case 3 walmart manages ethics and compliance challenges

BỘ GIÁO DỤC VÀ ĐÀO TẠO

BUSINESS ETHICS REPORT ASSIGNMENT

CASE 3: WALMART MANAGES ETHICS AND COMPLIANCE CHALLENGES

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Il INTRODUCTION

In this day and age, business ethics issue courts the publicity, the scandals about deception and fraud in business frequently generates a great deal of heated debate Therefore, the demand for business to integrate ethics and responsibility into all business decisions has become one of the most significant priorities in the twenty-

first century Ethical decisions are a part of everyday life for individuals who work in organizations, and making them carefully is as important to business success as mastering other decision aspects It is important to learn how to make decisions in the internal environment of an organization to achieve goals and career advancement Besides, ethical behavior requires understanding and identifying issues, areas of risk, and approaches to making choices in an organizational environment

One of the most impressive illustrations about how businesses face the challenge of ethics scandals and subsequently making choices to increase its competitive advantage as well as repair its reputation, is Walmart Stores, Inc The ethical issue Walmart experienced include accusations of discrimination, feminists, leadership misconduct, bribery, safety, etc Obviously, the evaluation thing is how Walmart deals with these concerns, then endeavors in sustainability and social responsibility to revitalize their image

I THE GROWTH OF WALMART

Walmart Stores, Inc., an icon of American business, began in 1962, when Sam Waltion, a founder of Walmart, opened the first Walmart Discount Store in Rogers, Arkansas Over the next 40 years, Walmart grew from a small-town business to multinational corporation with more than 80 facilities in 27 countries and now serves more than 200 million customers weekly

1 Complaint from competitive stakeholders

It can not be denied that Walmart has saved consumers millions of dollars by providing low-cost products However, with low prices items, Walmart is often accused of being responsible for the downward on wages and benefits in towns where those located in Furthermore, it is difficult for other retailers to compete with Walmart, some of those have filed lawsuits against Walmart, asserting that they use unacceptable prices with the aim of putting competing companies out of business

To be more specific, there are some studies which illustrate that overall payroll wages, including Walmart wages, are by 5 percent after Walmart enters a new market Thus, several citizens have refused to allow Walmart to take up residence in their areas With regard to the government, their actions may be quite questionable They 2

passed a law that would have a detrimental impact on Walmart and other big-box retailers by setting a higher mimimum wage per hour for big stores Therefore, some critics claimed that Walmart and other huge retailers are being unfairly targeted by the government

2 Supplier Stakeholders with Walmart

Walmart achieves its “everyday low prices” by streamlining the company, especially for the ability to handle, move and track merchandise Since 2009, Walmart has worked with The Sustainability Consortium to develop a new measurement and reporting system known as the Sustainability Index, with the aim of using this system to increase the sustainability of its products and create a more efficient supply chain Moreover, the power and the influence of Walmart enable many companies to depend on it for much of their business, indeed, the benefits from being a Walmart supplier can not be underestimated, the suppliers will become more streamlined and efficient for Walmart, they help other customers as well Various companies claim that supplying Walmart has been the best thing for their business

However, in 2012, CEO Mike Duke maintained 4 goals to increase the sustainability of the company’s supply chain, thus, some critics believe that the pressures to achieve those goals will shift more of a cost burden on to suppliers Furthermore, many suppliers have been forced to move production from the US to less expensive locations in Asia, resulting in negatively affecting the suppliers

3 Ethical Issues regarding to employee stakeholders

Although Walmart is one of the largest retail businesses all over the world, it still has been criticized about the way Walmart treats its employees for low wages and benefits Walmart had several accusations of failing to provide health insurance for over 60 percent of its employees In order to deal with these issues after the deluge of bad press, in 2006, Walmart raised pay tied to performance in most of its stores Walmart also improved its health benefits package, resulting in saving employees an estimated $25 million Therefore, Walmart pointed out quickly that the company offers health care benefits competitive in the retail industry However, a new Walmart policy eliminated healthcare coverage for new hires working less than 30 hours a 3

week Thus, some analysts maintained that Walmart intended to shift the burden of healthcare coverage on to the federal government due to the new healthcare law Although Walmart is not alone in this practice, as such a large business, Walmart’s actions had a significant effect on the economy Besides, there was another criticism against Walmart which was Walmart decreased its workforce at the same time increasing its retail stores Fewer employees it is harder to provide quality customer service, thus, Walmart placed the lowest among discount stores as well as department stores on customer satisfaction Nevertheless, Walmart responded to this problem by maintaining that some customers dissatisfied did not reflect all the shopping experience of customers as a whole

