Global Corporate Governance - Walmart - Assignment Example

Global Corporate Governance Case Study: Walmart Student’s Name: Course: Tutor’s Name: Date: Q 1. Issues that Walmart faces in trying to ensure compliance with its “Ethical Standards Manual for Suppliers” In a bid to create a positive image about its supply chain, Walmart, which is a US-based chain store, launched the Ethical Standards for Suppliers in 1992. The Standards contain detailed expectations that the chain store places on its suppliers. The 2009 Ethical Standards Manual for Suppliers (which is the most recent) contains a list of eleven Standards that all Walmart suppliers are obligated to meet, if at all they are to continue doing business with the chain store. In the Standards, Walmart states that all suppliers must comply with laws applicable in their respective operational areas. Specifically, the chain store underscores the need for suppliers to abide by laws and regulations relating to “labour, immigration, health and safety, and the environment” (Walmart Stores, Inc., 2009, p. 5). The chain store further states that suppliers need to use voluntary labour only. In essence, Walmart prohibits its suppliers from using forced, coerced or labour acquired from underage children. The third standard obligates suppliers to keep their hiring and employment practices within the legal limits. As such, suppliers are advised to verify the age, nationality and the legal-standing of migrant workers. The chain store further prohibits its suppliers from engaging in discriminative work-place practices. The fourth standard underlines the need for suppliers to compensate their employees fairly while paying due consideration to any extra hours or input above the normal identified working hours. Fifth, Walmart states that suppliers should allow their employees the freedom of association and of engaging in collective bargaining. Additionally, suppliers have an obligation to ensure that the work environment is healthy and safe. Walmart underscores the need for suppliers to abide by the existing environmental laws in order to minimise any negative effects that their production activities may have on the environment. In a bid to uphold its integrity (perhaps in awarding supply tenders), Walmart has also prohibited suppliers from awarding “gifts and entertainment” to its employees (associates). The suppliers are also prohibited from entering into transactions with the associates that may end up creating conflict of interests for the company. The tenth standard states that suppliers need to keep off corruption and unethical practices either in the private or public sectors. Finally, Walmart states that suppliers should keep accurate and legitimate financial records reflecting their transactions with the store as a means of upholding financial integrity. The records should be made available during planned or impromptu audits. While the standards look good on paper, it is rather obvious that ensuring that the supplier meets them is a tall order for Walmart, which is ranked as the world’s largest single retailer. With over 65,000 suppliers in 2006, there is little doubt that monitoring compliance is no small undertaking for the retailer (Dixon, 2006, p. 6). To ensure that such suppliers abide by the ethical standards as contained in the manual, Walmart would have to conduct regular audits of the suppliers. Currently, the International Labour Rights Forum (ILRF, 2007, p.5) observes that the chain store lacks the capacity to implement the standards over its large supply chain or even audit suppliers for compliance. Walmart’s traffic light rating system no doubt provides a good starting point for monitoring the suppliers. As ILRF (2007, p. 10) notes however, the fact that the rating system lacks specific definitions specifically regarding the high, medium and low violations makes the system vague and subjective. Hence, if Walmart was to make maximum use of the system, it would need to be re-defined afresh in order to make it easier for the suppliers to understand and classify violations. Auditing is another challenge area that Walmart has encountered in its attempt to implement the ethical standards. In a 2005 report, the chain store admitted that the length, quality and conditions of auditing determine whether auditors are able to get a true picture of the conditions in a supplier factory or company. Interviewing workers is one of the ways that auditors seek to establish if suppliers meet the standards on workplace practices. Notably however, there is no guarantee that the information obtained from the employees is always true; some are too afraid to tell the truth, while other are coached on how to answer the auditors by the managers. This then means that Walmart has a challenging time trying to get the true picture of how suppliers run their companies. Walmart also encounters challenges implementing the ethical standards for suppliers where local laws do not provide it with the necessary support mechanism (Clifford, 2011, p. B3). For example, the chain store faces challenges in ensuring that suppliers comply with standards requiring them to pay their employees fair and just wages in countries that do not have legal wages. In the same manner, upholding the employees’ freedom of association or collective bargaining would not succeed if the employees in question are not aware of such rights. Finally, it is argued that the pricing process at Walmart pressurises suppliers to offer very low prices, thus making them (the suppliers) reluctant enforcers of the ethical standards (ILRF, 2007, p. 24). When suppliers receive such low pays, they cannot afford to pay their employees decent wages, and hence could end up violating the standard that requires suppliers to pay their employees fair and just wages. In conclusion, it is worth noting that challenges faced by Walmart in the implementation of the Ethical Standards for Suppliers are partly caused by the retail store’s sheer size. With over 65,000 suppliers, monitoring compliance is indeed a challenging undertaking for the chain store. The fact that suppliers are drawn from different countries further complicates the implementation challenges for Walmart. While it would be easier to implement the ethical standards in western countries for example, doing the same in developing countries like Bangladesh or China presents additional challenges to the retail store. This is especially the case because the labour laws in such countries may be different from what is considered the norm in western democracies, and may also be contrary to the ethical standards underlined by Walmart. Q2. Strategies that Walmart may introduce to improve the situation Seeing that Walmart has recognised the importance of suppliers adhering to ethical standards, more efforts need to be directed towards implementing