Wal-Mart and the Ethical Dilemma

Presented to:

Dr. Robert D. Gulbro

In completion of

MGT 5013

Organizational Behavior

Florida Institute of Technology

By:

Felix Knight

Wal-Mart was started by Sam Walton in 1962; the first store was in Rogers Arkansas. By the beginning of the 1970’s, Wal-Mart had grown to 1,500 employees and 44.2 million dollars in sales. The company also went public in 1970. The company’s growth continued throughout the decade, with the employee count reaching 21,000 by 1980 with $1.2 billion dollars in sales. Wal-Mart made its first acquisition, buying 16 Mohr-Value stores. In 1983, the first Sam’s Club warehouse opened followed by the first Wal-Mart Supercenter in 1988. By the end of the decade, the company had over 1,402 Wal-Mart and 123 Sam’s Club locations and $26 billion dollars in sales – an increase of 2,600% over the decade. Today, Wal-Mart is the world’s largest retailer, with $405 billion in sales, over 4,300 stores, and 2.1 million employees (Duke, 2010, p. 0). One hundred shares of Wal-Mart stock purchased for $1,650 when the company went public would have grown to 204,800 shares worth over $10.1 million as of July 9, 2010 for a return of 613,431% (“Dividends & stock splits”, 2010, July 9) (“Wal-Mart (WMT) stock quote” 2010, July 9).

Daft (2008) stated “Wal-Mart is the largest retailer in the United States” (p. 129). Wal-Mart’s 2010 annual report provides the mission statement of the organization as: “Wal-Mart was built on the foundation of saving people money so they can live better” (p. 0). Wal-Mart’s website and financial statements disclose that the key values and beliefs include Wal-Mart’s claim to keep costs low for the customer and to build trust in its customer base (“Wal-Mart 2010 annual report”, p. 16). Sam Walton built Wal-Mart on three core values: Respect for the Individual, Service to Our Customers, and Striving for Excellence (“Wal-Mart statement of ethics”, 2010 p. 5). Respecting the individual entails treating their employees with respect and encouraging employees to voice their ideas. Wal-Mart prides itself on excellent customer service and on providing quality products at fair prices. Part of Wal-Mart's philosophy is to treat customers well and give them what they want. Other beliefs include exceeding customer expectations, by adding the “10 foot rule”. This rule states that any associate within ten feet of a customer should greet the customer and ask if they can assist them in any way. The “sundown rule” is a corporate directive where employees are required to respond to any customer request. Servant leadership requires management to lead from working the floor and not from behind a desk. As with any business organization teamwork is a must and Wal-Mart strongly promotes this philosophy to their associates (Wal-Mart, 2010).

Wal-Mart has also created a positive image through its charitable contributions. Although this mission is noble and helpful to customers, the narrative to follow documents that the methodology Wal-Mart has employed to accomplish this has been detrimental and discriminatory to its own employees. These actions, starting as early as 1993 (over fifteen years), have resulted in a series of discrimination lawsuits based on gender, race, sexual orientation, and disabilities (”Discrimination”, 2010).

Wal-Mart is in the highly competitive retail sales environment. Its primary competitors include the local and national grocery store retail chains Target, Dollar General, Kmart, Sears, JC Penny’s and many more. Its global reach is felt around the world by competitors and customers. When it enters a new region, it undercuts costs and drives competitors away from that market, if possible, giving Wal-Mart an almost monopolistic control.

