Seek Truth (General Chapter 2004)

THE WAL-MART SAGA

INTRODUCTION:

Wal-Mart has a LOVE-HATE inter-relationship among workers, consumers, and citizens both locally and globally.  The corporation continues its cultural, political and economic impact upon the previously mentioned societal groups on a daily basis.  Hence, the “saga” intensifies, unbridled by governmental restrictions.  Workers’ rights are undermined through labor abuses related to unsustainable wages, safety issues, health benefits, gender discrimination, abuses of collective bargaining rights, and lack of overtime pay.
                                                                                                  
UNSUSTAINABLE WAGES:

The issue of unsustainable wages continues to present problems for Wal-Mart.  Last month, Business Week quoted from a recent report from consumer group Los Angeles Alliance for a New Economy, stating that “Wal-Mart employees earn 20% less than the average U.S. retail worker, and some $10,000 less than what the average two-person family requires to meet its basic needs.”  According to Wal-Mart, full-time hourly workers make an average of $10.51 an hour.  The company would not disclose the salary of a part-time worker.  But according to an article by Jeffery Goldberg that appeared in the New Yorker April 2, 2007, the average wage for these workers is probably less than $9.00 an hour.

When the reality of workers’ wages at Wal-Mart is mirrored with management’s perspective, there arises an incredible distortion of equality and justice.  Mona Williams is the chief spokesperson for the company.  When she was asked by the reporter, mentioned above, why Wal-Mart could not simply give two-dollar-per-hour-across-the-board raises to its store employees, she replied: “Wal-Mart’s profit per associate is $6,400.  If we were to pay two dollars more per hour to associates, that would cut $4,000 out of our per-employee profit.  If anybody ever stopped to do the math, they’d see this. It would take two thirds of the profit if we gave everyone two dollars more.  You could raise prices, but what about the woman who is shopping for Easter shoes for her kids?”  

FLAWED BUSINESS MODEL:

The response above precisely exemplifies the flaws in Wal-Mart’s business model.  Why are  workers’ (associates) salaries used in calculating Wal-Mart’s profits?  “Wal-Mart is the second–largest company in the world in terms of revenues—only Exxon Mobil is bigger.  Its revenues last year came to more than $315 billion with profits of more than $11 billion.” (The New Yorker, April 2, 2007).  Why are not salaries based upon the profits and revenues which workers created?  Wal-Mart’s priorities are skewed because management only uses workers’ salaries as an indicator to assess the company’s profitability. Why isn’t Mr. Lee Scott, the CEO of Wal-Mart, with his salary and total compensation of $29.7 million in 2006, factored into the Wal-Mart’s calculations to establish the company’s profitability? 

A comparison of Mr. Scott’s salary to the average Wal-Mart worker indicates that he makes $14,278 an hour or about 1,400 times the average Wal-Mart employee.  The average hourly worker’s wage is $10.11 (usatoday.com-8/7/07). The average annual salary is $17,874.48 for an hourly worker, which is under the federal poverty level of $20,650 for a family of four.  An average Wal-Mart employee would have to work 1,162 years to earn what Lee Scott made in 2006.  (Walmartwatch.com-4/25/07)  Or looked at another way, Lee Scott makes more in two hours than an hourly Wal-Mart worker does in one year!

Workers’ wages can be raised considerably by reducing the gap between executive compensation and hourly workers.  This will allow a two dollars increase in wages of hourly workers without endangering the company’s profitability, allowing a justifiable solution which equalizes the “loss” and offsets part of the “$4,000 deficit per associate,” indicated by Monica Williams. 

The Economic Policy Institute offers this observation with regard to wages and benefit costs: 

“Currently, Wal-Mart’s annual wage and benefit costs are estimated as $21.46 billion ($10.41 in hourly compensation for 1.3 million hourly workers working an average of 30 hours a week for 52 weeks a year).  A 16.0% increase in wage and benefits costs for 85% of its employees amounts to $2.9 billion.  Wal-Mart’s annual sales in United States for the fiscal year ending in January 2005 were $286 billion.  Thus, the added labor costs would amount to 1% of its sales, or just over a penny per dollar of sales.” (Economic Policy Institute-Wrestling With Wal-Mart-June 15, 2006.)

