Thursday, September 3, 2015

Wal-Mart and the Social License to Operate

Has Wal-Mart reformed? Last week I blogged about whether conscious consumers or class actions can really change corporate behavior, especially in the areas of corporate social responsibility or human rights. I ended that post by asking whether Wal-Mart, the nation’s largest gun dealer, had bowed down to pressure from activist groups when it announced that it would stop selling assault rifles despite the fact that gun sales are rising (not falling as Wal-Mart claims). Fellow blogger Ann Lipton did a great post about the company’s victory over shareholder Trinity over a proposal related to the sale of dangerous products (guns with high capacity magazines). There doesn’t appear to be anything in the 2015 proxy that would necessitate even the consideration of a change that Wal-Mart fought through the Third Circuit to avoid.

So why the change? Is it due to the growing public weariness over mass shootings? Did they feel the sting after Senator Chris Murphy praised them for ceasing the sale of Confederate flags but called them out on their gun sales? Even the demands of a Senator won’t overcome the apparent lack of political will to enact more strict gun control, so fear of legislation is not a likely factor either. Selling guns doesn't even conflict with the very specific initiatives in their comprehensive GRI-referenced global responsibility report.

Maybe the CEO just wants to do what he believes is the right thing. After all, he announced to great fanfare in February that the retailer would be raising minimum wages for associates. But just this week the chain announced that it would be cutting back on worker hours in many stores. Was the pay raise a “cruel PR stunt” as some have complained or it good business sense for a company that has failed to live up to investor expectations and needs to retain good talent and reduce turnover?

A few weeks ago when I did a crash course in US corporate law and governance in Panama, I had a lengthy debate with the head of CSR for a Latin American company. I (cynically) told her that in my ideal(ist) world, companies should adopt a stakeholder view and look beyond profit maximization. However, I believed that most large companies in fact implemented CSR programs to enhance reputation, avoid onerous legislation, and mitigate enterprise risks. The company that builds the school or the drinking well in a remote area of a third-world country does good for the community but it also has workers who can send their children to school, educates the next generation of employees, and makes sure that the community has potable water so that workers don't get sick. Its CSR builds good will in the community that can be worth more than gold. The smart company makes sure that it has a social license to operate as well as legal license.

So back to Wal-Mart. Does the retailer need a social license to boost sagging sales or does it just need different merchandise?  In other words is the retailer trying to get more customers by stopping the sale of assault rifles? Was that announcement timed to blunt the effect of the announcement about cutting back hours? Or is Doug McMillon simply doing what he believes makes sense for the shareholders and the stakeholders? The cynic in me says that there’s a business reason other than low sales for the change in position on guns and that there was always a business reason for the rise in wages.

http://lawprofessors.typepad.com/business_law/2015/09/wal-mart-and-the-social-license-to-operate.html

Ann Lipton, Commercial Law, Compliance, Corporate Governance, Corporations, CSR, Current Affairs, Human Rights, Legislation, Marcia Narine Weldon, Shareholders | Permalink

Comments

Hi, Marcia- I thought Walmart's move here was fascinating too. For what it's worth, I suspect they did it because of the public relations harm - and potential legal liability - in the wake of well-publicized mass shootings. I.e., they aren't afraid of stockholders per se, but they may be afraid that at some point someone's going to win a case holding a retailer liable for gun sales. Or there will even be a shooting in a store and Walmart's guns will be involved (which has already happened - http://www.cnn.com/2014/12/16/justice/walmart-shooting-john-crawford/)

As for consumer behavior, I tend to think that people do vote with their feet but only up to a point - i.e., given relatively equal choices, they'll choose the company they feel has a better reputation - but only given relatively equal choices. So whether on the margins that's enough pressure to force company changes ... I dunno. And to be sure, my intuitions on this are heavily informed by my own buying decisions (I avoid Walmart except when it's the only store that stocks something I want).

And by the way, as far as cutting hours goes - I tend to think that's still good, in the sense that, if employees are getting the same pay for working fewer hours, that's actually not a bad result. And ultimately, since Walmart has lost business over the fact that its stores are understaffed, I'm not convinced it'll be able to keep up the hours cutback.

Posted by: Ann Lipton | Sep 3, 2015 3:33:04 PM

Post a comment