Friday, February 20, 2015

Did Wal-Mart Prove Me Wrong? Do Boycotts Work?

I have just finished a draft of an article arguing that disclosures don’t work because consumers and investors don’t read them, can’t understand them, don't take any real action when they do pay attention to them, and fail to change corporate behavior when they do threaten boycott. I specifically pointed out the relative lack of success of consumer protests over the years. I also noted that Wal-Mart continues to get bad press for how it treats its employees despite the fact the Norwegian Pension Fund divested hundreds of millions of dollars due to the company’s labor practices, prompting other governments and cities to follow. My thesis—it takes a lot more than divestment and threats of boycott to change company behavior. But perhaps I’m wrong. Yesterday, Wal-Mart CEO Doug McMillon announced a significant wage increase declaring:

We’re strengthening investments in our people to engage and inspire them to deliver superior customer experiences… We will earn the trust of all Walmart stakeholders by operating great retail businesses, ensuring world-class compliance, and doing good in the world through social and environmental programs in our communities.

The letter to Wal-Mart associates is here. I don’t know which was more striking, the $1 billion dollar move to $9 and then eventually $10 per hour or the fact that he used the word “stakeholders.” Wal-Mart also announced changes that would affect health insurance and shift scheduling, but the main headline concerned the wage hike. Main Street may be happy but Wall Street was not, and the stock price fell after the announcement. Others pointed out that the pay raise is still not enough to pull workers out of poverty.

Does this move mean that boycotts and advocacy really do work and that we will see more of them? Do I have to edit my article or will this be an anomaly? Will other big retailers or fast food chains follow? Will socially responsible investors reinvest in Wal-Mart? Is Wal-Mart trying to pre-empt government regulation on the minimum wage? Is Wal-Mart signaling to regulators in foreign countries that it cares about workers so should be allowed to operate there more freely? 

I will be teaching a course in transnational business and international human rights in the Fall and Wal-Mart will be a case study. A few years ago, I used the company’s CSR report in my corporate governance, compliance, and social responsibility seminar.  I asked the students to consider why Wal-Mart’s report looked and felt so different from Target’s, which essentially has many of the same labor issues. I wanted them to think about the marketing behind CSR from a reputational and regulatory perspective. I posited that Wal-Mart’s CSR report was written for regulators. Two weeks later, the company announced its massive and still ongoing bribery investigation. I’m happy for the workers but a bit curious as to what caused the company to make this announcement now. In the meantime, I will be watching the reaction from advocates, the markets, and other companies closely.  

https://lawprofessors.typepad.com/business_law/2015/02/did-wal-mart-prove-me-wrong-do-boycotts-work.html

Corporate Governance, Corporations, CSR, Current Affairs, Ethics, Financial Markets, International Business, Marcia Narine Weldon, Teaching | Permalink

Comments

Thanks for posting on this Marcia. I was considering doing a post on it, but you have saved me the trouble and done a nice job.

The chance at positive PR may have played a role, but I bet that Wal-Mart has also run financial models factoring in this pay-raise and is betting that they will save on decreases in turnover, fewer employee absences, higher overall sales, etc.

This HBR article entitled "The High Cost of Low Wages" compares Wal-Mart and Costco and makes some claims about the long-term financial benefits of somewhat higher wages. https://hbr.org/2006/12/the-high-cost-of-low-wages

Posted by: Haskell Murray | Feb 20, 2015 9:08:01 AM

It's always hard, Marcia, to draw causal relationships on things like this. Suffice it to say, I do not think Wal-Mart's movement on the wage front in-and-of-itself disproves your hypothesis. I will look forward to reading the article.

Posted by: joanheminway | Feb 21, 2015 6:47:56 AM

I'd go with "coincidence."

If Walmart's labor practices were exactly what they had been for the last two decades, but they were not so large or were unionized, I'm convinced we would never have heard 90 percent of the criticism that has been leveled at them.

At the same time, Walmart has had some real operational issues. Some of them are plausibly related to their labor practices, though not necessarily to the practices for which they are criticized. They had to address them eventually.

It would not surprise me in the least if their top management concluded that they could kill two birds with one stone, i.e., their operational and their PR issues, by adopting the strategy they have. I believe that the market viewed their too-clever-by-half strategy as a sub-optimal way of dealing with their operational issues.

Posted by: Marc | Feb 21, 2015 8:53:57 PM

Post a comment