Walmart case on bus. ethics, stakeholder’s relations, and social responsibility

  

An Overview of
Business Ethics, Stakeholder Relationships, & Social Responsibility
Wal-Mart case study
Case Summary
1. In a narrative format, discuss the key facts and critical
issues presented in the case.
Case Analysis
2. Defend Wal-Mart’s strategic focus of placing the
customer’s interests above those of other stakeholders (such as supplier,
employees and communities).
3. Do you think Wal-Mart’s recent emphasis on sustainability
indicates a change in stakeholder orientation?
Application
4. If you were the CEO of Wal-Mart, what would you do to
prevent future ethical dilemmas, lawsuits, and publicity that damage the
company’s reputation and growth plans?
*NOTE: Please answer
each question with the minimum word count of 200-250 words. Review attachment for
Case 1 found on page 1 to 15, and answer each question thoroughly.  Place answers underneath each question so I
know how to break it down, total of 4 questions. Use APA format to include
in-text citations and a reference page. Use the attachment as a reference as
well. Let me know if you have any questions or comments.
walmart_case_page_1_15.pdf

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PA RT F I V E
Cases
1 Wal-Mart: The Challenge of Managing Relationships with
Stakeholders
2 The Coca-Cola Company Struggles with Ethical Crises
3 The Fall of Enron: A Stakeholder Failure
4 Tyco International: Leadership Crisis
5 Martha Stewart: A Brand in Crisis
6 Verizon: The Legacy of WorldCom and MCI
7 Arthur Andersen: Questionable Accounting Practices
8 Sunbeam Corporation: “Chainsaw Al” and Greed
9 Global Crossing: Inflated Sales Lead to Bankruptcy
10 Firestone: A Reputation Blowout
11 Microsoft: Antitrust Battles
12 Nike: From Sweatshops to Leadership in
Employment Practices
13 The Healthcare Company: Learning from Past Mistakes?
14 PETCO Develops Successful Stakeholder Relationships
15 Texas Instruments Creates a Model Ethics and
Compliance Program
16 Starbucks’ Mission: Responsibility and Growth
17 Home Depot Implements Stakeholder Orientation
18 New Belgium Brewing: Ethical and Environmental
Responsibility
9781111219697, Business Ethics: Ethical Decision Making and Cases, O. C. Ferrell – © Cengage Learning
CASE 1
Wal-Mart:
The Challenge
of Managing Relationships
with Stakeholders
W
al-Mart Stores Inc.—the world’s largest retailer—is possibly the most controversial business in America. With sales over $312,000 billion in 2006 and
approximately 1.7 million employees worldwide (of these, 1.3 million are
U.S. employees), managing stakeholder relationships is a major challenge. The WalMart that saves the average family an estimated $2329 per year has its critics. There
are concerns about Wal-Mart’s treatment of employees, suppliers, the environment, and
the overall economic impact on communities. Feminists, human rights activists, antisprawl activists, and labor unions believe that Wal-Mart has engaged in misconduct to
provide low prices to consumers. The company that banishes magazines with racy
covers and CD’s with edgy lyrics is seen as attempting to dictate its vision of American culture.
Wal-Mart claims that it is committed to improving the standard of living for their
customers throughout the world. The key strategy is a broad assortment of quality
merchandise and services at everyday low prices (EDLP) while fostering a culture that
claims to reward and embrace mutual respect, integrity, and diversity. Wal-Mart has
three basic beliefs: respect for the individual, service to their customers, and striving
for excellence. How well the firm implements these beliefs is the focus of this case.
Wal-Mart, one of the most amazing success stories in the history of American
business, has also shaped debate over the relationships between corporations and their
stakeholders. Wal-Mart has excelled at market orientation, which is focusing on consumers, defeating competitors, and increasing shareholder value. Only recently has
shareholder value lagged behind the major stock market–index performance. Other
stakeholders such as employees, suppliers, and communities have been viewed as secondary to low prices for consumers. For example, the Fortune 100 best companies to
work for does not include Wal-Mart. Number one in 2005 and number two in 2006
on the Fortune list was Wegmans Food Markets, with the very unusual motto of em-
This case was prepared by Melanie Drever, University of Wyoming, under the direction of O. C. Ferrell,
for classroom discussion rather than to illustrate either effective of ineffective handling of an
administrative, ethical, or legal decision by management. All sources used for this case were obtained
through publicly available material and the Wal-Mart website.
9781111219697, Business Ethics: Ethical Decision Making and Cases, O. C. Ferrell – © Cengage Learning
CASE 1 ◆ WAL-MART: THE CHALLENGE OF MANAGING RELATIONSHIPS WITH STAKEHOLDERS
293
ployees first and customers second. Starbucks with its generous employee benefits,
even for part timers, was number two in 2005 but dropped to twenty-ninth in 2006.
