Will Walmart Follow Nike's Path in the Wake of Bangledesh Factory Fire?

20 years ago it was Nike who faced bad press in the wake of sweatshop mistreatment of workers. Since then, the company has worked hard to transform itself from “the global poster child for corporate ethical fecklessness” to a leading ethical brand.

Now it looks like Walmart has that honor since the retailer's clothing was connected to the latest tragedies in garment factories in Bangladesh in which hundreds of people have died. The only question is if Walmart is really interested in taking a similar path out of the mayhem. In other words, does Walmart really want to become Nike?

In both cases we look at companies that have based their business on building cost-efficient supply chains. Yet, there is a profound difference between Nike and Walmart. Nike, explains Simon Zadek in its 2004 HBR article ‘The Path to Corporate Responsibility,’ markets high-end consumer products, while Walmart sells for value items.

The difference is not just in the value proposition of the products sold, but also in the potential pressure from customers. “Value customers focus on price and are generally less responsive to ethical propositions—particularly those involving faraway problems like worker conditions in Asia or Latin America,” Zadek explains. It means that any global protests like the kind that Nike experienced 20 years ago and which have triggered its transformational journey won’t be effective in the case of Walmart. Walmart's customers will not change their purchasing as a result of protests and the company is fully aware of it.

Other stakeholders’ tactics also seem ineffective so far in the case of Walmart. Take for example shareholder resolutions. According to Reuters, Walmart’s board of directors has just rebuffed another effort to force a shareholder vote on workplace safety issues, saying that “the proposal was so similar to the one that failed in 2011, and that it already addresses the request through its standards for suppliers, that it did not merit reconsideration.”

So it looks like there is no stakeholder group that will be able to force Walmart into a period of introspection, similar to the ones Nike experienced, described  here by Hannah Jones, VP of sustainable business and innovation. What we’re left with is mainly the company’s own willingness (or unwillingness) to make significant changes in the way it does business.

In fairness, it’s not that Walmart doesn’t do anything at all. If you read its 2013 global responsibility report or the ‘Fire Safety in Bangladesh’ webpage on Walmart’s website you can’t really say that Walmart ignores the problems. For example, as my colleague Melanie Colburn reported, earlier this year, Walmart issued a zero-tolerance policy for unauthorized subcontracting. Another example is Walmart’s claim that since 2010 it has inactivated 94 factories in Bangladesh due to fire safety issues.

Yet, this is just one part of the big picture. Another part is the fact that, unlike Toronto-based grocer Loblaw and British-based Primark, who according to the Globe and Mail said they would spend an unspecified amount to help those tied to the 380 or more who lost their lives in the latest building collapse, Walmart apparently didn’t offer so far any sort of compensation to the victims’ families.

Another important part of the picture, which provides even a clearer indication of the company’s attitude, was the New York Times’ report about a meeting in April 2011 in Dhaka, Bangladesh, following several apparel factory fires in Bangladesh that killed dozens of workers the previous winter. The Times reported that Walmart's director of ethical sourcing, along with an official from another major apparel retailer, noted that improvements proposed in the meeting in electrical and fire safety would involve as many as 4,500 factories and would be, “in most cases,” a “very extensive and costly modification.” “It is not financially feasible for the brands to make such investments,” he said according to the minutes.

This quote epitomizes the dilemma Walmart now faces. This is a company that, as Peter Dauvergne and Jane Lister explain in their new book “Eco-Business: A Big-Brand Takeover of Sustainability,” supplements its growth and continued dominance of the market by using advanced technology “to coordinate and generate unsurpassed supply chain efficiencies in the production, packaging shipping and distribution of hundreds of thousands of products crisscrossing the world.”

The problem is that ensuring safe working conditions is not like redesigning packaging or improving fleet efficiency. While the latter examples can lead to lower product costs and help maintain “unbeatable” prices for the consumer, the former will probably increase costs, at least in the short-term. So why would Walmart do it?

Right now, it probably won’t. “Sustainability and some of these other initiatives can be distracting if they don't add to every day low cost,” William Simon, President and CEO of Walmart U.S. told the Wall Street Journal in 2011. In other words, Walmart is ready to take some steps to improve the conditions in Bangladesh as long as they don’t have significant impacts on its ability to sell cheap apparel.

This approach represents a relatively early stage in a framework Zadek offered showing the learning curve companies go through when it comes to developing a sense of corporate responsibility. It moves from defensive through compliance, managerial and strategic all the way to civil (promoting broad industry participation in corporate responsibility).

Right now it looks like Walmart is at the compliance stage of the sustainability jounrey. Everything now rides on whether Walmart decides to move beyond compliance and get proactive about embedding societal issues in the company’s core management processes. If Walmart evolves, it might end up with a brand as beloved as Nike's. If not, it will probably stay Walmart.

[Image credit: Clean Clothes Campaign]

Raz Godelnik is the co-founder of Eco-Libris and an adjunct faculty at the University of Delaware’s Business School, CUNY SPS and the New School, teaching courses in green business, sustainable design and new product development. You can follow Raz on Twitter.