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The Wal-Mart affair – where implausible deniability is the coin of the realm

Prakash Sethi (University Distinguished Professor, based at Baruch College, The City University of New York, New York, USA)

Corporate Governance

ISSN: 1472-0701

Article publication date: 27 May 2014

4235

Abstract

Purpose

In the past more than three years, Wal-Mart has been embroiled in incidents of public scandals. In part, they pertain to Wal-Mart’s global strategy of growth and expansion, where the company’s senior managers have been implicated in using illegal bribery and corruption to secure business and to conceal this information from regulatory authorities. Another issue, albeit longer running, has been the incidents of fire and resulting deaths and injuries of hundreds of people, most notably in Bangladesh, but also in other countries where low-skill, low-wage manufacturing predominates, and where foreign multinationals have been accused of condoning and profiting from sweatshop-like exploitation of workers.

Design/methodology/approach

The authors use Wal-Mart as a microcosm of corporate conduct which provides a prism through which to examine the exploitation of negative externalities, i.e. engaging in illegal and unethical behavior by using their bargaining power and market control these companies, pressure host countries to condone environmental degradation, violation of country laws in terms of wages, working conditions and operating in sweatshop-like conditions to maximize their profits at the expense of other factors of production, i.e. labor and resources.

Findings

The authors contend that Wal-Mart’s unique business model, which focuses on everyday low price, absolute growth and market share expansion by any means possible and everyday low cost, has led to the company’s enormous success since its founding and has made it one of the world’s largest corporations by revenue. At the same time, this model seriously impedes the company’s ability to improve unit-based profit margins and thus forces it to take short cuts in achieving lateral growth and low-cost production.

Social implications

The authors also examine in some detail the large gap that exists between Wal-Mart’s pronouncements of the company’s commitment to ethical and socially responsible conduct and its actual business practices. They demonstrate that the company’s communications and claims for ethical conduct are mostly aspirational and fail the test of accuracy, specificity, materiality and verifiability through independent, externally provided integrity assurance.

Originality/value

Finally, the authors outline a number of measures that would need to be taken by Wal-Mart, industry groups that depend heavily on outsourcing from low-skill, low-wage countries for their products and host country governments and the governments of Western industrialized nations whose corporations and consumers are the primary beneficiaries of the exploitative sweatshops that fatten their companies’ bottom lines and enrich their denizens with ample amounts of inexpensive goods.

Keywords

Acknowledgements

The author would like to thank Research Assistants Rohit Singh, Alex Schwarz, April Anderson, Danhua Zhang, Rowhan Chowdhury and Victor Kovalkov. Funding for this project was provided by the Weissman Center for International Business, Baruch College, and is gratefully acknowledged.

Citation

Sethi, P. (2014), "The Wal-Mart affair – where implausible deniability is the coin of the realm", Corporate Governance, Vol. 14 No. 3, pp. 424-451. https://doi.org/10.1108/CG-10-2013-0112

Publisher

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Emerald Group Publishing Limited

Copyright © 2014, Emerald Group Publishing Limited

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