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Wal-Mart Yanks Its Own Chain

<p>Wal-Mart CEO H. Lee Scott announced today that his company, long a target of activists of pretty much every stripe, was going to be paying a lot closer attention to the environmental and labor standards of its overseas supply chain.&nbsp;What in Sam&rsquo;s name is going on here?</p>

Wal-Mart CEO H. Lee Scott announced today that his company, long a target of activists of pretty much every stripe, was going to be paying a lot closer attention to the environmental and labor standards of its overseas supply chain. In a speech on Thursday at a conference on retail trends held by the University of Arkansas' Sam M. Walton College of Business, Scott said:

The factories in China are going to end up having to be held up to the same standards as the factories in the U.S. There will be a day of reckoning for retailers. If somebody wakes up and finds out that children that are down the river from that factory where you save three cents a foot in the cost of garden hose are developing cancers at significant rates -- so that the American public can save three cents a foot -- those things won't be tolerated, and they shouldn't be tolerated.

What in Sam’s name is going on here?

First, some background -- just in case you haven’t been paying attention to anything lately beyond Iraq, hurricanes, and the Supreme Court.

For several years, a broad, diverse, and growing movement has been targeting Wal-Mart, which has become something of a tabula rasa for interest groups. Pick a social issue and you’ll find some group that’s painted a target on the retail giant's back: environmentalists, labor groups, women’s groups, civil rights groups -- that’s just for starters. There are also small business groups (who complain that Wal-Mart puts them out of business), first amendment groups (who object to Wal-Mart’s censorship of music lyrics and magazine and book covers and content), community activists (for contributing to sprawl), and so on.

I sat in on a meeting last year of a group of environmental activists looking at taking on Wal-Mart as part of a bigger campaign, and was astounded by the range of issues represented. At the table were environmental groups focusing on mining (Wal-Mart is one of the world’s biggest jewelers, so it buys lots of gold, platinum, silver, and diamonds); trout fishers (run-off from Wal-Mart’s parking lots foul local creeks, streams, and rivers for outdoors types); and forests (how else to target the world’s biggest seller of Pampers and Charmin?).

Labor, for its part, has another whole batch of activists operating under the umbrella Wal-Mart Watch -- a multimillion dollar campaign funded in large part by the service employees union. (Earlier this year, the union launched, “the world's first Internet-based union membership program.”)

But much like Nike before it, Wal-Mart’s overseas supply-chain challenges have generated the most heat among activists. The issue is both labor and the environment -- the low wages and poor working conditions of workers in Asian factories, and the environmental legacy that comes from practices to cut costs, such as clear-cutting of forests and the factory farming of seafood.

In recent weeks, the heat has been turned up, as activists have prepared for release on November 13, of WAL-MART: The High Cost of Low Price, a documentary by Robert Greenwald, director/producer of last year’s “Outfoxed: Robert Murdoch’s War on Journalism.” The week of November 13-19 has been dubbed “Wal-Mart Week,” in which “3000+ screenings in 19 countries and all 50 states are already in the works for the largest grassroots mobilization in movie history,” according to the movie’s official Web site.

So, Lee Scott’s recent pronouncement is both significant and timely.

But is it real? That’s the $285.2 billion (fiscal 2005 sales) question.

There’s evidence to suggest that this isn’t just window-dressing -- that Wal-Mart is serious about making changes. Consider the comments of one strategist I know who’s watching Wal-Mart -- someone not prone to fawning over multinationals.

“This is definitely not greenwashing, and that's going to become clear to the public over the next few months. When they set their minds to do it, they like to become a leader, and that's what they've done with sustainability. When they decided they wanted to be the best in supply-chain management, they not only became the best but they revolutionized the business.”

He continued

“Wal-Mart has always perceived themselves as highly ethical and in the business of providing good service to customers and enhancing quality of life. So some of the pushback they've been getting is troubling to them because it's not their intention to cause problems out there. Lee Scott is very sincere. They're going to do some amazing things. This has the potential to be the fastest turnaround ever on sustainability and the most comprehensive.”

Clearly, it sounds like someone has imbibed the Kool-Aid.

I, for one, am skeptical that the great, great Wal-Mart turnaround is nigh. But I’m also not ready to write off Lee Scott or his company as sustainability poseurs. I believe we’ll see a steady stream of new initiatives coming out of the company’s Bentonville, Ark., headquarters in coming months. One example: In his speech, Scott said his company would start selling clothing made from organically grown cotton next year. "We're going to take thousands of tons of pesticides out of the environment and produce a better garment for our customer and a garment that they can be proud of. Those are the kinds of solutions that exist out there that take more sophistication," he said.

Wal-Mart alone could make a global market for cost-competitive organic cotton, something that companies like Nike and Patagonia (along with a bevy of much smaller players) have been struggling to ramp up for years.

And there are other actions. On Wednesday, Wal-Mart announced it will invest $25 million to establish a private equity fund that will directly issue equity investments in women and minority-owned business enterprises.

The question, of course, is whether a few good deeds here and there -- liberally infused, of course, with sprinklings of the company’s $10 billion or so annual profits -- is enough.

The answer is likely “no.” The company will need to do much more, and do it systemically and strategically, with incredibly effective messaging.

For starters, it will need to produce a comprehensive sustainability report detailing its environmental and social impacts around the globe, demonstrating that the company fully understands its impacts; has ambitious goals to reduce them; and has a plan to continually measure, track, and improve them -- and to report annually the results. That’s the minimum standard these days for a socially responsible company, and once-reviled companies like Nike and Gap have made huge strides in turning around their negative social images through such means.

Beyond that is an even more formidable challenge: Transforming the Chinese manufacturing economy, the source of much of Wal-Mart’s goods, to embrace environmental and social responsibility, including strong labor practices.

That’s no small feat, but Wal-Mart could pull it off. According to some accounts, Wal-Mart exports now account for 1% of China's GDP. (Wal-Mart says it exported US$18 billion of product from China in 2004 -- roughly 1% of China's US$1.6 trillion GDP in 2004). That’s 1 in every 42 dollars of China’s industrial exports.

Could Wal-Mart truly transform China -- and, in the process, itself?

There’s a case to be made that in order to redeem itself, it may need to do nothing less.



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