Daft illustrates several structural and contextual dimensions of Wal-Mart compared to other corporations. Based on those comparisons, Wal-Mart is “more formalized, specialized and centralized. Efficiency is more important than new products, so most activities are guided by standard regulations. Professionalism is low and the ercentage of non-workflow personnel is kept to a minimum (Daft, 2008, p. 19). Wal-Mart would be considered a machine bureaucracy, formalized, mechanistically run and complex. It may be classified as functioning in the mature or elaboration stage. Wal-Mart has strict policies, procedures, job descriptions, regulations and policy manuals. The hierarchy of authority is narrow and tall. The company has highly centralized operations with major decisions on day-to-day operations made at the top and sent to all stores with the requirement to perform the job. Expense levels by day, same store sales estimates, and merchandise is controlled from the Bentonville office. Regional and store managers are tasked with ensuring that the expense levels and store sales estimates are met. An anonymous management source stated that top leadership has lost touch with its employees and middle managers are struggling to reach present goals while dealing with the day-to-day situations within a rigid framework (personal communication, 2010 July).

The skill level at most Wal-Mart stores is low without a significant level or need for higher education. However, Wal-Mart does provide computer-based training on sales registers, customer assistance and employee behavior to all store employees, called “associates”. Historically, management trainees have been selected from the full-time employees, although there has been a push in recent years to have an associate or higher degree to enter the management training program. This requirement has not been without criticism. Per an anonymous source, managers are constrained by cost factors, lack of control over change and fear of loss of their positions if they do not clearly follow the company line (not the policy or basic business practices, but company enforced directives) (personal communication, July 2010).

Wal-Mart operates an efficient and effective organization within its operational model. The company’s goals, according to its 2010 Financial Statement, include “growth, leverage and returns” (Duke, 2010, p. 2). Growth is expansion around the world. Leverage is reducing expenses and improving productivity. The term “returns” is in reference the returns given to the Wal-Mart stockholders. It is large, mature, and oriented to mass sales efforts. The Wal-Mart organization is divided into three divisions: Wal-Mart US, Wal-Mart International and Sam’s Club. Wal-Mart US commands approximately 64 percent of the business while Wal-Mart International and Sam’s Club hold 25 and 11 percent respectively (Duke, 2010 p. 55). Wal-Mart lists a number of changes throughout the last five years or so; however, most are related to continual expansion and growth. During FY 2010, Wal-Mart announced that it would be subdividing Wal-Mart US into “three business units, Wal-Mart West, Wal-Mart North and Wal-Mart South; creating e-commerce through a global.com organization and combining logistics, real estate and operations under the same leadership.” (”Wal-Mart changes structure”, 2010). The internal changes to keep costs down have been detrimental to its employees. Pay bands that limit cost-of-living raises have many long-time Wal-Mart employees with no foreseeable pay increases. Wal-Mart has converted to paying for insurance premiums that cover catastrophic medical expenses instead of “wellness” expenses that leave many employees without basic medical coverage.

While Wal-Mart seems to be doing all the right things when viewed by the general public, it has been accused of not being ethical about doing them. An anonymous vendor stated that Wal-Mart exerts significant pressure on vendors with little respect. If vendors refuse to display products or provide constant servicing of its stores, Wal-Mart threatens the vendor with removal of all its products from the stores and utilization of other vendors (personal communication, 2006). Wal-Mart is a significant sales resource for most vendors, so compliance with Wal-Mart’s terms and conditions, regardless of the reasonableness of those requirements, is essential. The interview was confirmed by Daft in a statement that Wal-Mart does “not tolerate product shortages that lead to empty shelves and lost sales” (Daft, 2008 p. 49). Daft went on to state that Wal-Mart “is so powerful that it can easily put the screws to manufacturers who supply goods for sale at its stores” (Daft, 2008 p.67). Therefore, the products must be stocked full and the vendor must take the financial risk of spoilage.

That same intolerance of vendors appears to be the source of Wal-Mart’s growing problems from within. While 92 percent of Wal-Mart employees are female, only 14 percent are managers, assistant managers or support managers. Only one percent of the 14 percent are female managers (0.13 percent of total Wal-Mart employees) are general store managers. The bulk of Wal-Mart employees are high school and college students working part-time jobs. Women on average earned approximately $5,200 less than men in 2001. The discrepancy was even more pronounced among female managers who, on average, earned approximately $14,500 less than male managers. Female hourly workers earned up to 37 cents per hour less than their male counterparts (“Discrimination”, 2010). It is not surprising then that multiple class-action lawsuits have been initiated by women against discriminatory practices at Wal-Mart. Five class-action discrimination cases have been certified since May 2010 (“Wal-Mart’s wage and hour violations”, 2010).

