April 24, 2005

In Sam We Trust : The Untold Story of Sam Walton and Wal-Mart, the World's Most Powerful Retailer

Genre: Nonfiction
Author:Bob Ortega

About a year ago a woman at church mentioned that she likes to shop at Wal-Mart not just because it’s cheap but because she feels like she’s supporting a Christian business seeing as Sam Walton (the founder of Wal-Mart) was a Christian. I knew enough about Wal-Mart at the time that warning bells were sounding loud and clear in my head, but I didn’t really know enough about Sam to respond very well. So I decided then and there that I needed to do some research.

The barista at my favorite cafe suggested that I start with source material. Rather than reading what others say about Wal-Mart, perhaps I should start with what Sam himself has said. So that’s what I did. (Sometimes barista’s give great advice.) I read Sam Walton’s autobiography, Made in America: My Story -- an ironic title given that there was a huge controversy over Wal-Mart’s "Made in America" program and that the focus of the book is in many ways more on Wal-Mart than on Sam.

I came to the following conclusions as I read the book:

1) Sam Walton may have called himself a Christian, but the reality was that he bowed at the alter of Commerce. Though he paid God lip service (He loved to start out his stock holder meetings by singing the national anthem then praying.) he very clearly worshiped retail. (For more on this, please read my review of his autobiography.)

2) Sam Walton was a real people person. He could make the lowliest clerk, who was being overworked and underpaid, feel like she was one of the most important cogs in the great machine called Wal-Mart. This personality trait was probably one of the most important characteristics in terms of building an identity for Wal-Mart as a corporation.

3) Sam Walton was a man driven to be the best at whatever he did and he was willing to do whatever it took to make sure he wound up on top.

Having an opinion on Sam was a start. But Sam was not Wal-Mart, much as the two of them are intimately linked in the minds of many Americans even today. So I pulled two more books off the shelves of our local library:

1) How Wal-Mart is Destroying America and The World and What You Can Do About It by Bill Quinn, and
2) In Sam We Trust : The Untold Story of Sam Walton and Wal-Mart, the World's Most Powerful Retailer by Bob Ortega.

After glancing through Bill Quinn’s book, I immediately tossed it. The book may be entirely true for all I know, but it was written in a clearly biased manner and didn’t appear to me to have very good documentation. My goal was not to slam Wal-Mart just because I wanted to slam Wal-Mart. I wanted to approach my inquiry fairly and I wanted to base my conclusions on facts and figures, not emotion.

So then I turned to Bob Ortega’s book. I was pleasantly surprised not only by it’s impeccable documentation, but by his fairness and thoroughness as well. In many cases he talked directly with the people involved in Wal-Mart, from executives to workers. Though he may have had an agenda in writing the book (just as I had an agenda in doing my own research) I still feel that he tried his very best to fairly address the whole of Wal-Mart’s activities -- pointing out the smart business decisions as well as the ethically suspect ones.

The Content of Ortega’s Book

Over half of In Sam We Trust is the history of Wal-Mart, its predecessors or its competition. Ortega is seriously thorough in approaching this subject. As a person
who is not very interested in business dealings in general, I have to admit that I plodded through parts of this book. At the same time, I appreciated Ortega’s thoroughness because I knew that there was no way I would have investigated the topic so thoroughly on my own, and I’d rather read someone else’s synopsis than have to personally plod through the source material.

Ortega begins his book with a brief review of Sam Walton’s life, his personal history, and his activities that lead to the creation of Wal-Mart. Much of this was simply a synopsis of Sam’s autobiography, which I had just finished reading. But I was encouraged by the fact that Ortega came to many of the same conclusions that I did in reading Made in America. His impression of Sam’s spiritual life was identical to mine as was his reactions to Sam’s strengths as a people person and his drive to being the absolute best at whatever he put his hand to.

Ortega then backed up all the way to the mid-1800’s and briefly surveyed the history of retailing in America. He traced trends and innovations within, and the men and companies that drove, the retail industry. He pulled out threads that would later bear heavily upon the success of Wal-Mart. And he showed very clearly that many of Sam Walton’s winning ideas had come from other retailers who either failed to implement them well, or who had the ideas but were thwarted by their superiors within their respective corporations.

In Wal-Mart’s early days it had very little competition. The first store was opened in 1962, the same year that both Target and K-mart got their start. But Wal-Mart was located in rural areas of middle-America and grew very slowly at first, staying safely away from the competition which was based primarily in large urban areas to the east. But as retailers expanded their reach, they slowly began to encroach on each other’s territory. As Ortega gets to this part of his story, he stops to look extensively (considering this is a book on Wal-Mart) at the chief competition, K-mart.