RESPONSES FROM SOCIALLY RESPONSIBLE INVESTORS:

Socially responsible investors cannot ignore the innumerable transgressions indicated above.  Therefore, the Norwegian Government’s Pension Fund, which is one of one of the world’s largest ($285 billion), called for Wal-Mart’s exclusion.  The fund’s annual report indicates divestment was selected as a proper course of action as expressed below:

 “There are numerous reports of child labour, serious violations of working hour regulations, wages below the local minimum, health-hazardous working conditions, unreasonable punishment of employees, prohibition of unionization and extended use of a production system that fosters working conditions bordering on forced labour, and of employees being locked into production premises etc., in Wal-Mart’s  supply chain.” 

 

Human Rights Watch also issued a report, May 2007.  The summary section entitled: Discounting Rights-Wal-Mart’s Violations of US Workers’ Right to Freedom of Association states:

“Wal-Mart is a case study in what is wrong with US labor laws.   It is not alone among US companies in its efforts to combat union formation, following the incentives set out in unbalanced US labor laws that tilt the playing field decidedly in favor of anti-union agitation.  It is also not alone in violating weak US labor laws and taking advantage of ineffective labor enforcement.  But Wal-Mart stands out for the sheer magnitude and aggressiveness of its anti-union apparatus and actions.”

SOME SYSTEMIC ISSUES:

Other issues to consider pertain directly to the contract supplier system.  This system was invented primarily by corporations to suit manufacturing and labor needs.  They have shrewdly developed their own codes of conduct and instituted methods to monitor manufacturing facilities while maintaining influence and control.  Therefore, socially responsible investors stress the need for accountability and transparency when developing a functional code of conduct as well as an independent monitoring process.  Both of these elements represent economic, cultural, social and methodological challenges.

The actual physical process of monitoring a factory presents another set of difficulties.  Presently, this system inherently institutionalizes the “freedom” of each corporation to contract its own suppliers (factories).  This means that one supplier-factory can produce the same product for innumerable corporations.   Therefore, it is structurally difficult to assess a factory’s compliance with Codes of Conduct and to evaluate Independent Monitoring elements comprehensively.  If every corporation has its own team of monitor and compliance officers, a factory might possibly be subjected to several interruptions daily.  This produces a negative impact upon the production process which is detrimental to workers as well as factory owners.

Wal-Mart has worked this system well. The company’s Report On Ethical Sourcing-2005, explains how Wal-Mart conducts supervision of factories.  Audits are conducted by employees of the company who use standards for suppliers.  According to the company, these standards compose its code of conduct.  The elements mentioned in the standards cover health and safety issues, environment, compensation, working hours, forced labor, underage labor, discrimination, compliance with applicable national laws, and regulation, freedom of association and collective bargaining.   

There is a great discrepancy between what the company proclaims and the reality expressed in both the Human Rights Watch Report and the findings of the directors of the Norwegian Government’s Pension Fund cited above.    Since Wal-Mart has institutionalized its own monitoring system for suppliers, and audits are conducted by Wal-Mart personnel, how independent are they of management?   How independent are auditors hired by the company?  
When problems arise, how free are workers to manifest complaints, or express violations that may arise?  

A written code of conduct and a systematized audit program does not necessarily imply compliance or accountability on the part of a company. ICCR Investors are keenly aware of the structural limitation of a non-objective system that favors management over the workers.  Therefore, the incorporation of local non-governmental organizations (NGOs) trained to evaluate compliance and oversee the monitoring process is essential to ensure objectively and impartiality.  This difference of approach between ICCR members and Wal-Mart management is still unresolved.

However, when ICCR members recently visited several of Wal-Mart’s facilities in India, China, Honduras and El Salvador, they noted the situation of workers had improved.  Nevertheless, it is not coincidental that most of Wal-Mart’s manufacturers and suppliers are in China where labor is cheap.

HEALTH CARE:

Health care is another area that has profound implications for Wal-Mart workers.  According to (Businessweek.com-4/2007), the company has fewer than half its employees enrolled in its health insurance plan, compared with 67% for the average large employer.  As a result, taxpayers end up subsidizing the company’s workers.  Wal-Mart, a company with revenues of $315 billion and profits of more than $11 billion is subsidized by taxpayers!

The criticism of Wal-Mart’s lack of affordable health insurance caused the company to offer lower premiums.  However, the $1,000 deductible is very high for the majority of workers earning less than $19,000 a year (The New York Times-Oct. 24, 2006).