Wal-Mart’s 33-page Ethics Statement covers everything from what laws apply, discipline actions for violations, harassment, alcohol and drug abuse, non-discrimination, wage and hours, conflicts of interest, intentional dishonesty, insider trading, anti-corruption and political involvement. In an opening statement from Michael Duke, President and CEO of Wal-Mart, he states “A strong commitment to ethics and integrity isn’t just the right way to do business; it’s how we earn the trust and respect that is critical to our success…” (“Wal-Mart statement of ethics”, 2010).

There are significant departures from the Wal-Mart ethical statement. The fact that Wal-Mart does not include employee relations within its mission statement and concentrates primarily on profit gains at the expense of all other areas of business may be a cause of the many class action lawsuits filed by current and former Wal-Mart employees. Wal-Mart has settled multiple cases involving discrimination accusations since 1999 for amounts in excess of $443.5 million. However, even with the predominance of the lawsuits, Wal-Mart has not noticeably changed the way it handles employee issues. As of March 31, 2008 there were 76 wage/hour/overtime cases pending against Wal-Mart. The variety of lawsuits and other actions show a consistent and widespread discrimination based on gender, race, sexual orientation and disability. The following provides a summary of some of the discrimination lawsuits (“Wal-Mart’s wage and hour violations”, 2010).

Armijo versus Wal-Mart Stores, Inc., a class action lawsuit filed in New Mexico in June 2007, alleged that” Wal-Mart’s corporate policies and practices are geared toward promoting the maximization of profits through the minimization of labor costs, creating an environment where hourly employees work off the clock and through meal and rest breaks.” An internal audit done in July 2000 revealed numerous failures by Wal-Mart to comply with Wal-Mart’s own rest and meal break policies. It warned that Wal-Mart may face several adverse consequences as a result of staffing and scheduling not being prepared appropriately. The audit was dismissed by Wal-Mart as misleading and over-extending its reach (Greenhouse, 2010 p.10,11). The audit is being used in this class action suit as background for the breach of contract alleged in this suit. At trial, the employee handbook, oral orientation sessions and the uniformity of orientation sessions and employment policies from store to store will be examined. These documents are the basis of the plaintiffs proof that Wal-Mart was contractually obligated to provide rest breaks for the employees, that missed rest breaks constituted a breach of that contract, and that the breach resulted in damages to the employee. Wal-Mart has a strict 40-hour workweek. Overtime is not allowed. Associates who work over 40-hours in a pay period see their hours cut to compensate for the possibility of overtime in the next pay period.

In Carter versus Wal-Mart Stores, Inc. filed in South Carolina in 2001, was certified a class action in August 2007. More than 100,000 South Carolina employees claimed wage and hour violations in that Wal-Mart forced them to work through breaks and off-the-clock due to understaffing, resulting in workers having to skip breaks and work before and post normal shifts to compensate. It is interesting to note that on page 13 of Wal-Mart’s Ethics Statement it reads “It is a violation of law and Wal-Mart policy for you to work without compensation or for a supervisor (hourly or salaried) to request that you work without compensation. You should never perform any work for Wal-Mart without compensation.” The plaintiffs claim that performance evaluations and hours scheduled were affected when refusing to perform such duties.

Hales versus Wal-Mart Stores, Inc. was first filed in 2002, certified class action in 2005 and that a Missouri trial court did not abuse its discretion in finding that all class certification requirements were met in June 2007. At the heart of this class action case, that could possibly affect 250,000 associates, is the failure to compensate employees for all the time worked.

