By Amy Joyce and Ben White
Washington Post Staff Writers
Saturday, October 29, 2005
A series of image-improving initiatives announced by Wal-Mart Stores Inc. in recent days closely follows the recommendations of a consultant's report that found that the public believes the retailer treats its employees poorly and is a negative force in communities where it operates.
The report, by consulting firm McKinsey & Co., was obtained from Wal-Mart Watch, a union-backed nonprofit that opposes the company's business practices. Wal-Mart Watch spokeswoman Tracy Sefl said the report was sent to the group anonymously.
"Sincere concerns exist that Wal-Mart is not treating its employees well, is too aggressive and is hurting local companies," the Aug. 24, 2004, report said. "The challenge is likely only to intensify," said the report, which went on to lay out a plan to defuse those concerns.
"Like any company, we want to make sure our associates, customers and local communities feel good about us," said Mona Williams, a company spokeswoman. "This research provided a benchmark to help us understand what we are doing well and where we need to improve."
Wal-Mart chief executive H. Lee Scott Jr. announced in a speech Monday that Wal-Mart would add a new health care plan. He introduced a program that would reward environment-friendly suppliers and pledged that Wal-Mart would curb its energy use. Scott also called on Congress to raise the minimum wage. The federal minimum wage is $5.15 an hour. Wal-Mart says its full-time workers are paid an average of $9.68 an hour.
But those initiatives left critics wanting more. "We'd be the first to applaud them. But the jury's out on how much of this will amount to real and meaningful, lasting change," Sefl said.
The McKinsey report outlines a long-term approach to "managing change." In the first three to 12 months, the company was told, it should find ways to convince the public that its wages and benefits are better than perceived, spread messages that it cares for employees, build local relationships, increase local philanthropy, and research the impact of stores on their communities. Next, the study calls on the company to create another initiative that benefits workers ("e.g. workplace education, child-care program"). Finally, the study says Wal-Mart should "take public leadership on broader societal issue."
Wal-Mart, the nation's largest employer, has spent much of the past several years appearing to ignore critics who claimed that the company paid poverty-level wages and provided minimal health care benefits, forcing employees into government programs. Community groups have blocked development of new stores in some areas. Wal-Mart has also been the focus of major lawsuits, including an ongoing sex-discrimination class action, the largest private-employer civil rights case in history.
But even as Wal-Mart introduced initiatives to soften its image, the company continued to take hits.
Another internal memo, disclosed by Wal-Mart Watch to the New York Times, suggested how the company might cut health care costs -- including hiring healthier, younger workers. The memo also confirmed that 46 percent of the children of Wal-Mart's employees are uninsured or on Medicaid. Scott's support for raising the minimum wage also generated criticism that the company was trying to drive up costs for lower-wage competitors. Meanwhile, Scott said Wal-Mart would not change its own wage structure.
And next week, the company faces the release of "Wal-Mart: The High Cost of Low Price." The movie, directed by Robert Greenwald, paints a dark picture of the company as a destroyer of small business and a ruthless opponent of unions. It includes interviews with current and former Wal-Mart workers who claim that the company forces employees to work off the clock, encourages them to sign up for welfare benefits, and discriminates against women and minorities. In an interview, Greenwald said he repeatedly asked for on-camera interviews with Wal-Mart executives but was turned down.
Wake-Up Wal-Mart, another labor-backed group, will run an advertisement on CNN and CNBC promoting the movie.
Wal-Mart is responding. The company's outside public relations firm, Edelman, which has six people each in Washington and at Wal-Mart's Bentonville, Ark., headquarters, sent reporters a press kit last week attacking claims made in the film's trailer, along with negative reviews of Greenwald's previous work. Wal-Mart is also promoting a competing documentary about the company, directed by Ron Galloway, titled "Why Wal-Mart Works & Why That Drives Some People Crazy."
Paul A. Argenti, a professor of corporate communication at Dartmouth College's Tuck School of Business, said that the company is "reacting to the world around them" and that it is "in a bind."
Wal-Mart's public relations problems, and the rising costs and threats to its rapid expansion, have dragged down the company's stock price and frustrated investors. The stock price is down nearly 14 percent this year. John P. Waterman, chief investment officer at Rittenhouse Asset Management Inc., which owns about 4.7 million Wal-Mart shares, according to Bloomberg, praised the company's efforts to aggressively respond to critics. "The negative PR has not helped them," he said. "I think they realize they have to play offense a little bit."
Bernard Sosnick, a retail analyst at Oppenheimer & Co., described the company's response to critics as a two-step process that began a year ago. He said the first step was to hire scores of lawyers to respond to lawsuits and improve the company's compliance with laws and regulations. The second step, just getting started, is to reshape the company's image to allow expansion into major urban areas while also attracting more affluent customers who might not shop at a company with a poor labor and environmental image.
"There's little question that Wal-Mart isn't so much initiating as responding," said Harley Shaiken, a labor professor at the University of California at Berkeley. "Economists call this the union threat effect. It's not that Wal-Mart fears it's going to be unionized soon, but a major PR campaign is out there, raising the labor issues."
Robert Slater, author of "The Wal-Mart Decade," said the recent initiatives are part of the company's natural, if halting, evolution from a profit-making machine singularly focused on internal issues such as supply-chain management and cost cutting to a seasoned global company sensitive to its public image. "Wal-Mart already knew how to sell things to people. But it didn't know how to put its best foot forward," Slater said. "For a long time, that didn't hurt them. Now they realize that down the road it can really hurt them."
Staff researcher Richard Drezen contributed to this report.