The health care issue overlaps with other elements inherent in the company’s business model.  Workers have experienced a cut in work hours, which changes full-time to part-time status with little notice.   This practice penalizes workers because the part-time status makes them ineligible to receive of full-time employment coverage.

GENDER DISCRIMINATION and EMPLOYEE LAWSUITS:

In 2004 a federal judge approved class–action status for a sex-discrimination lawsuit against Wal-Mart Stores Inc. Wal-Mart appealed the status of the law-suit but on Feb. 6, 2007, the United States Court of Appeals rejected Wal-Mart’s argument that the lawsuit was too unwieldy to handle in a single case.  The court ruled that the lawsuit should proceed as a class action describing it as “the largest certified class in history” (Equal Right Advocates.org.-Dukes vs. Wal-Mart Stores).    With up to 1.6 million plaintiffs, it will be the largest private civil case in U.S. history. (TIME/CNN-June, 27, 2004)

Besides this class act lawsuit, Wal-Mart currently “faces more than 70 wage–and-hour lawsuits, on behalf of Wal-Mart employees, alleging it failed to pay them for all hours worked or didn’t compensate them properly for overtime.   Some lawsuits also accuse the retailer of prohibiting workers from taking breaks and of altering timecards in order to trim store payroll costs.” (Bloomberg.com-April 23, 2007).

SPYING ON SHAREHOLDERS:

Surveillance of Shareholders on the part of Wal-Mart has caused investors much concern. According to a January 2007 memo reviewed by The Wall Street Journal, Wal-Mart security units were asked to “do some preliminary background work on the potential threat assessment” of those submitting proposals to its June shareholder meeting, particularly those whose resolutions the company was trying to block.  The list includes several members of ICCR (Wall Street Journal, April 4, 2007, page B1).   Wal-Mart eventually apologized to shareholders after the article appeared, particularly for referring to them as potential threats.

ENVIRONMENTAL and CULTURAL ISSUES:

Wal-Mart has a poor record of locating stores on environmentally sensitive sites, especially wetlands. The state of Illinois sued Wal-Mart in 2004 after storm water runoff from construction of a Supercenter polluted the area (Chicago Tribune-Feb. 25, 2006).  Water pollution problems occurred in Georgia, Florida, Massachusetts, New Mexico and Oklahoma.

Also, Wal-Mart received criticism for the construction of a store near the 2000-year old pyramids of the Teotihuacan Empire.   Mexican naturalists and conservationists are strongly opposed to Wal-Mart’s blatant disregard for Mexican cultural heritage and for the encroachment of U.S. influence (Knight Ridder-Oct. 25, 2004).

However, socially responsible investors acknowledge Mr. Scott’s promise to implement three important environmental goals mentioned in his October 5, 2005 speech:

-To be supplied 100 % by renewable energy
-To create zero waste
-To sell products that sustain our resources and environment.

There will be many watchful eyes upon Wal-Mart as it moves forward to reduce greenhouse gas emissions and reduce packaging in all its stores and warehouses.  These are goals we all must uphold as essential to “walking gently” upon Earth.

CONCLUSION:

Wal-Mart’s business model supports the concept of keeping prices low for consumers.  The company tenaciously adheres to this principle and yet has no problem supporting inadequate wages for those who manufacture or sell goods produced for its U.S. consumers.  Low income people in the U.S., as well as some affluent members of society, “get a deal” at the expense of economically deprived peoples in impoverished countries and nationally.  Wal-Mart’s business model is sustained by this unjust economic practice, though it allows low income workers in richer economies to increase their purchasing power. 

Wal-Mart’s wealth is mammoth.  Its power is unsurpassed and its accountability limited.  The concentration of such massive wealth and market share gives it power to control the entire marketplace and to determine its direction.  Government policy is threatened as is the fragile system of checks and balances that make these systems operable.  Do we want this single company to further debilitate our precarious democracy?

We must hold Wal-Mart accountable because governmental agencies have failed to do so.   The Adrian Dominican Sisters and other ICCR investors continue pressing the company to develop programs that will measure transparency and accountability. As consumers, we can demand equality, justice, responsibility and transparency from management.

Submitted by: Sister Annette M. Sinagra, OP
Corporate Responsibility Analyst
Portfolio Advisory Board
Adrian Dominican Sisters