Iliadis versus Wal-Mart Stores, Inc. was certified class action in May 2007. Notable changes in the tone of this case from previous cases is that the lower court denied class status and was certified on appeal to the New Jersey Supreme Court. Claims made by the plaintiffs were that they were forced to work through meal breaks, locked in stores after clocking out and coerced into working off the clock. Plaintiffs cited Wal-Mart Corporate Policy PD-07, which governs rest periods based on the number of consecutive hours in their shift. The plaintiffs claim that Wal-Mart systematically ignored these policies, provided store managers with financial incentives to increase store profits through lowering store expenses, including labor costs. Citing e-mails by Wal-Mart to supervisors encouraging them to cut employees’ hours. A statistician found that the majority of associates received fewer breaks than they should have, noting numerous occasions when associates who failed to clock out at the end of a shift were credited with only a one-minute-long shift, regardless of the amount of time they had actually worked. Another expert found that often associates were logged out for payroll purposes, but simultaneously logged into cash registers. This fact is being used as proof of off-the-clock labor.

Wal-Mart’s power is probably most obvious in Salvas versus Wal-Mart Stores, Inc. Originally filed in 2001, it alleges that Wal-Mart illegally altered timecards in order to decrease payroll expenses, including clocking associates out just one minute after they had clocked in. The suit also claims meal and rest break violations. The case was certified class action in January 2004, then again in December 2004 on behalf of 65,000 present and past Wal-Mart associates. Wal-Mart appealed the certification and a second judge decertified the case on the basis that each associate’s situation was unique. Oral arguments for class-action certification were heard in May 2008 and the lawsuit was recertified. The suit seeks $25 million in unpaid wages, plus punitive damages. As evidence, the plaintiffs presented Wal-Mart payroll records claiming 10.1 million missed rest breaks between 1995 and 2005. There are also 21,383 alleged incidents of timecard alterations, in which associates were clocked out one minute before a shift began. The lawsuit is seeking $25 million in unpaid wages, plus punitive damages. In addition to payroll evidence, plaintiffs presented evidence of Wal-Mart corporate knowledge of the violations. A July 2000 audit report, signed off on by Wal-Mart Chief Operating Officer Don Harris, concludes that stores “were not in compliance with the company and state regulations concerning the allotment of breaks and meals as 76,472 exceptions were noted in 127 stores for a one-week period.”

Assistant and support managers also filed suit against Wal-Mart. In February 2004, Sepulveda versus Wal-Mart Stores, Inc. was filed on behalf of assistant and support managers in California. The plaintiffs claim that they were erroneously classified as assistant and support managers as exempt from California requirements regarding overtime pay and meal and rest breaks. The plaintiffs contend that they actually perform many of the same duties as Wal-Mart non-exempt employees, and therefore should be classified as non-exempt. The plaintiffs allege Wal-Mart has violated several provisions of the California Labor Code governing overtime pay, meal breaks, reporting of hours and prompt payment of wages. In May 2006, the case was denied class action. That ruling was overturned in April 2008.

Wiley/Richardson versus Wal-Mart Stores, Inc. and Sam’s Club was filed in December 2002. An additional supplement for class certification was filed in August 2007. Similar to other class-action suits against Wal-Mart, it alleges corporate pressured management to keep costs down by demanding and encouraging store employees not to record all of their time worked. Associates are also given work assignments where it is known that they will not be able to complete within scheduled hours. Plaintiffs also allege that Wal-Mart should have known about the off-the-clock work because managers were present in stores when off-the-clock work was occurring; it assigns work that cannot be accomplished during those hours and refused to allow additional time to accomplish those tasks.

