(A)

DISCUSSION CASE: Wal-Mart

By most accounts Wal-Mart is among the most successful companies in the world. Its revenues for 2004 were $259 billion, more than three times larger than the next largest retailer. For comparison, in the same year Saudi Arabia was ranked as the thirtieth largest economy in the world with an estimated GDP of $287 billion and Switzerland was ranked thirty-fifth largest with a GDP of $240 billion. Wal-Mart operates almost 5,000. stores, and over 3,000 of them are in the United States. It is estimated that 138 million people shop at Wal-Mart each week. Worldwide, WalMart employs 1.4 million people. It is the largest private employer in the United States and the single largest employer in 25 separate U.S. states. Wal-Mart's financial performance has been remarkable. Wal-Mart stock was first publicly traded in 1970 when 300,000 shares were offered at $16.50 per share. In 1999 Wal-Mart stock experienced its eleventh 2 for 1 split. One hundred shares bought in 1970 would be equal to 204,800 shares valued at $53 a share at the end of 2004. An initial $1650 investment would be worth $10.8 million. In 2003 Helen Walton, widow of Wal-Mart founder Sam Walton, and her four children ranked as five of the wealthiest eight people in the United States. Their combined wealth was estimated to be over $100 billion, more than twice the worth of Microsoft founder Bill Gates. Wal-Mart was founded in the early 1960s by Sam Walton in Rogers, Arkansas. Walton's original marketing strategy was to emphasize low prices and this strategy continues today as reflected in its marketing campaign of "Everyday low prices." Wal-Mart is able to achieve low retail prices by leveraging its buying power as the world's largest,retailer and by controlling labor costs. Wal-Mart sells more socks, toothpaste, dog food, sporting goods, guns, diamonds, and groceries than any other business in the world. Alone, they account for 30 percent of all household goods (laundry detergent, soap, paper towels), 15 percent of all CDs as well as 28 percent of Dial soap's total sales, 24 percent of Del Monte Foods, 23 percent of Clorox, and 23 percent of Revlon.1 Wal-Mart is the single largest importer from China, accounting for almost 10 percent of all Chinese imports to the United States, worth an estimated $12 billion in 2002. In 2003 Wal-Mart was named Fortune magazine's "Most Admired" retail company. At first glance, there are many values promoted by Wal-Mart's success. Stockholders have received significant financial benefits from Wal-Mart. Consumers also receive financial benefits in the form of low prices, employees benefit from having jobs, many businesses benefit from supplying Wal-Mart with goods and services, and communities benefit from tax-paying corporate citizens. Wal-Mart cites several other values that it promotes in its own self-description. Wal-Mart describes itself as a business that "was built upon a foundation of honesty, respect, fairness and integrity." What is described as the "Wal-Mart culture" is based on three "basic beliefs" attributed to founder Sam Walton: respect for individuals, service to customers, and striving for excellence. Despite this, not everyone agrees that Wal-Mart lives up to high ethical standards. In contrast to Fortune magazine's claim, critics portray Wal-Mart as among the least admired corporations in the world,'Ethical criticisms have been raised against Wal-Mart on behalf of every major constituencycustomers, employees, suppliers, competitors, communitieswith whom Wal-Mart interacts. For example, some critics charge that Wal-Mart's low-priced goods, and even their placement within stores, are a ploy to entice customers to purchase more and higherpriced goods. Such critics would charge Wal-Mart with deceptive and manipulative pricing and marketing. Perhaps the greatest ethical criticisms of Wal-Mart have involved treatment of workers. Wal-Mart is well-known for its aggressive practices aimed at controlling labor costs. Wal-Mart argues that this is part of their 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, Wal-Mart is able to offer consumers the lowest everyday prices. Among the criticisms of Wal-Mart's labor practices are claims that Wal-Mart pays its workers poverty-level wages. The average annual salary for a Wal-Mart 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. Wal-Mart offers health care benefits to full-time workers, but/relative to other employers, Wal-Mart employees pay a disproportionately high percentage of the costs. According to critics, these low wages and benefits result in many Wal-Mart employees qualifying for government assistance programs such as food stamps and health care, effectively creating a government subsidy for Wal-Mart's low wages. Wal-Mart has also been accused of illegally requiring employees to work overtime without pay and to work off-the-clock. Employees in Wisconsin, Michigan, Missouri, Kansas, Ohio, Washington, Illinois, West Virginia, and Iowa have filed law suits alleging such illegal labor practices. Wal-Mart has also been accused of obstructing employees' attempt to organize unions. The National Labor Relations Board filed suit against Wal-Mart stores in Pennsylvania and Texas charging illegal antiunion activities. Maine's Department of Labor fined Wal-Mart for violating child labor laws, finding 1,436 child labor law infractions in some 20 different Wal-Mart stores. Wal-Mart has also been sued in Missouri, California, Arkansas, and Arizona for violating the Americans with Disabilities Act. . .. Lawsuits and other legal investigations, of course, do not prove guilt. Every business faces lawsuits and regulatory investigations and, for the world's largest business, being sued and investigated is a daily fact of life. But two recent events have attracted more widespread attention. In June 2001 current and former employees from California, Illinois, Ohio, Texas, and Florida filed a class action lawsuit against WalMart alleging sex discrimination against women employees. The suit claimed that women were denied equal opportunity in the workplace and -were relegated to lowpaying jobs with little opportunity for promotion. Wal-Mart employs more women than any other private employer in the United States, Women comprise over 70 percent of Wal-Mart'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, significantly lower than the 56 percent among Wal-Mart competitors Target and K-Mart. Only one of the top 20 positions at Wal-Mart is held by a woman. In June 2004, a federal judge in California ruled that the suit could proceed as a class action lawsuit on behalf of all female employees of Wal-Mart. This case thereby became the largest-ever civil rights class action lawsuit. In his decision, Judge Martin Jenkins noted 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." A second case stems from federal raids on 60 Wal-Mart stores in 20 states in October 2003. The raids resulted in arrests of over 250 illegal aliens who were working as janitors in Wal-Mart stores. All of the workers were employed by third party subcontractors that Wal-Mart had hired for overnight janitorial services. A law suit was filed on behalf of several of these workers claiming that Wal-Mart knowingly employed illegal workers as part of a scheme to pay below minimum wages, deny overtime pay, and otherwise exploit their illegal status. Late in 2003, federal prosecutors in Pennsylvania announced that Wal-Mart was being investigated by a grand jury regarding these illegal workers. Wal-Mart faces a federal fine of up to $10,000 for each illegal immigrant if it is proven that company officials knowingly were involved in employing illegal workers. Wal-Mart denied all