The story of Wal-Mart and its low prices shows both good and bad outcomes for
society. The company has grown from a small chain to over five thousand stores in ten
countries, making its early investors and some employees financially successful. It has
been estimated that Wal-Mart saves consumers $100,000 billion a year. Wal-Mart’s
entrance into some markets lowers food prices 25 percent, including savings from
competitors’ price cuts. As competing supermarkets close, their union employees sometimes lose their jobs. One study found that total payroll wages per person declined by
almost 5 percent where Wal-Mart stores are located due to Wal-Mart driving down
wages. In 2005 an internal document made public by Wal-Mart Watch showed that
46 percent of Wal-Mart employees’ children were on Medicaid or uninsured. Michael
Hicks, an economist at the Air Force Institute of Technology found that Wal-Mart increased Medicaid costs an average of $1898 per worker. Armed with these alleged
facts, the Maryland General Assembly passed the “Wal-Mart Bill” requiring employers with more than 10,000 workers to spend at least 8 percent of their payroll on employee health care or pay into a fund for the uninsured. Wal-Mart challenged the law;
it appears that the law is not going to be implemented. Sarah Clark a Wal-Mart spokesperson was quoted in USA Today: “Wal-Mart does believe that everyone should have access
to affordable healthcare, and this legislation adds nothing to accomplish this goal.” The
debate goes on with the question of the real costs to society for low prices.
HISTORY AND GROWTH OF WAL-MART
Wal-Mart’s principal offices are in Bentonville, Arkansas. In 1945 in Newport, Arkansas,
Sam Walton, the store’s founder, opened a franchise Ben Franklin variety store. In
1946 his brother opened a similar store in Versailles, Missouri. Until 1962 the business was devoted entirely to the operation of variety stores. In 1962 the first Wal-Mart
Discount City was opened, which was the first Wal-Mart discount store. In 1984 the
first three Sam’s Clubs were opened, and in 1988 the first supercenter opened. In
1999 the first neighborhood market was opened. Today the family of Wal-Mart
founder Sam Walton has a combined fortune estimated at $90 billion.
The Wal-Mart business model includes two main segments: Wal-Mart Stores and
Sam’s Clubs. The Wal-Mart Stores come in three sizes: discount stores, which are
about 100,000 square feet; supercenters, which are about 187,000 square feet; and the
neighborhood markets, which are about 43,000 square feet in size. Sam’s Clubs are
membership warehouse clubs, which average 128,000 square feet and aim to provide
exceptional value on brand-name merchandise at “members only” prices for both small
businesses, nonprofit organizations, and personal use, especially large families.
Wal-Mart has continued to expand from its small roots in Arkansas, opening new
stores at an accelerated rate. At present, Wal-Mart operates 2640 discount stores, 2396
supercenters, 670 Sam’s Clubs, and 435 neighborhood markets in the United States.
It has continued to open new stores every year, not only in the United States but also
abroad. Much of the expansion overseas has been through acquisitions of existing operations in other countries.
9781111219697, Business Ethics: Ethical Decision Making and Cases, O. C. Ferrell – © Cengage Learning
294
PART 5 ◆ CASES
Over 138 million people visit Wal-Mart every week, and 84 percent of Americans
have shopped at Wal-Mart in the past year. People living in households with incomes
of less than $30,000 a year give Wal-Mart its highest marks, proving that those who
value Wal-Mart most need Wal-Mart’s low prices the most.
Wal-Mart’s first international initiative started in 1992 with a 50 percent joint
venture in Mexico with Cifera discount stores. In 1998 they acquired control of Cifera
and changed its name to Wal-Mart de Mexico. The first international venture was so
successful that today Wal-Mart has 774 stores in Mexico. In addition, the company operates stores in Argentina (11), Brazil (295), Canada (278), Germany (88), South Korea (16), Puerto Rico (54), and the United Kingdom (315). Their joint ventures in
China and Japan provide Wal-Mart with over 450 stores.
Wal-Mart became the largest grocery chain in 2002 with revenue larger than Safeway and Albertson’s combined. It became the first retailer to be number one on the
Fortune 500 list in 2005, with sales over $300 billion; in 2006 Wal-Mart was number
two behind Exxon Mobil. Sales climbed 10 percent in 2005, and profits rose 13 percent to more than $10 billion. In addition to being number two on the Fortune 500,
Wal-Mart was also named the “most admired company in America” in 2003 and 2004;
in 2005, however, it slipped and ranked fourth on the list behind Dell, General Electric, and Starbucks; in 2006 it was ranked twelfth. Wal-Mart is the world’s largest retailer as well as the largest employer.