Ninth Circuit Court of Appeals allowed a class action suit against Wal-Mart (Dukes v. Wal-Mart) to move forward. Dukes versus Wal-Mart Stores, Inc. could be the most damaging of all the lawsuits currently pending against Wal-Mart. The class action suit involves 1.6 million female associates at Wal-Mart who allege gender discrimination in pay and promotion. This lawsuit is using Wal-Mart’s own contracted research study findings against it (Aspen Publishers, 2010, para. 1, 3, 4). In 1995 Wal-Mart was concerned enough about the possibility of litigation that they hired a law firm (Atkin, Gump, Strauss, Hauer & Feld) to study the issue of gender discrimination (Greenhouse, 2010 p. 2). The study found that women “earned less than men in numerous job categories, with men in salaried jobs earning 19 percent more than women.” The study also found that “men were five and a half times as likely as women to be promoted into salaried, management positions” (Greenhouse, 2010 p. 3). The study concluded that “statistically significant and sufficient to warrant a finding of discrimination unless the company can demonstrate at trial that the statistical disparities are caused by legitimate, nondiscriminatory factors” (Greenhouse, 2010 p. 17). Wal-Mart responded by calling the report “deeply flawed”. A second contracted study conducted by Drogin, Kakigi and Associates in 2003 found that there were few changes from the 1995 study. The statistics are indeed troubling, but perhaps even more troubling is Wal-Mart’s continued insistence that there is not a problem.

There is also evidence that Wal-Mart engages in racial discrimination. In February 2009, the company settled a lawsuit that accused Wal-Mart of discrimination against African-Americans in hiring truck drivers (Sage, 2009). The suit, which among other things noted that African-Americans only make up 4-6% of company truck drivers, was settled for 17.5 million dollars (“Discrimination”, 2010). Wal-Mart has also been accused of racial profiling. In 2005, a lawsuit was filed alleging racial profiling and discrimination by greeters at a Wal-Mart store in Massachusetts (Lewis, 2005). In 2004, the NAACP gave the company a grade of C “based on analysis of employment, advertising and marketing, community reinvestment, and philanthropic giving to African American organizations” (“Wal-Mart and racial discrimination”, 2010). Clearly, Wal-Mart has issues in its relationships with minorities that need to be resolved.

While gender and racial discrimination are the most prominent issues facing Wal-Mart, it has also had issues with discrimination based on sexual orientation and against the disabled. In mid 2010, a temporary Wal-Mart employee in Las Vegas filed a complaint with the Nevada Equal Rights Commission alleging discrimination based on his sexual orientation. In his complaint, he claims management demanded to know if he was gay, and after telling them he was, he was shunned and openly ridiculed. The hostile working environment eventually forced him to quit (Garcia, 2010). Wal-Mart also does not provide domestic partner benefits, despite the fact the many of its major competitors do (“Discrimination”,2010). In terms of discrimination against the disabled, the Equal Employment Opportunity Commission (EEOC) has filed sixteen lawsuits against the company for disability discrimination since 1994 (Conlin & Zellner, 2001). In addition to the EEOC lawsuits, the company has also been hit with individual suits alleging discrimination, such as the case of Patrick Brady, who suffers from cerebral palsy. Brady was reassigned from the pharmacy to collecting garbage and shopping carts after management was dissatisfied with his performance. One manager characterized Brady’s performance as “absolutely awful”. Brady was eventually awarded 900,000 dollars in damages after Wal-Mart was found by a jury to have discriminated against him and created a hostile working environment (Hamblett, 2008).

While Wal-Mart has become a household word in the past forty years, one has to wonder if its growth has not been at the expense of its employees and vendors. The twenty-year gap since Sam Walton died has been a period of rapid growth and expansion. From its humble beginnings to the multinational retailer it is today, Wal-Mart has faced many challenged and been given many opportunities. Based on the discrimination shown in this paper and the total disregard for its own policies and procedures, it may be time for the retail giant to fall. A company is only as good as the individuals who represent it. Wal-Mart has not served its employees, its vendors, or its customers by keeping prices down at the expense of the community as a whole. Over $443 million in fines and over 75 outstanding legal actions is a good indication that something is not right at Wal-Mart.

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