Wal-Mart: Managing Relationships with Stakeholders

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Background

In the early 1960s, Sam Walton incorporated his enterprise as Wal-Mart Stores and a few decades later, it became a global retailing juggernaut with revenues of more or less 300 billion dollars in 2006 alone. Aside from that this company boasts of employing close to two million employees worldwide. And more importantly, it can claim that it can help the average American family save more than $2000 U.S. dollars per year. If one can park that money in the bank or some high-yielding investment then that money can go a long way. The success of Wal-Mart is anchored to its business motto: Everyday low prices (EDLP). This is made possible by the use of technology, having a close business relationship with suppliers, and forcing them to abide by its stringent rules having only one goal in mind which is to reduce prices regularly (Schrage, 2009). But not everyone is happy. Wal-Mart Inc. has become a byword in the United States and has become the symbol of corporate greed according to many critics (Thompson, Strickland & Gamble, 2008). It can be argued though that the company has been embroiled in many controversies. Some stakeholders are saying that the company is only thinking about profit. From an ethical and legal point of view, Wal-Mart needed to change some policies and continue to improve on some of its most basic strategies. On the other hand, it must also be pointed out that an objective analysis is needed and not be carried away by critics that are targeting this company because it has become too successful for its good.

Key Stakeholders

There is a need to cut to the chase and acknowledge that the primary stakeholder of the company is the shareholders, the owners of Wal-Mart, and the investors who poured their money in order to have control over the enterprise and make decisions so that hopefully it will stay profitable and help a lot of people (Kubasek, Brennan, & Browne, 2009). Their main goal is of course to make money. Then they have to create a system that is sustainable because there is no logic to killing the goose that lays the golden eggs. How can they continue offering EDLP amid rising costs? In addition, the company is highly visible because of its size and success; it has become an easy target for many critics. It is also easy for them to sensationalize problems associated with the company. The shareholders will have to strike a balance between corporate responsibility and profitability.

The second major stakeholders are the suppliers and the employees. The suppliers make a lot of money when they secure a lucrative contract with Wal-Mart. There is no need to belabor this point knowing fully well that Wal-Mart is a global company. This firm boasts of having sales of over 300 billion dollars in 2006 alone. They have a global reach and if suppliers can maintain their connection to Wal-Mart then they can make the same amount of money that they are earning right now with less effort than delivering their items to thousands of smaller companies and supermarkets.

The employees are the least organized and yet the most numerous in the category of stakeholders. Like the suppliers, they want to make the most money with the least possible inputs. They want more pay and more benefits. With the current issues that are raging right now in politics and the media, it is easy to understand that they want to get more commitment from Wal-Mart when it comes to health care. On the other hand, it must also be pointed out that Wal-Mart is not the Salvation Army and that this company had to make money to thrive and survive.

The customers are also stakeholders. For loyal customers, they have decided to shop only at Wal-Mart, especially when it comes to household products, food, and other items that they consume regularly. They are stakeholders because they allow Wal-Mart to operate in their locality. If the company will shut down or transfer to another location then their way of life can be affected. Moreover, if the company will not seek to improve and increase the efficiency of its systems then there will come a time that the customers are not getting more value for their money.

Finally, it must be pointed out that in the 21st century there is such a thing as Environmental Stakeholders. In most cases, this group is comprised of a government agency like the Environmental Protection Agency (EPA). This group can also be comprised of environmental activists or non-governmental organizations that are zealous in protecting the environment. This group is a major challenge for Wal-Mart because environmental degradation can be a by-product of social forces and government policies but it is simply convenient to have a giant corporation take the blame.

Impact of operational or ethical Issues on Stakeholders

The environmental and ethical issues that are leveled against Wal-Mart can hurt the financial position of the shareholders. This simply means that rising costs can be attributable to the added cost expenditures needed to run the company (Thompson, Strickland & Gamble, 2008). For instance, the adoption of environmentally-friendly equipment and store design can cost money. The company is also required to adhere to new laws. Training and implementation are other expenses. In addition, violations of environmental policies can result in fines, and those funds are added to overhead costs. The mounting ethical and legal issues create a negative impact on shareholders.

The problems mentioned above can cause a chain-reaction of events that can adversely affect employees and suppliers. The cost of doing business can mean job reduction or lower wages. The company has to pay for these expenses and one way of doing that is to snip away at wages, bonuses, etc. Suppliers on the other hand will be forced to reduce the prices of goods sold to Wal-Mart. Some can easily adapt and move their manufacturing facilities to countries like China and Vietnam but some may just fold up their businesses, sell them, and sever ties with Wal-Mart.