K-mart, unlike Wal-Mart, had been slow to integrate computer technology which slowed not only its operations within stores, but which hampered its ability to track goods and restock efficiently. Sam Walton, on the other hand, liked to keep his finger on operations at all of his stores, something he could initially do by visiting each store regularly thanks to a beat up old airplane he purchased and flew himself. However, as his operations grew, he recognized that personal visits would no longer be feasible, so he invested heavily in computers and computer tracking. From Wal-Mart headquarters, Sam was able to track sales not only by store, but by product or even by sale type (cash/credit) in real time. (In fact, it is this detailed use of technology that enabled Wal-Mart, in 2004, to change direction on a dime as sales were slow the day after Thanksgiving. Within a day a new sales strategy was devised and within two days it had been fully implemented in all of Wal-Mart’s American stores.)

K-mart also had a policy of recruiting from within it’s own ranks. Executive positions were always filled from within. So problems within the company were often reinforced, rather than eradicated. Sam Walton, on the other hand, had a policy of hiring only the best in a given area. If it meant hiring someone straight from the competition, that’s what he would do. In fact, Sam regularly searched for employees (from managers to executives) among the competition. He not only ended up with a topnotch employee, but the competition ended up with one less. And he got the extra benefit of bringing in fresh ideas straight from these other retailers. Sam had no qualms about stealing ideas from others and was often found in the stores of other retailers with a mini-recorder in hand, even when the store had a posted policy against that very thing. (And he would get away with it as he explains in his autobiography.)

About two thirds of the way into the book, however, Ortega starts to look directly at some specific company practices such as union-busting, employee policies that were unfairly enforced, and contracts that Wal-Mart had with sweatshops -- most specifically with their Kathie Lee Gifford line of clothing -- and their subsequent policies regarding such sweatshop merchandise. He details how, after Sam Walton’s death, the upper management became even more obsessed with the bottom line and how, when Sam’s brother, Bud, spoke out in favor of the Wal-Mart employees during a stockholders meeting, the executives unambiguously ignored him. Sam Walton had been obsessive in making Wal-Mart a great retailing chain. The executives he left behind took up his mantle with strict orthodoxy.

The Dark Side of Wal-Mart

“You won't hear anything negative from most people. If Wal-Mart takes something the wrong way, it's like Saddam Hussein. You just don't want to piss them off.” -- Paul Kelly, founder of Silvermine Consulting Group, a company that helps businesses work more effectively with retailers

Wal-Mart clearly has a dark side and Bob Ortega was meticulous is going straight to the source as much as possible when documenting it. He contacted suppliers in Central America and Asia that do business with Wal-Mart. He poured through court documents and he met with former Wal-Mart employees to get their stories directly. He also met with organizers who were trying to stop Wal-Mart from moving into their communities and he documented the results for those municipalities that failed.

You really should read the book if you want to know more about Wal-Mart’s dark side, but I’ll summarize some of Ortega’s findings here.

Employee Relations:

Employee conditions were rough during Sam Walton’s time. In his autobiography he admits to paying his employees less than all other retailers. His autobiography also attests to the long hours managers were expected to put in (without overtime pay). But after Sam died, things only got worse. (Which is why Bud tried to stand up for the employees in that stockholder meeting I mentioned earlier in which he was stoutly ignored.)

Employees were fired or punished for issues that managers were allowed to get away with. Wal-Mart was found guilty on more than one occasion of racial discrimination. And, as Ortega said, “What’s more interesting about these cases is the behavior of higher-ups at Wal-Mart once they became aware of the situations--how they often ignored the complaints, how they often acted not to correct the problems, not to oust these troublesome managers and restore the aggrieved employees, but rather to cover up and defend fundamentally indefensible actions, to claim the workers were fired or had left for other reasons, claims that courts and commissions found time and again simply were not credible.”

Employees also tried to organize on several occasions and each time they were met with threats and direct punishments. When Wal-Mart’s butchers tried to organize, Wal-Mart responded by removing their positions from Wal-Mart entirely. Wal-Mart now has a central meat packing plant and they ship their meat across the US. When truckers tried to organize, they were met with threats from Sam Walton himself. (And recently (Fall 2004/Winter 2005) a Canadian Wal-Mart that did manage to organize, was shut down within a matter of months.)

Sweatshop Labor:

Ortega focused on a specific line of clothing that Wal-Mart developed to combat a popular line put out by K-mart. The Kathie Lee Gifford clothing line boasted that a percentage from each sale would “go toward helping AIDS and crack addicted children in New York.” (quote from Kathie Lee Gifford in testimony before The U.S. House Subcommittee On International Organizations And Human Rights) Unfortunately, a reporter trying to uncover labor abuses in clothing lines for another company, instead found children who were making clothes for the Kathie Lee Gifford line.

Ortega uses this example not simply to document that Wal-Mart was selling clothing made by children, but to highlight Wal-Mart’s response to the discovery. It is one thing to unknowingly purchase clothes made by children. It is another thing entirely to continue the practice once the situation has come to light. And worse yet, Wal-Mart failed to take a proactive or positive stance in dealing with the issue (something which other companies who were caught in the same position did manage to do.)

