Archive for the ‘4 stakeholders’ category

Taking Notice of Broken Moral Compasses

October 13, 2014

Walmart quietly announced last week that it would no longer provide access to health care benefits for part time workers. Even quieter, Walmart announced it would raise the premiums its full time employees paid. Remember, Walmart employees earn minimum wage or slightly above.  I wonder why Walmart feels so poorly about its associates?
The Walmart business model rest upon combining low cost products with rock bottom wages leading to low prices for consumers. Walmart feels this is what customers want.  And, millions of Americans have endorsed this model and in effect forced the exit of “Mom and Pop” stores.

With essentially flat wages across the country, lower consumer prices have rescued many Americans from their own economic squeeze between rising prices and stagnate wages.  Walmart seemed like a savior.
But is the Walmart model just that simple and does it last forever?
Walmart is a publicly traded company.  All publicly traded companies experience a similar life cycle. Their initial consumer offering seems attractive and sales meet forecast.  The owners celebrate a great first year, and want more.

The second and subsequent years must perform better.   Clever management teams accomplish the improved performance with broader product offerings, expanded (upscale) product offerings, and plain old growth (more stores). The stock market rewards top line growth and consequently for a number of years life is good.
Competition is not as kind. Copying Walmart’s business model is not brain surgery. So for Walmart to continue to grow, it must remain competitively superior to its competition. Soon it becomes all about “execution”, making the buying experience the best available.  Over the years, Walmart has shined and grown faster than its competition.
But after a while, the business model becomes worn, less brilliant, and begs the question, what next?

Top line growth gives way to earnings growth while management tries to come up with ideas on how to grow revenue.  If earning continued to grow, stock price would go higher, and everyone involved would be happier. Who cares about the customers buying experience anyways?
Earnings just don’t grow by themselves. As the business matures and growth is limited, a fresh look at costs is in order. The quickest hit lies with labor. The number of workers, the quality of workers (less skilled cost less), and the benefits provided workers become fair game.

You can see this game played out in many places. Grocery stores are a good example as are other big box stores. Under the title of “remaining competitive”, these stores emphasize part time workers and the skimpiest of wages.

I guess this is just life.

Or, maybe it’s life when the moral compass is broken.

There is another school of thought which promotes 4 stakeholders for a business. There are the owners, the customers, the employees, and the community. Each stakeholder has responsibilities and are entitled to rewards.

Unfortunately, Wall Street sees only one stakeholder and sees no reason to make business judgements which reflect the four. In Wall Street’s view, the desired outcome is one where growth and profits are maximized and stock prices rise. These anonymous investors simply jump to the next business when the one they own now falters, regardless of how customers, employees, and communities are impacted.
Walmart is such a well known company and seems to have stores on every corner. When companies like Walmart appear to abandon their employees or community, one can guess the buying experience will not be far behind.  I wonder where Walmart executives learned to focus primarily on one stakeholder, the investor?