Legal Analysis

There are many cases wherein Wal-Mart was judged guilty of violating federal law. One example can be found in the news that the U.S. Equal Employment Opportunity Commission (EEOC) had filed fifteen lawsuits against the company since the early 1990s (Ferrell, Fraedrich, & Ferrell, 2008). Ten are pending while the rest had been resolved. These cases involve discrimination towards female employees as well as disabled workers. Aside from the EEOC, there is evidence to show that Wal-Mart utilizes illegal immigrants presumably to lower costs.

There are also accusations that Wal-Mart deliberately manipulates its work schedules so that it can get around certain laws. In 2005 the government ordered the company to pay close to 200 million dollars to one hundred thousand California employees because Wal-Mart violated a law that stipulates a 30-minute meal break within the first 5 hours of a shift. This also emanated from the complaint that there were no rest breaks and that company officials tamper with timecards to deal with overtime pay.

Ethical Analysis

Based on the number of cases pending and also the number of cases resolved, it is clear that the legal think tanks at Wal-Mart are working round the clock. This simply means that they can find legal loopholes that they can exploit. The government can pass tougher laws. For instance, the Federal government can make a more comprehensive and easily enforceable law regarding the union. But as of the moment, Wal-Mart is one step ahead. Thus, one way of dealing with the company is to engage them in discussions from an ethical point of view.

Deontology

According to the deontological perspective, certain moral laws cannot be broken. Deontologists believe that there can be no justification for breaking them. For instance, there is a debate regarding laws that state there must be no discrimination against gender and even against those who are disabled. But it can be argued that a deaf or blind person is not as efficient as someone who is perfectly normal. So the company can be excused for not hiring these people for the sake of improving the cost-efficiency of the firm. According to deontology, this cannot justify breaking the law.

Utilitarianism

The utilitarian perspective is easier to understand and relatively easier to implement. The policymaker will simply have to figure out how to deliver the greatest good to the greatest number of people. For example, the government will look at how many workers are being employed at a particular Wal-Mart store and then survey the area to find out how many workers are affected by its presence. If more outsiders are negatively affected by Wal-Mart then government officials can contemplate closing down that particular store. In other cases, this theoretical perspective is not very helpful. For instance, what is more, important the environment or employment?

Virtue Theory

This theoretical perspective can be illustrated better by listing down the principles that the Global Ethics Office adheres to:

Follow the law at all times.
Be honest and fair.
Never manipulate, misrepresent, abuse, or conceal information.
Never discriminate against anyone.
Never act unethically.
Cooperate with any investigation of a possible ethics violation (Ferrell, Fraedrich, & Ferrell, 2008).

Contributing Factors

The single most important contributing factor is EDLP. Without a doubt, the goal of selling at very low prices is the engine that drives Wal-Mart. It is easy to understand why a company should have competitive pricing but if a businessman takes this as the cornerstone of his business then there will be drastic changes. It would be impossible for an enterprise to continually sell at everyday low prices for every product that they sell without radically altering the way supermarkets sell their products.

In the case of Wal-Mart their strategy can be simplified into two basic groups: 1) Use of cutting-edge technology and 2) working closely and pressuring their suppliers to find ways to cut costs. The company has to invest in this new technology while at the same they have to convince their suppliers that they are better off if they continue to partner with Wal-Mart. If they choose to be under Wal-Mart then it has to work closely with the company to link their supply-chain processes with theirs to eliminate wastage.

The company began using computers as early as the 1970s and they never looked back since then.

They used point-of-sale scanners and bar codes in the 1980s. This allows for a more efficient way to check out items. This translated to a more pleasant experience for employees and customers alike. The capability to shorten this process resulted in an overall reduction in operating costs which gave the company the ability to save more money and increase profitability in the long run.

Aside from using technology Wal-Mart used its leverage to force suppliers to think of better ways to reduce cost. They work closely with their suppliers to find out how they can create a synergy of some sort so that both parties can reduce overhead costs. In many cases, this has worked well but there are times when suppliers are forced to do something that they are not comfortable doing such as moving their manufacturing plants to China. By doing so unemployment in the United States will increase but prices, on the other hand, will go even lower. There is also an unexpected outcome which is the proliferation of manufacturing facilities in China but minus the stringent rules and systems of accountability present in the U.S.

The need to drive down costs may be the reason why the company was forced to sometimes involve itself in unethical behavior such as hiring illegal immigrants (Ferrell, Fraedrich, & Ferrell, 2008). The company also turned a blind eye to labor violations in China. The company cannot afford to alienate its partners in China. It is now virtually impossible to pull out their factories in the former communist country. They can no longer afford to go against China and this can be a major source of weakness in the long run.

