CASE 3

Walmart Manages Ethics and Compliance

Challenges
CASE NOTES FOR INSTRUCTORS
This case examines Walmart and its approach to ethics from its origins to the present time period.
Students will see the difficulties Walmart faced as it became the largest retailer in the world. The case
serves as a thought-provoking exercise on the importance of establishing a strong ethics program in a
company.

Some ethical criticisms of the company include the following: the presence of Walmart drives other small
and local businesses out of the market; Walmarts presence leads to the lowering of wages in the towns it
locates in; and Walmart exerts too much power over suppliers. Another major controversy discussed is its
treatment of employees. Low wages and benefits, denial of meal breaks, cutting of employee work hours,
and a reduction in staff during periods of expansion are some criticisms levied against the company. There
are also cases when Walmarts statements seem to contradict its actions (i.e. it says it is not against unions
but appears to fight them).

The company has also encountered leadership issues including the 2005 incident of board vice chair
Thomas Coughlins forced resignation for stealing as much as $500,000 from Walmart, and the more
recent bribery scandal in Mexico possibly implicating former CEOs Mike Dukes and Lee Scotts
knowledge of the misconduct. In addition, safety has also become an issue for Walmart after a fire in an
unsafe Bangladesh factory killed many workers. Walmart is devising a new safety plan for factories in
Bangladesh and is revising its auditing policies.

Despite these criticisms, there are several activities the company is involved in that have a positive
impact. For example, it has become a leader in installing renewable energy sources in many of its stores
all over the world including solar, wind, biodiesel, and fuel cell installations; it works with The
Sustainability Consortium to develop a sustainability index to measure the sustainability of its products
and processes; and it has been successful in converting used cooking oil into biodiesel, soap, and
supplements for cattle feed and composting over 1,900 metric tons of organic waste. The Environmental
Protection Agencys Green Power Partnership Program has ranked Walmart the third largest purchaser of
green power among its U.S. retail competitors and ninth largest purchaser in the Fortune 500. Walmart is
also encouraging energy conservation in all of its stores through policies such as installing LED lights and
using daylight when possible, turning off lights and other power sources when not in use, and replacing
its open freezers with secondary loop refrigeration systems.

The case closes with a discussion of the actions Walmart is taking to improve its relations with
stakeholders, such as tighter corporate governance policies and philanthropy. A look into the companys
present and possible future creates the opportunity for students to engage in a fruitful discussion of the
role of ethics and compliance in a large company.

QUESTIONS AND DISCUSSION

1. Assess how Walmart is managing ethics and social responsibility as one of the largest corporations in
the world.

Students answers will vary and should be supported by reasoning. Some might view Walmart as a
socially irresponsible company that is only pretending to engage in socially responsible activities to
improve its image. Other students will likely acknowledge that Walmart has made many mistakes, but
that it has also made inroads in socially responsible behavior. Its attempt to increase sustainability
throughout the supply chain and its partnership with The Sustainability Consortium to develop a
sustainability index can be used to improve the sustainability of other large firms. Its Ethical
Standards Team is being used to improve compliance and safety at Walmarts many global supplier
factories. As one of the largest corporations in the world, Walmart has the ability to act as a model for
other firms to follow. The actions it takes in this area will be watched closely by other global firms.

2. Evaluate various ethical issues Walmart has faced and how the company responded to stakeholders.

The companys size is a major factor in its ethical issues because the consequences of its actions
affect more people (e.g. putting smaller, local businesses out of commission; lowering of wages;
exerting too much power over suppliers; and offshoring). Other ethical issues include employee
treatment such as healthcare and cutting work hours; alleged union busting; leadership issues
including embezzlement; bribery in different countries to secure contracts; and safety issues.

Walmart has responded to these issues in various ways. It launched a Made in America initiative to
combat criticisms of offshoring, in which it pledged to increase U.S.-made goods by $50 billion over
a ten-year period. It announced a minimum wage hike of $10 an hour. To increase the safety of its
factories, it requires that an independent agency assess the electrical and building safety conditions of
its factories and has adopted a zero-tolerance approach. In response to the bribery scandal, Walmart
has completely overhauled its global compliance program and released its first Global Responsibility
Report in 2014. Students should be able to list even more examples from the case.

While many of Walmarts approaches appear to be reactivereacting to crises as they occurits

sustainability initiatives could be viewed as proactive. Walmart is taking the initiative and working
with partners to improve its sustainability and develop an index that other firms can use in their own
sustainability initiatives.

3. What are Walmarts contributions to improving the well-being of consumers and the economic
sustainability of society?

Walmart employs millions of people worldwide, and its EDLP pricing strategy allows consumers to
purchase products at lower costs than they might have at other storesresulting in significant cost
savings. For many global suppliers, Walmart represents the bulk of their business. The Made in
America initiative could increase business for smaller U.S. suppliers. Additionally, its decision to
raise the minimum wage paid to workers to $10 will benefit workers in the form of higher income.

ADDITIONAL RESOURCES

Walmart annual report: http://s2.q4cdn.com/056532643/files/doc_financials/2015/annual/2015-

annual-report.pdf.
 Walmarts global responsibility report:
http://cdn.corporate.walmart.com/f2/b0/5b8e63024998a74b5514e078a4fe/2015-global-
responsibility-report.pdf.

The results of the Walmart bribery probe in Mexico: http://www.wsj.com/articles/wal-mart-

bribery-probe-finds-little-misconduct-in-mexico-1445215737.

Walmarts decision to pay current employees $10 an hour: http://www.nbc-

2.com/story/28148190/walmart-to-pay-current-employees-at-least-10-an-hour#.Vpbmi3l3BVI.

Walmart and the gender discrimination lawsuit:

http://www.businessweek.com/magazine/content/10_48/b4205039091060.htm.