the same standards. Moreover, improving the manner in which implementation is done and compliance monitoring could enhance the retailer’s image among critics who argue that the store is advancing ethical standards as a public relations exercise, while attaching little or no practical meaning to its actual handling of issues (Chan & Siu, 2009). One of the ways through which Walmart can try remedying the situation is by purchasing supplies at fairer and more competitive prices as opposed to the already established trend where suppliers are asked provide the lowest possible prices. As Chan and Siu (2009) note, Walmart’s “Everyday Low Price” marketing strategy puts pressure on the suppliers, who in turn pass the productivity demands on their workers. Hence, the suppliers ask the employees to put in more hours at work without commensurate pay in order to increase their chances of profitability. As the Business Week (2011) puts its, Walmart should probably stop squeezing suppliers too hard if they want to see real change in how the suppliers treat their workers. With auditing having been identified as one of the challenging areas that Walmart has to deal with, the chain store should consider solidifying its auditing capacity. One method that Walmart can use in a bid to attain better auditing practices is by relying more on the Global Social Compliance Programme (GSCP), which provides reference tools to member companies. The GSCP could present Walmart with an efficient and less-costly auditing method that could end up improving labour standards among suppliers. Currently, Walmart is a member of the GSCP but its use of the audit reports generated in the programme is still minimal (ILRF, 2007). In cases where the GSCP audits do not meet the information needs of the retail store, it should then contract external auditors or engage its internal auditors to fill that information gap. According to Sisco, Chorn and Pruzan-Jorgensen (2010, p. 36), components of an effective audit include management interview; worker interviews; facility tours; and record reviews. During interviews with the management, the auditors should establish the systems in place, wages, and working conditions among other things. Interviewing the workers on the other hand should be done with a view to verify the working conditions from the employees’ perspective. Touring facilities allow the auditors to conduct visual inspections in order to identify the level of compliance/noncompliance. Finally, reviewing the records enables the auditors to check employee files, safety and health records, and timecards in order to verify information issued by the management and the workers against the record contents. Walmart may also consider more explicit definitions for the traffic light rating system in order to make them objective and clearer. The suggestion by ILRF (2007, p. 13) that Walmart should consider awarding suppliers whose implementation of the ethical standards is highly rated with more motivating incentives is also another approach that the chain store should consider. Currently, suppliers who score a green rating get a two-year audit reprieve. According to the ILRF report however, such a reward could end up creating a situation where motivators comply with the standards whenever the audit period draws closer. Incentives that have more motivation value such as a guaranteed supply tender for a specific amount of time could encourage more suppliers to implement the ethical standards. Instead of providing passive assistance, sideline direction and coaching-like instruction to suppliers, Walmart could as suggested by ILRF (2007, p. 16), own the compliance process. So far, the chain store maintains that the suppliers should uphold the ethical standards because after all, they are the ones who will benefit most from the improved business environment. While such assertions by the store could be true, the underlying truth still remains that its purchasing policies encourage most suppliers to pursue short-term gains while neglecting the standards, which affect how they relate with their employees. Another plausible step that Walmart could take in order to remedy the current situation is to use its position and size as a major retail chain-store to influence how suppliers treat their employees. Fishman (2006, p. 180) for example implies that a company such as Walmart, which buys large volumes of supplies, has the capacity to influence how suppliers conduct their business. Fishman gives the example of how Walmart influenced Salmon farming in Chile, to the extent of stating how workers in the salmon farms were to be treated and compensated. In countries where local laws do not provide Walmart with the support needed to ensure that suppliers comply with the ethical standards, the chain store could consider setting up dispute resolution mechanisms that would support suppliers in implementing the ethical standards without having to rely on national or local laws. For example, in countries where laws do not recognise the need for workers to have minimum wages or working-hour limits, Walmart together with its suppliers in that country could set up an ethical committee to ensure compliance with relevant ethical standards. The ethical committee should have the mandate to conduct audits among suppliers, rate them, and recommend what the suppliers need to improve on in order to comply with the ethical procedures. Additionally, the ethical committee should have the powers to strike off non-compliant suppliers who notoriously refuse to reform from the Walmart suppliers list. In conclusion, it is worth noting that remedying the situation related to non-compliance of suppliers to the ethical standards will take patience, innovation and selflessness from both Walmart’s side and the suppliers’ side. Being a success story in the retail industry, one gets the impression that Walmart can replicate the same success in regard to enhancing compliance to the ethical standards among its suppliers. To do this however, Walmart will most likely have to procure suppliers at a higher cost, which would in turn mean that the store would need to raise the prices of the products it offers. By improving its procurement prices, one of the main reasons cited by suppliers for not being able to meet the ethical standards will be resolved. References Business Week (2011) ‘Stop the bullying, Walmart’, The Debate Room, Viewed October 18, 2011, Chan, A., & Siu, K (2009) ‘Walmart’s CSR and Labour Standards in China’, BDS Working Paper Series, no. 4, pp. 1-24. Clifford, S (2011) ‘Walmart is being pressed to disclose how global suppliers treat workers’, The New York Times, B3, viewed October 18, 2011, . Walmart Stores, Inc (2009) ‘Ethical standards: Standards for suppliers manual’, pp. 1-50, Viewed October 17, 2011, < walmartstores.com/download/4216.pdf> Read More