RELATIONSHIPS WITH SUPPLIER STAKEHOLDERS
Wal-Mart is focused on keeping its costs low for its EDLP. It does this by streamlining its company and insisting its suppliers do the same. Wal-Mart is well known for its
operational excellence in its ability to handle, move, and track merchandise, and it expects its suppliers to continually improve their systems too. It demands that its suppliers
consistently lower prices of products from one year to the next by at least 5 percent;
if a supplier is unwilling or unable to do so, Wal-Mart will no longer carry the product or will find another supplier for the product at the price they want.
Technology is a driving force in operational efficiency that lowers costs. The
merchandise-tracking system—radio-frequency identification (RFID)—ensures that a
product can be tracked from the time it leaves the supplier’s warehouse to the time it
enters and leaves a Wal-Mart store. In 2004 Wal-Mart insisted that its top one hundred suppliers ensure that all their pallets and products being shipped to Wal-Mart
had RFID by January 2005. The cost to suppliers was much larger than the cost to WalMart because suppliers needed to continually buy the RFID tags while all Wal-Mart
needed was a system to read the tags. It has been estimated that the cost to one supplier could be $9 million to install and implement the RFID technology. Smaller WalMart suppliers also have to install the tags, but they had until 2006 to comply.
RFID tags help Wal-Mart keep their shelves stocked and curbs the loss of retail
products as they travel through the supply chain. RFID at Wal-Mart has directly resulted in a 16 percent reduction in stock-outs and a 67 percent drop in replenishment
times. As customers go through checkout, the RFID system swiftly combines pointof-sale data on their purchases with RFID-generated data on what’s available in the
9781111219697, Business Ethics: Ethical Decision Making and Cases, O. C. Ferrell – © Cengage Learning
CASE 1 ◆ WAL-MART: THE CHALLENGE OF MANAGING RELATIONSHIPS WITH STAKEHOLDERS
295
stockroom to produce pick lists that are automatically created in real time, based on
sales. It also ensures that suppliers are notified when products are sold and can ensure
that enough of a product is always at a particular store. This strategy also results in time
and labor savings because associates (as employees are called at Wal-Mart) no longer
need to scan store shelves to determine what is out of stock, nor do they have to scan
cartons and cases arriving at the stockroom. The scanners tag incoming pallets and
translate the data into supply chain–management database-forecasting models to address out-of-stock items and reduce stock–restocking mix-ups.
The power Wal-Mart has over its suppliers is more to do with its size and volume
of products it needs than anything else. For example, Dial Corporation does 28 percent of its business with Wal-Mart. If it lost that one account, it would have to double its sales to its next nine customers just to stay even. Other companies that depend
on Wal-Mart for sales are Clorox, which does 23 percent of its business with WalMart; Revlon, 22 percent; Proctor & Gamble, 17 percent; Kraft Foods, 12 percent;
General Mills, 12 percent; and Kellogg, 12 percent. This ensures that Wal-Mart dictates terms to its vendors rather than the other way around. However, there are benefits to suppliers because they become more efficient and streamlined, which helps
their other customers too, as they improve their system for Wal-Mart.
Many companies believe that supplying Wal-Mart is the best thing for their business; there are the few, however, who believe that Wal-Mart is hurting their business
and decide to no longer do business with them. An example of this is Snapper, a company with a 50-year heritage of making high-quality residential and commercial lawn
equipment. CEO Jim Weir believed that Wal-Mart was incompatible with the company’s strategy of high quality and, compared to Wal-Mart’s typical lawn mowers, high
prices. He felt that the long-term survival of the company meant that he should no
longer sell to Wal-Mart. Wal-Mart tried to convince him that making a low-cost version of Snapper mowers specifically for Wal-Mart would be a good compromise, as
Levi’s did with their Levi’s Signature brand made specifically for the Wal-Mart market. However, Weir would have none of it.
Weir said no to Wal-Mart and told his other customers about the decision. WalMart accounted for 20 percent of his business, but he wanted to focus more on the
other 80 percent of the independent dealers. The other dealers were happy with Weir’s
decision, and Snapper got much of the lost business back from the independent dealers by winning their hearts.
The constant drive by Wal-Mart for lower prices affects its suppliers in a more ominous way too. Many suppliers have had to move production from the United States to
cheaper locations, such as China, to remain suppliers to Wal-Mart and maintain their
business. Wal-Mart imports over $18 billion dollars worth of goods from China and encourages its suppliers to move their production operations to China to systematically
lower cost. China and Wal-Mart have developed a unique partnership, and Wal-Mart
accounts for 10 percent of the U.S. trade deficit with China. China’s annual exports
amount to $583 billion, and Wal-Mart ranks as China’s eighth-largest trading partner,
ahead of Australia, Canada, and Russia. Rubbermaid, once Fortune’s most admired company, has gone out of business, and much of its manufacturing equipment was sold to a
Chinese company. Although the Rubbermaid brand name lives on, former Rubbermaid
managers claim that the low prices that Wal-Mart demanded, including their reluctance
9781111219697, Business Ethics: Ethical Decision Making and Cases, O. C. Ferrell – © Cengage Learning
296
PART 5 ◆ CASES
to allow Rubbermaid to increase prices when the cost of raw materials increased, caused
them to close and sell to a competitor. Companies such as Master Lock, Fruit of the
Loom, and Levi’s—as well as many other Wal-Mart suppliers—have all moved production overseas at the expense of U.S. jobs and all in the name of low prices for consumers.
