Wal-Mart's Scott: "We Were Getting Nowhere"

It was high time to meet with critics, the CEO says, because it could no longer ignore them. But don't look for any major wage raises soon

In the last three years, critics have attacked Wal-Mart Stores (WMT ) on a variety of fronts. The world's largest retailer has been accused of creating a permanent underclass by paying rock-bottom wages and being stingy on benefits. Its labor image hasn't been helped, either, by lawsuits over employees working off the clock and alleging discrimination against women workers. Its stores, meanwhile, have been criticized for doing environmental damage and creating congestion and sprawl. In California, communities have actually tried to block Wal-Mart stores.

Having long remained silent in the face of such criticism, Wal-Mart CEO H. Lee Scott Jr. has begun to reach out to adversaries. In an interview on Sept. 14 with BusinessWeek Chicago correspondent Robert Berner, Scott for the first time discusses the details of Wal-Mart's public-relations offensive and what he hopes to achieve (see BW Online, 09/22/05, "Can Wal-Mart Wear a White Hat?"). Edited excerpts of their conversation follow. (This is an extended version of an interview that appears in the Oct. 3, 2005, print version of BusinessWeek. It will run in two parts.)

Wal-Mart has aggressively started to reach out to its critics. You are starting an environmental initiative to cut down on packaging materials. You are reaching out to anti-sweatshop groups. Why the change?

When growth was easier this idea of critics being ignored was O.K., because you were getting all this positive feedback from the numbers. As the share price slows [and] the critics are attacking, you have to get to this point.

Maybe not all of our critics wish us harm. Maybe some would like us to be a better company and do things differently. So you start reaching out...trying to understand what is it about us that causes them to have this concern. How much of it is legitimate? How much of it is misinformation? What is it that we need to change? What is it we can't [change] that we will hopefully be able to communicate?

Tell me about your packaging efforts?

What really happens when you get large is you have to be much better to get the advantages that come with being large. That is where something like [environmental] sustainability is a wonderful opportunity because our footprint is so large. As we do the right thing we have an impact across so many industries, so many countries. And we are finding tremendous cost savings while doing better things for the environment.

Packaging is one of the simple ones, and shame on us for not having done it earlier. We just changed the packaging on 16 private-label toys. It saved 230 containers coming from overseas, which is equal to so many barrels of oil, so many trees, and all the rest of that -- and we didn't change any of the product inside. It saved more than $1 million in transportation costs [during the spring].

I think we are going to find a lot of low-hanging fruit in that area. In our energy management of our stores we have a number of things we're doing that we will be talking about publicly over the next month or two.

You have also reached out to some anti-sweatshop groups. Would you consider joining an organization like Nike (NKE ) that conducts independent monitoring of labor conditions in fore

I think we're actually looking at that now, and we are doing that in a country or two. We would like to make sure it's [an organization] whose focus is really on those people and not some other agenda.

When did you step up the outreach?

We really started last year -- the visible part, the press part. Certainly, the first of this year. But way, way before that I started having meetings with people who don't have a natural love for Wal-Mart.

Like whom?

Former Clinton White House people. Politicians who would only meet me in secret. Just dinners and lunches and private meetings. Just talking and listening. For the most part listening.

I already know what I think. I want to hear what they think. What is their objection to Wal-Mart? What resonates with them that they hear out there?

One leading Democrat at the end of a three-hour dinner said, "your associates and your customers are the very people that we say we represent and you know more about those people" -- which I think is true because they shop with us.

What were the forces that made you turn more outward?

You have board members that have different perspectives. We were getting nowhere the way we were doing it. Sam [Walton, founder of Wal-Mart] had a wonderful capacity for criticism. And for most of us, I think it is harder. We personalize it and internalize it.

It's human nature to be defensive about it. So this is a time to be entrepreneurial in a different way.

Wal-Mart has never had an outreach program like this?

No. We always believed that if we sat here in Bentonville and took care of our customers and took care of associates that the world itself would leave us alone.

So what changed?

The dot.com bust occurred and companies weren't as celebrated as [they had been] in the late '90s. We got stronger in food, and it became apparent to people in the food business that Wal-Mart was going to be an extremely capable competitor. The expectations of society changed.

At the same time, politics changed. Things became more bitter and divided. And I think Wal-Mart, in fact because of our size, was in the middle of that.

Didn't the labor practices you were accused of add to that?

Actually, the issue of being in food and being so successful raised the profile of our labor exceptions [i.e., the lawsuits over work hours and immigrants].

You mean with the [United Food and Commercial Workers' International Union] and their interest in organizing Wal-Mart, and the fact that Wal-Mart was moving onto the union's turf?

Right. Therefore, when we had these exceptions in what we should do as a company, they became very much more visible. We had the CEO of a $30 billion company in three weeks ago talking to our management team about leading, and he said, "There isn't anything you are faced with, from a class-action lawsuit to the rest of the stuff, that we are not dealing with in our company. The only difference is that yours is played out on the front page of the paper and you never read about ours."

You are reaching out to environmental groups and anti-sweatshop groups, and being a model company on those fronts. Why not be a model retail employer and set the standard in paying higher wages and benefits?

I think in many ways we are.

Well, you're always being accused of paying rock-bottom wages and benefits.

Sure, we're always accused of that. On the other hand, at Wal-Mart you can -- without a high-school degree -- start as a cart pusher in the parking lot and end up being a store manager, district manager, a regional vice-president. You have wonderful opportunities at Wal-Mart that are not limited by your education or your ability to ennunciate as exactly as people would like. It is a very democratic company. I think that is a model.

Why is that?

We work in an industry where we compete with Target (TGT ) and Dollar General (DG ). And we cannot set employment practices that set the standard worldwide for all industries and forget that the industry we are in is a much different kind of industry.

The jobs we provide are jobs people [use] to enter the workforce. Many people join us to learn about work, learn about working in a team environment.

There are other people that have an affinity for retail and want to build a career. Companies like Wal-Mart provide them that opportunity at a competitive salary. We have 1.2 million associates in the U.S. It is extremely difficult to believe that you could have that many people working for you if you weren't [offering] for your industry very competitive benefits, 401(k) plans, profit-sharing, time off and health insurance, company-paid life insurance. You couldn't have the people there if you didn't do these things.

Why couldn't you pay wages above the industry average, like warehouse club Costco (COST ) does?

I think the Costco model, their sales per square feet, and the revenue they generate per store allows them to do the things they do. They have a different model. Much fewer people. A different customer base. That model doesn't work at Wal-Mart. But it certainly works for them.

(In Part 2, Scott defends Wal-Mart's position on unions and explains why it is going after more affluent customers.)

Edited by Patricia O'Connell

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