Social Issue: Wal-Mart Stores, Inc.

GMI Ratings
Social Issue | Wal-Mart Stores, Inc.

Region: North America
Sector: Cyclical Consumer Goods / Services
Industry: Retail – Discount Stores
Market Cap: $203,489.3mm (Large Cap)

ESG Rating: F
AGR: Aggressive (12)

Wal-Mart missed the chance to clean up its alleged bribery problems in Mexico, just as it also turned a deaf ear to warnings about the mistreatment of its workers.

When Sergio Cicero Zapata emailed the retailer in September 2005 about how Wal-Mart de Mexico had paid bribes to obtain permits in its rush to build stores, Wal-Mart sent investigators to Mexico City and found a paper trail of hundreds of suspect payments totaling more than $24 million, The New York Times reported over the weekend. Wal-Mart shut down the investigation without notifying U.S. or Mexican law enforcement or disciplining leaders at the Mexican subsidiary. Senior managers including current Wal-Mart Chief Executive Mike Duke and former CEO Lee Scott knew about the situation, The Times said.

In large corporations “sometimes issues arise despite our best efforts and intentions,” said David Tovar, the retailer’s vice president in Corporate Communications, in a statement April 21. “When they do. . . we take action and work to implement changes so the issue doesn’t happen again.” For example, he said Wal-Mart started a worldwide review of its anti-corruption program in the spring of 2011. His firm has also taken steps such as establishing a compliance director in Mexico who is dedicated to the U.S. anti-bribery law the Foreign Corrupt Practices Act, and who reports directly to the company headquarters in Bentonville, Ark.

It’s great that Wal-Mart has compliance people on board, but when other kinds of issues have arisen in the past, the retailer hasn’t always succeeded in preventing them from happening again. For example, the labor-rights group SweatFree Communities had a Bangladeshi non-governmental research organization interview 90 Wal-Mart workers at JMS Garments between September 2007 and September 2008. They found that managers kicked the workers, forced them to stand for hours if they arrived late, and paid less than the legal minimum wage. When Wal-Mart inspectors came to visit, managers forced the workers to lie about the sweatshop conditions and wages. After SweatFree shared its report in August 2008, Wal-Mart developed a plan to make JMS Garments a “model” for others in Bangladesh. But Wal-Mart “should have long ago heeded the calls of organizations like ours to shoulder an appropriate share of the burden to prevent abuses among its factory suppliers,” SweatFree said in a statement on its website.

Meanwhile, Wal-Mart’s labor rights problems have continued since. For example, the company didn’t train its workers to safely manage a large crowd, and then when 2,000 shoppers surged into a store in New York at an annual “Blitz Friday” holiday sales event on Nov. 28, 2008, they trampled one of the workers to death, according to a statement by the U.S. Department of Labor’s Occupational Safety and Health Administration. Then on Jan. 5, 2011, 17-year-old Patrick Desjardins was electrocuted while buffing a wet floor at a Wal-Mart store in New Brunswick, Canada. And in February this year, OSHA said it found 24 alleged repeat and “serious” violations of workplace standards at a Wal-Mart store in Rochester, New York, ranging from obstructed exit routes to an unguarded grinder.

GMI Ratings gives Wal-Mart an F on the social component of its corporate governance, as well as an F overall globally and a D in the company’s home market.

Wal-Mart didn’t respond to a request for comment within press time. Hopefully the retailer will succeed in making sure that the bribery allegations that surfaced recently won’t happen again.

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