Case study

Walmart and Corporate Social Responsibility

To millions of Americans Walmart means an efficient , low-cost retailer , especially appreciated when times are hard and household finances are strained. For Walmart employees, known as “associates,” of whom there are 1.4 million in the USA and another 600,000 world-wide, the company is associated with poor worker benefits, a slight suggestion of sex discrimination [left over from multiple lawsuits by female employees in the USA] and an anti-union bias. For environmentalists and Non-Government Organisations [NGOs] concerned with social issues, Walmart suggests a negative image of factory production in countries such as China where sustainability and Corporate Social Responsibility are in doubt.

There is some truth in these impressions of Walmart, but the company has worked to dispel the negative associations with sweatshop labour and unethical sourcing. Is it realistic for a company that has about 100,000 separate suppliers to ever guarantee sustainable principles applied across its supply chain?

Since its formation by Sam Walton in 1962 Walmart’s low-cost strategy has been its hallmark but cost-cutting is associated with poor ethical standards in the minds of many consumers. In 2005, Walmart launched its sustainability initiative, seeking to ensure that suppliers go along with its sustainability guidelines.

For Walmart, social responsibility is treated as an aspect of sustainability, highlighted in its Beijing Sustainability Summit of 2008, where it sought to engage its suppliers in committing to ethical policies. This was an achievement by Lee Scott, Walmart’s former CEO who sought to change Walmart’s negative image. However, problems of child labour, forced labour, poor working conditions and lack of freedom of association [to organise in trade unions] are regularly perceived to be issues in the manufacturing centres of China. Walmart’s Ethical Standards Manual For Suppliers was produced and sustainability reports have followed. The Manual states that “workers should be treated fairly and respectfully according to local laws and regulations.” Standards include a ban on child labour, defined as workers under the age of 14. They also stipulate that all overtime should be voluntary and that workers have a right to organise in a trade union of their choice and to engage in collective bargaining. However, in practice, monitoring and enforcement among thousands of suppliers present formidable challenges.

Initially, Walmart used its own auditors to visit factories, many on visits announced in advance. It now uses third party auditors, many of whom work for a range of other western brand owners. Walmart employs a traffic light rating system to report audit results. Green is the highest rating, where the factory has no violations or only low-risk ones. Yellow indicates medium risk and orange is high risk. For yellow and orange ratings, work can carry on and another audit will take place in 60 or 120 days . A red indicates such a high level of violations that the factory should be struck off the ethical suppliers list.

In Walmart’s 2010 results for China , only 3.3%of suppliers were rated green, 57.2% were rated yellow and 35.5% were rated orange. These results suggest that much needs to be done to raise standards. Walmart observed that a factor was that its demands for large orders and urgent orders increased the need for overtime. Walmart’s huge size gives it a dominant bargaining position with suppliers, who are under pressure to meet delivery targets or risk losing their supply contract. There is an obvious tension between economic pressures and aspirations to behave ethically.

Walmart is not a company that is complacent about its market leadership. Its priorities, as headlined in its annual report, are growth around the world, leveraging to create greater competitive advantage and delivering strong returns to shareholders. The founder’s family owns 40% of the company’s shares and is probably content that sales have continued to grow. The recession in the USA has been a blessing for the company as its “everyday low prices” are attracting middle-class customers who once would have considered the stores too down-market.

Consider that, in 2009, one in every ten Americans received food stamps in the country’s biggest ever anti-hunger programme. The programme paid out $37.7 billion, much of the money finding its way back to Walmart. Charitable organisations have also helped the needy and Walmart has been keen to stress its contribution through charitable work in communities.

Its sights are now on rising above its long relationships with America’s low income, largely rural, families which have been the bedrock of its US businesses. Spurred on by global ambitions Walmart now sees growth coming from its international division especially emerging markets. In 2009 global sales exceeded $400 billion. Having accumulated $11.6 billion in cash in 2009 it was in a good position to go shopping and bought a controlling share in Chile’s largest retailer, D&S, and still had $8 billion left to spend on other acquisitions as well as refurbishments of its US stores.

Under Lee Scott, who stepped down as CEO in 2009, Walmart’s reputation improved. He realised that much of the criticism of the company was about its size and reach and sought to turn this