ETHICAL ISSUES INVOLVING
WAL-MART STAKEHOLDERS
Employee Stakeholders
The U.S. Equal Employment Opportunity Commission (EEOC)
has filed fifteen lawsuits against Wal-Mart since 1994. Of these, ten are still pending,
and five have been resolved.
DISCRIMINATION
Although women account for more than 67 percent of all
Wal-Mart employees, women make up less than 10 percent of top-store managers.
Wal-Mart insists that it adequately trains and promotes women, but in 2001 a Wal-Mart
executive conducted an internal study that showed the company paid female store
managers less than men in the same position.
In June 2004, a federal judge in San Francisco granted class-action status to a sexdiscrimination lawsuit against Wal-Mart. It is the largest class-action lawsuit and involves
1.6 million current and former female employees at Wal-Mart. It claims that Wal-Mart
discriminated against women in promotions, pay, training, and job assignments. Even
Wal-Mart concludes in its annual report that if the company is not successful in its appeal of the class-action certification of the case, the resulting liability could be material to the company.
FEMALE EMPLOYEES
In January 2000, Wal-Mart agreed to pay two deaf applicants
$132,500. The two applied to work at a Wal-Mart in Tucson, Arizona, but were denied
employment because of their disabilities. Wal-Mart agreed to hire the two men as part
of the settlement and to make corporate-wide changes in the hiring and training of new
employees who are deaf or hearing impaired. However, in June 2001, for failure to
comply with the original court order, Wal-Mart was fined $750,200, ordered to produce and air a TV ad stating that it had violated the Americans with Disabilities Act
(ADA), reinstate William Darnell (one of the disabled workers), and create computerbased learning modules in American Sign Language and provide ADA training.
Another EEOC case took place in December 2001. The lawsuit alleged that WalMart’s preemployment questionnaire “Matrix of Essential Job Functions” violated the
ADA, and the EEOC resolved the suit with a $6.8 million consent decree. In 2002 WalMart agreed to pay $220,000 for rejecting a pregnant applicant. In February 2005,
Wal-Mart paid a $7.5-million jury-verdict fine to a disabled former employee in a classaction lawsuit.
DISABLED EMPLOYEES
Another class-action lawsuit accuses Wal-Mart Stores Inc.
of failing to monitor labor conditions at overseas factories that allegedly maintained
SWEATSHOP WORKERS
9781111219697, Business Ethics: Ethical Decision Making and Cases, O. C. Ferrell – © Cengage Learning
CASE 1 ◆ WAL-MART: THE CHALLENGE OF MANAGING RELATIONSHIPS WITH STAKEHOLDERS
297
sweatshop conditions. The plaintiffs are fifteen workers in Bangladesh, Swaziland, Indonesia, China, and Nicaragua who claim they were paid below minimum wage in
their country, forced to work unpaid overtime, and in some cases even endured beatings by supervisors. It also includes four California workers who claim that Wal-Mart’s
entry into southern California forced their employers to reduce pay and benefits. The
lawsuit could cover a class of anywhere from one hundred thousand to five hundred
thousand workers.
ILLEGAL IMMIGRANTS In October 2003, federal officials raided Wal-Mart stores
across the United States and arrested 250 illegal immigrants working on cleaning crews
at sixty-one stores in twenty-one states. The undocumented workers were from Mexico, eastern Europe, and other countries and were employed by several contactors used
by Wal-Mart.
The investigation by the U.S. Immigration and Customs Enforcement evolved
out of two earlier immigration probes in 1988 and 2001 and ended in March 2005 with
a landmark $11 million civil settlement. Twelve corporations that provided janitorial
services to Wal-Mart stores agreed to forfeit an additional $4 million and to enter corporate guilty pleas to criminal immigration charges.
However, according to a Wall Street Journal article in November 2005, three top
Wal-Mart executives knew that its cleaning contractors used illegal immigrants who
worked as many as seven days a week for less than the minimum wage. The executives
allegedly encouraged the cleaning contractor to make “shells” of the company so that
they could continue to hire the contractor if one of the companies was closed for hiring illegal workers. (Shell companies are created for either hiding something illegal or
unethical. The company is called a shell because outsiders see it as a company, but in
reality, many are just mail drops.)
Even after agreeing to make sure that no people working for Wal-Mart were illegal immigrants, another raid by federal, state, and local authorities in November 2005
netted 125 illegal immigrants. …
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