Every time people discuss Wal-Mart issues the debate begins with the fact that it is a global company and earning hundreds of billions of dollars in revenue. It has to be pointed out that the moment people hear the words hundred and billion their perspective radically changes. This country is also known for its anti-trust laws and there is the erroneous assumption it seems that Wal-Mart has become so huge and powerful that somehow the government is expected to come in and curtail its ability for growing further and amassing acquiring more assets here and abroad. This is a major contributing factor why Wal-Marts problems get sensationalized in the media. But this company does not need to apologize for its success.

Ethical Decision Factors

If they use the deontology and virtue theory then the company will simply have to follow all the laws of the land and at the same time ethically do everything. But the company has to thrive and survive. This means that corporate leaders are always on the lookout for how to gain competitive advantages. If they see that labor union laws are weak they will exploit that weakness. If they see that the industry ignores the implications of illegal immigrants and illegal workers then they will continue to bend the rules. They save a lot of money if they continue to hire illegal immigrants and they can easily justify their actions as a means to reduce prices while at the same time giving employment opportunities to those who needed a job.

There is a need to study ethical issues and legal issues from an objective point of view. The problem with Wal-Mart is that it has grown so big and so successful that activists and even government agencies find the company a convenient scapegoat for many social ills. It would be unfair to blame all of the problems on Wal-Mart. Consideration must also be made because Wal-Mart employs close to 2 million people worldwide and its EDLP concept helps a lot of people get their moneys worth.

Recommended Corrective Action

The best way to solve the problems and issues raised in the case study is to remove Wal-Mart from the picture and in so doing remove bias against the company. If the discussion begins without having Wal-Mart in the center of the bulls-eye will enable policymakers and government officials to see that many of these problems were already present even before Wal-Mart became a multi-billion industry. For instance, there are many loopholes and problems when it comes to labor unions and how to organize workers. They must look into it first before dragging Wal-Mart into the fray and therefore muddling the issue.

The problems with healthcare and low benefits are perennial problems that past political leaders dealt with without great success. It is time to think of these problems as endemic, meaning it is a part of the American way of life that it must be dealt with at the roots. It would not be fair to blame one company for the way the Federal system spends money because of the high crime rate of the country and the number of children who did not receive the proper education they deserve. There are underlying principles that must be dealt with so that many social issues can be resolved.

On the other hand, it is also appropriate to have tougher laws that will deal with the Wal-Mart effect. There must be a system that will be implemented to ensure that there are checks and balances when it comes to compliance with the laws of the land. If these are not in place then Wal-Mart will continue to bend the rules and in some cases break the law simply because there is nothing that can be done.

Going back to the problem of healthcare, the debate focuses on the fact that not everyone has access to an affordable system. But what if the root of the problem is that Americans are not eating right, not exercising, and smoking and drinking? This means that due to these vices and poor choices there are many Americans who are sick. Since there are many Americans who are sick then it follows that their medical expenses stretch the budget to the breaking point. Now, imagine that the time will come when Americans learn to control their raging appetites and learn how to say no to drugs, alcohol, and other addictive substances. Then the healthcare system will not be forced to take care of so many people at the same time.

If this is possible then the healthcare system of the government will have extra funds and its resources will be allocated only to serious cases and accidents but not to preventable ailments. An obese child will require treatment for diabetes and other complications. A person who is addicted to drugs will require rehabilitation plus the fact that he or she is no longer a productive member of society. If these problems are dealt with then there are available resources for those who needed it most, those who have congenital problems, and not for those who simply had too much of the good life, eating junk and not thinking about the consequences.

It will not be fair for the general public to vent their anger on Wal-Mart. They are simply trying to find a scapegoat for problems that are their own doing. If this continues then Americans will destroy the values that made this country great. It is as if people are punishing a company for being great. It is as if Americans are punishing trailblazing entrepreneurs instead of rewarding them for their ingenuity and hard work.

References

Kubasek, N.K., Brennan, B.A., & Browne, N. (2009). The legal environment of business: A critical thinking approach (5th ed.). Upper Saddle River, NJ: Pearson-Prentice Hall.

Ferrell, O.C., Fraedrich, J., & Ferrell, L. (2008). Business ethics: Ethical decision making and cases (7th ed.). Boston: Houghton Mifflin Company/South-Western/Cengage Learning.

Schrage, M. (2009) Wal-Mart Trumps Moores Law. Technology Review. Web.

Thompson, A. Jr., A. Strickland III, & J. Gamble. (2008) Crafting and Executing Strategy: The Quest for Competitive Advantage, Concepts and Cases. New York: McGrawhill, 2008.

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