With regard to unions, Walmart claimed that they are not against unions in general, but it sees no need for those to come between workers and managers However, Walmart always seems to fight against them, its associates have voted against unions in the past Many see the company as aggressively working to prevent unionization in its stores Nonetheless, Walmart’s stance against unions has not always held up in foreign countries In China, in order to grow, Walmart needs to accept a union In 2004, The Chinese Labor Federation pushed Walmart to allow the formation of unions Therefore, although Walmart accepted this, the critics clatmed that Walmart made it difficult for workers to join a union Walmart also stated it would not renew the contracts of unionized workers Clearly, the pressure mounted significantly, as a result, later 2006, Walmart still had to sign a memorandum with ACFTU allowing unions in stores

Besides the accusations of low employee benefits and a strong stance against unions, Walmart also has more detrimental scandals In December 2005, Walmart had to pay $172 million to more than 100,000 California employees in a class-action lawsuit due to invariably refusing meal breaks, rest breaks and also deliberately altered time cards to prevent overtime In 2008, the compensatory money for such lawsuits was up to $640 million Furthermore, Walmart has been accused of discrimination by employees as well Less than 10 percent of store management is women although the number of women employees account for more than % of all Walmart staff In 2001, an internal study showed the company paid female store

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managers less than males in the same positions Obviously, Walmart received sex- discrimination lawsuits which was granted by a federal judge in San Francisco in 2004 In 2010, dissatisfied employees at Walmart started the Organization United Respect Walmart, or OUR Walmart OUR Walmart recetves much of its funding from several other organizations According to them, there were 5000 members who desired to change working conditions at Walmart Their grievances against Walmart include raising the number of hours needed for part-time workers, and using its work- scheduling systems to decrease hours for employees so they will not qualify for benefits OUR Walmart protests and picketing at Walmart stores for 6 months While the protests did occur, not as many Walmart employees participated as anticipated As a result, Walmart filed a lawsuit against individuals who protested around its stores for illegal trespassing and disrupting customers

4, Ethical Leadership Issues

In March 2005, board vice chair Thomas Coughlin was forced to resign because he stole as much as $500,000 from Walmart in the form of fake expenses, bogus retmbursements and the unauthorized use of gift cards, although at one time, he was the second highest-ranking Walmart executive and a candidate for CEO After that, more and more crimes of Coughlin were revealed, he was sentenced for 27 months of home confinement, $440,000 in fines and 1,500 hours of community service

After CEO Lee Scott became CEO, the confidence in Walmart’s leadership rose significantly However, it waned once more afté a bribery scandal was discovered in Mexico It drew a great deal of disappointment and lack of confidence in the leadership for not preventing the store from getting involved in misconduct With the aim of reassuring investors, it is essential for Walmart’s leadership to demonstrate a renewed commitment toward ensuring the company adheres to ethics and compliance standards

5 Problems with Environmental Stakeholders

In 2005, Walmart received a grand jury subpoena from the U.S Attorney’s Office in Los Angeles, California, seeking documents and information relating to the 5

company’s receipt, transportation, handling, identification, recycling, treatment, storage and disposal of certain merchandise constituting hazardous waste materials Walmart also admits that it failed to train its employees adequately on how to properly dispose of these materials However, the biggest environmental concern associated with Walmart is urban sprawl The number of acres of city green space devoured by Walmart construction is really alarming Besides, there are various abandoned stores, deserted when the company outgrows locations

In places like New York City, where space is a significant issue, it is really a challenge for Walmart to locate As a result, Walmart began testing smaller stores, and it's already showing promise However, not all big cities are ready to embrace Walmart In order to break into urban areas, the company needs to work on changing how Walmart is perceived among these stakeholders

6 Bribery Scandal of Walmart

In recent years, the biggest scandal which leads to a serious downward in Walmart's reputation is the revelation of an alleged large scale bribery ring among its Mexican arm, Walmex It has been claimed that Walmex executives paid millions in bribes in order to obtain licensing and zoning permits for store locations From this bribery scandal, there are 2 major considerations: top executives at Walmart appeared to turn a blind eye to the bribery, and bribery among Walmart stores in foreign countries may be more widespread than originally thought

In 2005, Walmart sent investigators to Mexico City, where they discovered over $24 million in bribes had been paid to public officials to get necessary building permits Subsequently, top executives at Walmart including CEO Lee Scott, were reluctant to report the bribery although they knew it would be a serious blow to the firm’s reputation Besides, due to the success in Mexico, revealing bribery could have serious detrimental repercussions in this profitable area of growth It is believed that former CEO and current CEO may have had knowledge of the bribery although there is no exact evidence In the case that they helped cover it up, Walmart can face millions in fines and its executives could lose their jobs or face prison time Furthermore, Walmart expanded its bribery probe to China, India and Brazil Such

allegations not only have serious consequences for Walmart, but also for other foreign retailers in the country In other words, this situation demonstrates the fact that the misconduct of one or two companies is able to impact entire businesses or industries As aresult, Walmart announced it would tie some executive compensation to compliance efforts

