The Responsible Investments team at Nordea recently paid a visit to Walmart, more specifically the Distribution Center in Washington Courthouse, as part of our active ownership efforts. Walmart is an interesting and unique case due to its status as a corporate giant, both in terms of revenues and number of employees, as well as it being an integrated part of many Americans’ daily lives, be it from a customer or employee perspective. Walmart is also a favourite for investment exclusion and engagement activities, due to its controversial labour practices, especially seen through a Northern European lens. These mainly include a resistance to free unionisation in the US and some other countries. Our visit confirmed our views that 1) the context in which a company operates is essential to the analysis, this being particularly true for Walmart, and 2) working conditions are well managed at the location we visited.
Walmart’s business model is clearly focused on two essential elements: driving down costs and optimising efficiency. In the business model is also included a very high employee turnover – compared to European peers – of 20%. The use of temporary workers over the more costly full-time workers unavoidably creates a perpetual revolving-door personnel strategy, which – for all its apparent drawbacks – has been preferred over its more expensive alternative. Walmart caters relentlessly to its low-cost customer segment, to the extent of sacrificing both public opinion and employee satisfaction, which have had very little effect by way of positive change. According to a 2013 Forbes article, the most effective catalyst for change at Walmart is declining sales and customer satisfaction; such was the prompt that led the retailer to bring 35,000 part-time workers onto its full-time scheme, which it had previously opposed as it would qualify them for costly healthcare benefits. While it countered the company’s cost-reducing strategy, the direct effect on sales of a lack of sufficient and skilled workers proved to be too high a price to pay.
Labour market differences between the US and Europe are too plentiful to enumerate, but one aspect that is of particular relevance for this case is the traditions and behaviours around workforce mobility and unionisation. A great strength of the US economy, historically speaking, has been the mobility of its workforce. It is not considered unusual for American workers to move to where the jobs are found – both in great numbers and across large distances. This is a phenomenon seen much less frequently in Europe. A ‘take it or leave it’ approach is therefore much more commonly accepted by both employers and workers in the US, a fact that Walmart seems to fully exploit. Another differentiator is that US labour market unions have a much less pronounced presence than their European counterparts; indeed their role has been dwindling for decades. US unions do, however, tend to be more aggressive and politically driven, which arguably could become an interference to Walmart’s overarching priority of efficiency and low costs, and thus help explain its opposition to free unionisation.
Where do we go from here?
Understanding the context is essential for fully grasping the risks associated with a company, but it does not change or mitigate the fact that in not allowing its employees to unionise, Walmart is violating ILO core conventions. We always encourage engagement, and therefore we will proactively continue the dialogue on labour union issues and stress the importance of that specific right for the employees in the countries and locations where it remains an issue. Our conclusion is that, given its largely US-centric context, Walmart can – and therefore will – continue its current ways of operating. The onus is therefore on us – analysts and investors – to closely follow Walmart’s labour practices and take on the role any European labour union normally would, by acting decisively on labour related norm violations. It will, however, require a much greater push from multiple stakeholders, and a shift in what is considered acceptable, for Walmart to truly change its practices. In the end, the most effective avenue, as was demonstrated in 2013, will likely prove to be the decision customers make as to where they spend their money.