrell, Fraedrich, & Ferrell, 2017, p.416). Walmart was criticized for not doing a better job of ensuring safety for those who manufacture their products. “While Walmart does have auditing and approval mechanisms for subcontracted facilities, third parties usually perform the audits” (Ferrell, Fraedrich, & Ferrell, 2017, p.416). This means that as the parent company, Walmart is limited in the amount of information they receive. Critics have said that Walmart advocates against equipping factories with better safety protocol because of the high costs involved (Ferrell, Fraedrich, & Ferrell, 2017, p.416).
Recommendations Since its early years Walmart’s biggest threat and issue has been its unethical practices involving employee stakeholders. Although walmart’s employees or “associates” how they are called have the largest workforce of employees in the world, it also has been been one of the most criticized company for their employee treatment. According to the case study, low wages, and minimal benefits have been the biggest points of protest for Walmart associates. From the early 2000s to the end of 2005 Walmart’s stock went down 27 percent due to the publication that more than 60 percent of their employees are not offered healthcare (Ferrell, Fraedrich, & Ferrell, 2017, p.410).
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In order to improve their brand image once again and form a better relationship with its associates, Walmart needs to reevaluate their “Employee Benefit & Conditions.” This new forum should be applied to all associates on a nationwide coverage. It is unethical and unfair that employees at one store are not receiving the same benefits as other stores. In order to provide healthcare for all employees, Walmart should implement a copay system. The higher amount of hours you devote to the company the lower your copay will be. Giving everyone the same access to the benefits will immensely improve the ethical relationship between the company and the employee stakeholders. Through the years Walmart’s brand image has also taken several hits with their issues in their unethical leadership practices. Unfortunately following their stock decrease in 2006, Walmart’s board vice chair Thomas Coughlin plead guilty to several federal crimes dealing with the Walmart Company. According to the New York Times, “Mr. Coughlin pleaded guilty to stealing items from Walmart worth just a fraction of the millions of dollars he earned in salary, bonuses and stock options (“Ex-Executive of Wal-Mart”, 2006).” Wire-fraud and tax-evasion charges , 27 months of home confinement, $444,000 in fines and 1,500 hours of community service,
were some of the repercussions Coughlin received.
Although he was asked to step down it created a lack of trust in the organization. Following his step down from the position, many of the board were hesitant to allow the chief executives Lee Scott, Mike Duke and chairman Robson Walton back on the board because they had not been able to prevent the unethical practices taking place within their company in the last decade (Ferrell, Fraedrich, & Ferrell, 2017, p.413). In order to prevent this issue from repeating itself the company should implement an extensive executive training program and an incentive based whistleblower program. The extensive executive training would should be a minimum of 2 years. This training would be essential for the board when it comes to elections and reelection of board . Within the two years the individual will be expected to learn and master the skills necessary to be a Chief Executive Officer. These training would be formulated and conducted by executives already on the board. Also with incentive based whistleblower
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programs, employees on all level would be motivated to keep the company running ethically. Conduct Supervisory Audits of departments internally every five months to ensure transparency. Walmart had already taken their on steps in recovering for the bribery scandal in the case (Ferrell, Fraedrich, & Ferrell, 2017, p.414). The remedies discussed here will be mainly focused on preventing similar situations in the future. To start, Walmart could begin looking more into the culture of a country they are trying to expand into. Even though the expansion would be an extension of the Walmart brand, the day-to-day activities would still be heavily influenced by that country’s culture since the leaders for that branch could be from there and became accustomed to it. Since Walmart is based in the U.S., one solution to this would be to bring in outside leadership to their foreign branches. The outside executive would have already been trained in ethical leadership and have a clear following of Walmart’s code of ethics. This would ensure that their company-wide code of ethics is followed, it would be an effective way of making sure that their company culture is adopted throughout the company globally. This may be a tough policy to institute and may receive some kick back from countries because some countries may argue it takes away jobs from the citizens of that country. To help smooth things out there could be a potential give and take. One example of this would be; “Follow local customs and traditions at your discretion. Decided on a case-by-case basis which local customs to follow and which to avoid when it comes to victimless issues”(Ingram). Pulling from this Walmart would be able to structure their foreign businesses after the cultures they are located in as long as they are legal. Bringing in outside leadership to these foreign branches could also be temporary, one Walmart headquarters felt that a branch was ethically sound they could hire local leadership to take over. Bringing in someone who solid in following the Walmart's code of ethics but also familiar with the culture of business where they are located. Having an executive who is adamant in following the company code of ethics will allow those values to trickle down throughout the foreign branch. Safety is something every business should have a strong foundation in. Walmart had its own remedy for this issue but there were better options they could have chosen (Ferrell, Fraedrich, & Ferrell, 2017, p.416). One option, would have been to the Bangladesh workplace safety agreement (Ferrell,
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Fraedrich, & Ferrell, 2017, p.417). It was more effective solution because it would have put suppliers in a better position to improve their workplace conditions. Since Walmart did not sign, a remedy out team came up with for this would be for Walmart to use an approach similar to strategic philanthropy (Ferrell, Fraedrich, & Ferrell, 2017, p.116). It would allow Walmart to solve this issue in a more ethical way in the public-eye, while also bettering the workplace safety for their employees in Bangladesh. To implement this Walmart could donate to better the communities of its workers by first improving their living conditions through better house and community centers. To follow up, Walmart could donate the safety supplies workers need to improve their workplace safety. These things could fire extinguishers, fire escapes, fire blankets, emergency eyewashes and showers, etc. This seems to be the best solution as Walmart did not want to directly pay their facilities more, and offered a more ethical solution.