7 Safety Issues

After a Bangladeshi factory fire killed 112 workers, Walmart Many were outraged that Walmart did not do a better job to ensure the safety of the factory workers Critics have also accused Walmart of advocating against equipping factories with better fire protection due to the costs involved Moreover, workers in the US of Walmart have complained about harsh working conditions and violations of labor laws As a result after many challenges, Walmart exerts the right to terminate relationships with suppliers immediately after discovering a violation Equally important, Walmart also requires all suppliers to have an independent agency assess the electrical and building safety conditions of their factories The same monitoring system is applied to US suppliers as well in order to address domestic complaints Yet these measures have failed to appease some critics, who believed that Walmart can not truly be held accountable until the results of its factory audits are made public

The controversy of worker safety in Bangladesh intensified after a factory collapsed and killed 1,127 workers While European retailers, worker safety groups and labor unions agreed to a 5 year legally binding pact that would improve worker safety in Bangladesh, Walmart refused to sign the pact They devised their own safety plan for its Bangladesh factories Its plan includes hiring an independent auditor to inspect those factories, publishing the audit results of more than 250 factories that have been revoked, and developing an independent call center for workers to report unsafe factory conditions

IV THE WAY WALMART RESPOND TO STAKEHOLDER CONCERNS 1 Response to the scandals

After suffering significantly from these recent scandals, between 2011 and 2012, consumer interest, customer loyalty and other significant aspects to a brand’s 7

value diminished 50 percent In response to the allegations of bribery, Walmart replaced the general counsel in Mexico and is conducting an investigation into the allegations Moreover, Walmart is re-evaluating its global compliance program with assistance from auditing firm KPMG LLP and law firm Greenberg Traurig LLP

In May of 2012, Mike Duke emphasized integrity in operations and employees behavior at all levels He also assured employees and other stakeholders that the company is cooperating with the U S Department of Justice in order to get to the bottom of the bribery allegations As a form of damage control, Walmart released an advertising campaign to frame as an “American success story”’, then developed a multi million advertising campaign called “The Real Walmart", featuring customers, truck drivers, and employees sharing their happy experiences with the company It remains to be seen whether Walmart’s advertising efforts and its renewed commitment to corporate responsibility will prove successful toward improving its brand image

2 Sustainability Leadership

Walmart’s sustainability goals are entirely renewable energy supply, create no waste, and sell products that sustain people and the environment In order to achieve these goals, Walmart with influential people in supplier companies, government, NGOs, and academia, created Sustainable Value Networks (SVN) serving to integrate and evaluate efforts in renewable energy and practices By 2012, they completed 26 fuel cell installations in the US, providing 65 million kilowatt hours of annual electricity, and are testing micro-wind and solar water heating projects in numerous locations As a result, these contracts to finance utility-scale projects of Walmart in renewable sources were offered at lower costs not only to Walmart but also to other clients of these providers

By financing its own renewable energy projects, including more than 180 projects with micro-wind installations in parking lots and biodiesel generator sets, 22 percent of Walmart’s electricity demand is provided Through wind power and wind energy, 350 stores in Mexico have reduced emissions by 137,000 tons annually, 14 stores in Northern Ireland are powered Therefore, Walmart projects became the

second largest onsite green generator and purchaser of green power in the US, and the third largest purchaser in the Fortune 500

With the aim of reducing energy consumption, Walmart facilities conserve energy in 2 different ways, first, reducing the demand for electricity during peak hours, second, controlling the heating and cooling of U.S Walmart stores Besides, by reducing fossil fuel and selling more green products, Walmart is able to ship more products while traveling fewer miles, resulting in a reduction of carbon emissions of 41,000 tons

Walmart also started to sell more products which are made from sustainable or recycled materials and has taken efforts to reduce packaging Otherwise, this business invested in medium and smaller-sized farms, especially in emerging economies In order to measure the sustainability of its products and suppliers, Walmart has launched its Sustainability Index with 3 parts First, surveyed suppliers about their companies’ sustainability to create a more transparent supply chain in terms of it Second, formed a corporation of universities, suppliers, NGOs, government officials, and retailers to create a database on product life cycles, subsequently understanding more about the sustainability of their products Third, send this information to consumers to help them make informed decisions

In line with their zero waste goals, Walmart Mexico had significant success in converting used cooking oil into biodiesel, soap and supplements for cattle feed, and composting large amounts of organic waste Walmart’s recycling efforts helped the firm reduce its global plastic bag waste by 35 percent since 2007 Due to all of Walmart’s success in enhancing the environment, Walmart has achieved some accomplishment in this area because of its dedication to its goals and the strength of its partnerships

V THE WAY WALMART DO TO IMPROVE ITS ETHICS AND SOCIAL RESPONSIBILITY

In order to improve Walmart’s ethical reputation along with its reputation for sustainability and corporate governance, in 2004, Walmart established its Global Ethics Office and published a revised Global Statement of Ethics The aim of GEO is 9