Friday, January 25, 2008

Ethical Retailing Memo: Wal-Mart CEO Lee Scott Issues a Social and Ethical Manifesto

Leaving a massive collective carbon footprint in their wake, more than 7,000 Wal-Mart store managers flew to Bentonville, Arkansas on Wednesday to hear Wal-Mart chief executive officer H. Lee Scott Jr. talk to them about the future of the company and the social and physical environment Wal-Mart does business in. [Watch a video of or read the full-text of Scott's speech here.]

While the store managers knew Scott would mix philosophical issues with economic ones, what they didn't know was that on this particular Wednesday morning the company's chief executive would be far more social and ethical policy philosopher than he would be corporate CEO, in his talk.

In his talk to the store-level executives on Wednesday, Scott laid out a corporate social manifesto in which he pledged that Wal-Mart would cut the energy used by most of the products it buys for sale in its stores by 25%, force the mega-retailer's suppliers to meet stricter ethical standards and use it's corporate cost-cutting model to help other companies deliver health care for their employees.

In a speech in which Scott sounded as much social philosopher as he did corporate chieftain, Scott told the store managers "We live in a time when people are losing confidence in the ability of government to solve problems." But, Wal-Mart, he said, "does not wait for someone else to solve problems." (Could we be seeing the start of the sovereign state of Wal-Mart, with Scott as its Philosopher-King? A multinational corporate nation-state with the economic clout to not only move corporations to follow its lead, but perhaps sovereign countries as well? But we digress.)

In his corporate social manifesto, Scott laid out a massive agenda for the company on numerous social, ethical, health and environmental issues, many of which were a complete surprise to the assembled store managers. For example, he announced that Wal-Mart is talking to leaders of the automobile industry about selling electric and hybrid cars. He added that the company might even install wind turbines in its store parking lots so customers could recharge their cars with renewable "Wal-Mart" energy.

Scott also laid out a new corporate goal of working with the chain's suppliers to make Wal-Mart's most energy-intensive products 25% more energy-efficient within three years. He also said Wal-Mart would take the lead on informing customers about the energy required to make and use more energy-intensive products.

As an example of the retailer's energy conservation product program, Scott said Wednesday that Wal-Mart has already sold 145 million compact fluorescent light bulbs (CFL's) to date, which he said saved enough electricity to avoid building three coal-fired power plants in the U.S. And, he added this is just the tip of the iceberg in terms of CFL sales. The company introduced a private label line of CFL's late last year, and Scott said plans are for Wal-Mart to sell the bulbs for even less than they currently are retailing them for--and to work to make them the norm in terms of its customers' home light bulb use.

Scott also explained to the store managers that Wal-Mart will launch a retail industry effort to significantly improve social, ethical and environmental standards in suppliers' factories, including in China where the retailer sources an ever increasing amount of the goods it sells in its stores. Wal-Mart will be working in partnership with other retailers and consumer products' companies through the CIES network on the new initiative, which will work towards requiring suppliers to meet specific environmental, ethical, social and quality standards, certifying supplier compliance with those standards, and favoring suppliers that meet them.

On the health care front, Scott said Wal-Mart would start working with major American employers to help them manage and pay prescription drug claims. He said Wal-Mart will apply its proven cost-cutting model to this business and eventually be able to save companies billions of dollars. For example, Scott estimated that in 2008 alone, Wal-Mart's first year tackling this business, it will be able to save companies at least $100 million.

CEO Scott also told the store managers Wal-Mart will attempt to fill eight-million electronic drug prescriptions this year, a four-fold increase from 2007. Electronic prescriptions are considered safer than handwritten ones from doctors, and when widely implemented are believed to be able to help keep prescription drug costs from soaring even more than they already are.

Elaborating on the electronic theme, Scott said Wal-Mart also is launching a major initiative in the area of electronic health records for its employees. The company's goal is to provide electronic health records to all of its employees and their dependents by 2010, Scott told the store managers. These records are designed to give doctors a full picture of a patient's medical history, help to prevent treatments that may conflict with each other, and save on employer and employee health care costs.

Like a good social philosopher, Scott didn't just read his long list of social, ethical, environmental and health goals for Wal-Mart--and the world. Rather, he infused his talk with a combination of church preacher inspiration and sociology professor zeal.

Scott came back to the "Wal-Mart as leader" theme many times. For example, in explaining Wal-Mart's cooperative social, ethical and environmental initiative through CIES, Scott said he believes an industry-wide effort is needed, as well as a corporate one by the retailer. However, Scott said with emphasis, "If an industry-wide effort falters, Wal-Mart will in fact lead; we will move forward by ourselves."

The various Wal-Mart stakeholders--the store managers who were at the meeting, Wall Street, industry analysts, media, anti-Wal-Mart groups, competitors, environmental and social welfare organizations and others--are still analyzing Philosopher Scott's Wednesday speech. However, regardless of where one stands vis-a-vis Wal-Mart, it was a BIG speech. It was as much about macroeconomics as it was about microeconomics. Its scope was global, its focus social, ethical and environmental, as well as bottom line.

With his Wednesday speech, Scott has made it clear he isn't afraid to lead, nor to have his bold ideas and leadership judged, which it will be now even more since he has laid down his most comprehensive social manifesto to date for Wal-Mart.

In fact, Scott's social manifesto really isn't just for Wal-Mart. Rather, its for corporate America--and global industry. Its for his retailer peers and competitors; a benchmark or set of standards they will have to eventually meet. In many ways, it's also a sort of socio-ethical-environmental shot across the bow to President Bush and the U.S. Congress.

When Scott said near the beginning of his speech that " We live in a time when people are losing confidence in the ability of government to solve problems," he was at least figuratively looking in the general direction of Washington, D.C.

When he added, "[But Wal-Mart] does not wait for someone else to solve problems," it seems he's saying he and Wal-Mart are taking the lead for corporate America and even globally. Further, that the company will lead not only on the sales front, but in terms of the social, ethical and environmental aspects of business as well.

Such leadership is a tall order, and we will watch with great interest, provide encouragement, and criticize strongly when we believe it's warranted and needed. But for today, we're impressed by Scott's willingness to issue such a social and ethical manifesto in current times.

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