Walmart critics say the mega-retailer doesn’t pay its employees enough. Among the arguments in favor of Walmart boosting its employees’ wages is “it’s the right thing to do.” Corporate social responsibility (CSR) has become a very popular branding tool for many businesses. But how about from the business standpoint?
Walmart is one of the darlings of Wall Street because its shareholder return-on-investment is stellar. Walmart has increased its stock dividend every year for 41 consecutive years. In February, Walmart raised its annual dividend to $1.92 per share.
It is often easy to forget in discussions of under-paid workers that publically-traded businesses answer to their shareholders. Although most companies say their employees are every bit as important as their customers, generally the shareholders are really at the top of the food chain.
One analysis of the Walmart situation concludes that Walmart could pay its employees more and still retain an excellent profit margin. Anti-Walmart factions say consumers should vote with their pocketbooks and boycott Walmart. Of course, this is also likely to hurt employees as well as Walmart’s stock price.
CSR—in whatever form it takes – costs money. In some instances it means retrofitting old facilities with state-of-the-art energy systems. Sometimes it means disengaging with a partner. Other times, it means a mountain of paperwork and a staff to keep on top of compliance. That’s for the companies that are trying to be more responsible.
From their customers' standpoint, how important is CSR? In electronics purchasing, for example, I’m curious to know whether buyers—either independently or by corporate mandate—have changed their patterns based on CSR. In other words, have B2B customers voted with their pocketbooks when it comes to their business partners?
Now that the deadline for statements related to the Dodd-Frank “Conflict Minerals” Act has passed – which many companies were unable to meet— it’s worth noting the estimated cost of compliance. In 2011, Tulane University estimated the projected cost of conflict minerals compliance upon all types of businesses to be $7.93 billion, according to the IPC. The university is now conducting a post-filing survey.
Not surprisingly, small businesses had the most problems meeting compliance guidelines. According to IPC Director of Government Relations and Environmental Policy Fern Abrams, both large companies and SMEs face significant challenges in conducting due diligence. Whereas lack of information from suppliers was identified as a key difficulty by both large and small companies, SMEs also reported lack of clear requirements and lack of resources as key impediments. In addition, SMEs were more likely to report handling due diligence inquiries through direct letter communication instead of using more sophisticated electronic systems such as Excel and database inquiries.
Abrams’ presentation was part of a session on due diligence and SMEs. Part of the due diligence associated with the Conflict Minerals Act is tracing back to the source minerals such as tantalum, which are mined in areas controlled by brutal anti-government forces. Suppliers are of course encouraged by their customers to comply with the goals of Dodd-Frank, which is to cut off funds to the rebels. Some customers also offer to assist partners in getting to compliance. But as time progresses, I’m wondering if we’ll see disengagements with partners that don’t comply. Losing a valued customer is a pretty compelling argument in favor compliance. Plus, it’s the right thing to do.
Dodd-Frank does not require companies to stop sourcing minerals from rebel-held areas, it just requires them to report whether they do. The initial debate is over: reporting is a fact of life even if there are no penalties for non-compliance (yet). It will be interesting to see if the Tulane survey shows the industry spent anywhere near the original estimate. Even more interesting – what are the associated costs in terms of severed relationships, if any?