Epilogue Surprisingly, after the 2008-2009 economy meltdown Walmart continued to grow as a company. There net sales from 2007 – 2017 increased from $344 billion to $481 billion due to Sam Walton’s vision of everyday low prices; particularly to everyone (Walmart, 2011, p. 15). There dramatic increase was carried out by growing their operating income faster than sales at Sam’s Club and Walmart and by investing internationally, owning 21 million square feet of retail space (Walmart, 2011, p. 9). To continuously grow and rise above their competitors they had to successfully overcome their issues. An issue which they addressed and drastically changed was stakeholders’ relationships. To help associates succeed and better serve their customers they invested $2.7 billion over two years in higher wages, education and training to make Walmart U.S. a better place to work and shop (Walmart, 2017, p. 8). Their purpose of investing is to not only increase their employees’ loyalty and productivity but to see if they see a change in behavior. With loyal employees’, unionization will fail to exist since their full performance will
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be engaged in customer service. The first program which employees go through is program pathway. In order to graduate from the program they must complete six to 18 hours of training depending on their role. Then they go through nine retail modules that take about 4 ½ hours all together to complete. After that they the building goes on lockdown for 6 weeks and it is up for the employees to show what they have learned over their course of training. lastly , the manager then gives them a computer-based test to check to see if there is any improvement or change in the employee's character, performance or customer service. In addition, employees can now receive the “full benefits of their training, work directly with and build a relationship with a supervisor, and show their higher-ups what they have learned” (Gustafson, 2016). Therefore, you cannot measure how much a person has absorbed until you see that learning in action (Gustafson, 2016). However, management at Walmart is still not addressing discrimination issues. For example, Walmart discriminatory pregnancy policy which “rejected their requests to limit heavy lifting, climbing on ladders and other potentially dangerous tasks” (Wiessner, 2017). Additionally, they were also same sex discrimination lawsuit last year by denying gays and lesbians employees spouses health insurance benefits. Ethically they can go through there policy and change anything that shows discrimination to they stakeholders, so they will not face any more lawsuits. In addition, the last two issues they tried to improve was there ethical leadership and bribery policies. To improve they adopted the Global Statement of Ethics which promoted Walmart’s culture of integrity. This includes developing and upholding their policies for ethical behavior for all their stakeholders everywhere they work (Walmart, 20016). The statement of ethics is organized to show Walmart’s fundamental for all conducts when acting with integrity. Also, it shows how one who is in concern of an ethical issue or an issue which might be violation of ethics can address the issue publicly or privately. In order, to not create scarce, rumors or
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others falsely making reports. Regarding bribery Walmart prohibits anyone acting on their behalf behalf, whether directly or indirectly, from making or receiving bribes or improper payments. However, it appears they have more to show for with bribery issues because they are still having them. Therefore, for all issues to be addressed and attainable to conquer they must be addressed from top to bottom. Not only that is must be addressed globally through face to face meetings or virtually, so the company can stop losing money through lawsuits and use that money to rebuild and expand Walmart.
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References Ex-Executive of Wal-Mart Is Sentenced to Home Detention. (2006, August 12). The New York Times. Retrieved from http://query.nytimes.com/gst/fullpage.html?res=9B07E7D9163EF931A2575BC0A9609C 8B63 Ferrell, O. C., Fraedrich, J., & Ferrell, L. (2017). Business ethics: Ethical decision making and cases (Eleventh edition. ed.). Boston, MA: Cengage Learning. Gustafson, K. (2016, July 11). The real test of Wal-Mart's $2.7 billion wage investment is about to begin. Retrieved from CNBC: https://www.cnbc.com/2016/07/11/the-real-test-of-wal-marts-27-billion-wage-investment -is-about-to-begin.html Ingram, D. How to Address Differences in Ethical Standards and International Businesses. Retrieved November 27, 2017, from Chron website: http://smallbusiness.chron.com/address-differences-ethical-standards-internationalbusinesses-5254.html Our History. (2017). Retrieved November 27, 2017, from Walmart website: https://corporate.walmart.com/our-story/our-history ing the safety and dignity of workers everywhere. (2017). Retrieved November 27, 2017, from Walmart website: https://corporate.walmart.com/2016grr/enhancingsustainability/ing-worker-safety-and-dignity Walmart. (20016). Ethics and Integrity. Retrieved from Walmart: https://www.walmartethics.com/edFiles/Content/U.S.%20-%20English.pdf Walmart. (2011). Walmart Annual Report 2010. Retrieved from Walmart:
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http://s2.q4cdn.com/056532643/files/doc_financials/2010/Annual/2010annual-report-for-walmart-stores-inc_130221021765802161.pdf Walmart. (2017). Walmart 2016 Annual Report. Retrieved from Walmart: http://s2.q4cdn.com/056532643/files/doc_financials/2016/annual/2016-AnnualReport-PDF.pdf Wiessner, D. (2017, May 15). Workers say Wal-Mart discriminated against thousands of pregnant women. Retrieved from Reuters: https://www.reuters.com/article/uswalmart-lawsuit-pregnancy/workers-say-wal-mart-discriminated-againstthousands-of-pregnant-women-idUSKCN18B23I
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