charges, claiming that the company was ignorant of the illegal activities of their subcontractors. Lawyers representing the illegal workers countered with evidence and affidavits, including some from competing janitorial companies who lost business to the subcontractors who employ illegal workers, which seemed to show that Wal-Mart executives had known about the practice. Critics point out that when the largest national employer establishes low workplace standards for wages, benefits, and labor practices, other employers have both the incentive and opportunity to follow. As the competing janitorial service companies learned, competing fairly and legally can result in the loss of business. Many local communities also criticize Wal-Mart as a major factor in the demise of small towns and local businesses. Small retail businesses find it difficult to compete with Wal-Mart's pricing and marketing strategies and local communities suffer when Wal-Mart 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 Wal-Mart's national and international suppliers. The problem is compounded when Wal-Mart receives tax subsidies and tax breaks offered by local governments hoping to attract a Wal-Mart store. Wal-Mart's aggressive strategy to lower costs also is criticized for the harms it can cause suppliers both nationally and internationally. Wal-Mart 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 Wal-Mart controls such a large market segment, many suppliers cannot survive if Wal-Mart declines to carry their product. This practice has caused some businesses to go out of business, and many others to find ways to send production off-shore. One result is that Wal-Mart, 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 Wal-Mart suppliers in China, Central America, and Saipan have all been accused of producing sweatshop conditions in factories manufacturing clothing produced for Wal-Mart.2 DISCUSSION QUESTIONS 1. How would you describe the managerial philosophy of Wal-Mart? What principles are involved? What are the overriding aims, values, and goals of Wal-Mart? 2. Evaluate the management philosophy of Wal-Mart from the point of view of stockholders, employees, customers, the local community, and suppliers. 3. Should business management always seek the lowest prices for its customers and the highest rate of return on investment? What reasons might there be for seeking something less for customers and stockholders? 4. Economists define costs in terms of opportunities forgone. What opportunities are forgone by Wal-Mart's "everyday low price" marketing strategy? Who pays the costs of Wal-Mart's low prices? 5. Wal-Mart's wages are above the legally required minimum wage, and health benefits are not legally mandated. Are there reasons for a business to take actions not required by law but which might reduce profits? 6. Does Wal-Mart have any responsibilities to its suppliers other than those specified in their contracts?
:B

Discuss the current CSR Practices of any one firm in India.

Note: Both A and B carry equal marks (15)