Ortega went so far as to contact U.S. Customs officials in Hong Kong who “confirmed in interviews for this book that, for more than two years, they repeatedly warned Wal-Mart buyers and visiting company executives about the quota-busting problems--even giving them documentary evidence--and were ignored. One customs inspector said that the third time he personally told Wal-Mart’s head buyer in Hong Kong about the problem, “he said to me, ‘I’ve told the people in Bentonville about this, and told them I share your concern. All they told me was not to worry about it, that we’re not the importer of record.’” In other words, Wal-Mart didn’t care if illegal practices were taking place in their supply chain as long as no one could pin anything on them.

Harry Wu, a human rights activist, approached Wal-Mart concerning their purchases of jeans made in China by prison labor. He asked, and was allowed, to speak at a stock holders meeting. After he spoke, there was no discussion and the issue was never addressed throughout the rest of the gathering. Ortega writes, “Leaving the meeting, a somber Wu (former Chinese political prisoner) told Harbrant and Fiedler that he hadn’t seen a meeting like that since the last Communist rally he’d been forced to attend in China.”

Deceit as standard corporate policy:

There were three examples of Wal-Mart behavior that particularly struck me as being deceitful. The first has to do with Wal-Mart’s response to municipalities that try to block a Wal-Mart from moving in. The second was in Wal-Mart’s response to a campaign against it that pointed out it’s “Buy American” program was largely a sham. And the third had to do with unscrupulous advertising techniques.

When a group formed that tried to block Wal-Mart from moving into their community, one of Wal-Mart’s responses was to pour money into an organization known as “National Grassroots” which would then purport to advocate for citizens who did want the Wal-Mart. However, “National Grassroots specialized in fighting grassroots efforts through what have come to be known as ‘AstroTurf’ operations: creating the appearance of grassroots support for a project, irrespective of whether any exists or not, and then cultivating local community leaders to come on board.”

In 1992, Dateline aired an investigation into Wal-Mart’s “Made in America” campaign. In addition to showing footage of children working in Bangladesh to make clothes for Wal-Mart, the show also included hidden camera footage of “Made in America” signs hung up over imported goods. Wal-Mart’s response was to “strongly encourage” their suppliers to run ads in support of Wal-Mart. Bob Ortega describes the corporation’s response this way, “To fight back in public, executives decided to draft others to defend Wal-Mart, in what would be made to look like a spontaneous outburst of support. Wal-Mart’s public relations people designed newspaper ads for the company’s vendors to sponsor, defending the Buy American program. Suppliers were given sample ads with phrases such as “Thanks, Wal-Mart” and “We Support Wal-Mart’s BUY AMERICA program” in huge print. Wal-Mart buyers were to ask vendors to use their own words, to make the ads seem their own. Wal-Mart “recommended” that vendors, depending on their size, either buy full-page ads in national newspapers such as USA Today (for $65,810) and the Wall Street Journal (for $110,629) or buy ads in local newspapers. Wal-Mart helpfully included a list of newspapers, phone numbers, and names of whom to contact, and what the rates for a full-page ad would be ($2,790 at the Biloxi Sun-Herald, for example). Vendors were supposed to say the ads were their idea and were warned not to run them before Wednesday morning, the day after the broadcast.”

Another investigative report found that Wal-Mart was mislabeling competitors prices on shelves, or comparing Wal-Mart prices to other store’s prices -- but for a larger sized version of the product (without indicating that the comparison was not for the same sized product). Many Wal-Mart stores also had a marketing ploy in which they would fill two shopping carts with items; one shopping cart held only items from Wal-Mart with a label indicating how much those items would cost in total and the other held similar items from a leading competitor with the competitor’s total cost shown. But the shopping carts were so heavily wrapped in cellophane that it was hard to see that the Wal-Mart products were often of smaller sized versions of the product than the competitors cart held or were products of a cheaper quality (a $5 wind up watch from Wal-Mart compared to a $15 battery operated watch from Target).

So What’s to Be Done?

As Ortega concludes his book, he points out that there’s really only one way to affect change in a company in which the bottom line is the be all and end all. The wallet of the American consumer can speak volumes to the Wal-Mart executives. It’s up to us to tell Wal-Mart that we don’t approve of their employment practices, their continuing push to squeeze every penny out of manufacturers (thereby pushing jobs overseas), and their deceitful business practices.

Ortega is by no means calling for an end to Wal-Mart. But he does want Wal-Mart to take responsibility for its actions (without having to first be dragged to court and forced to take responsibility as has been the historical path for this company). He wants Wal-Mart to use its size and clout to achieve some good (as McDonalds has done for the chicken industry and against genetically modified potatoes, and as the Gap has done for workers in third world countries).

I highly recommend that you read this book. It would be an excellent book for book groups -- a great springboard for discussion. And I suspect that even people well versed in the workings of Wal-Mart will find some eye-openers between these pages. Certainly not everything that Ortega says is negative. As I pointed out before, the author is very good at giving credit where credit is due and Sam Walton’s genius is clearly laid out as Ortega delineates the history of Wal-Mart. I really feel that this is the kind of book where people on both sides of the Wal-Mart debate can come together and start to sort through the issues, seek the truth, and find the higher ground.