Walmart's corporate governance strategy for restraining managerial power

Corporate governance failure is a serious threat to the future existence of any organization. The high corporate failure rates witnessed in the first decade of the century brought to the limelight the concept of effective corporate governance, and the core principles of trust and integrity. This text examines Wal-Mart's corporate governance strategy to determine how the company restrains managerial power, and how it aligns the interests of managers and directors with those of the organization.

Corporate governance failure is a serious threat to the future existence of any organization. Following the stream of corporate failures witnessed in the first decade of the century, the investor base has become more aggressive about effective corporate governance based on the core values of trust and integrity. Today, a company's ability to conduct its profit-maximization goal within the ethical boundaries of integrity, honesty, fairness is widely regarded as a source of competitive advantage. Towards this end, companies are increasingly focusing on establishing practical responses that are dependent upon the "consistent application of core values and principles as well as commitment to ethical business practice" (Arjoon, n.d,. p. 21). Whilst there still is raging debate on the solution to such corporate failures, and whether or not the sustainable solution lies outside liberal capitalism, one thing remains quite certain - that such scandals are driven by collusion, corporate greed, and unmanaged managerial power. So how exactly can organizations curtail this power to ensure that it does not diffuse self-interest, pride, and passion, and subsequently impede on an organization's commitment to stakeholders? This text provides answers to this question using Wal-Mart Inc. As a case study. It demonstrates how legal compliance and ethical compliance mechanisms have been used to minimize the risk of self-interest and keep managerial power in check at Wal-Mart.

Legal Compliance Mechanisms at Wal-Mart

This category covers those mechanisms that promote the freedom of indifference (Arjoon, n.d.).

Shareholder Rights: Corporate Law and Federal Security Law: Wal-Mart, being a publicly-traded company is governed by both the Corporate, and the Federal Security law. The Federal Security Law grants shareholders the right to vote to elect executive directors, and consequently, the right to direct the elected officials' actions by imposing their collective will regarding company operations (Edwards, 2003). Corporate Law, on the other hand, reinforces the Federal Security Law, granting shareholders the right to assign duties and rights to managers and directors, such that they owe shareholders certain fiduciary duties, including the duties of candor, loyalty and care (Edwards, 2003). This law i) imposes upon elected corporate officials the duty to always observe these rights, and ii) grants shareholders the right to file legal suits against the officials in case of breaches. By promoting the legal rights of shareholders, these laws help shareholders to not only align the interests of directors and managers with those of the organization, but to also keep in check the authority and power of corporate leaders to ensure that they use the same for the sole purpose of meeting the interest of shareholders (Edwards, 2003).

Corporate Mission Statement: Wal-Mart's corporate mission is to save people "money so they can live better" (Wal-Mart Annual Report, 2014). Through its mission statement, the company commits itself to enhancing capital efficiency and becoming a world-class compliance company. This goal of becoming a world-class compliance company has provided a sound framework for effective and ethical decision-making at both the associate and the management level. The mission statement, pegged on three basic corporate beliefs -- strive for excellence, service to the customer, and respect for the individual - promotes a culture of integrity and empowers corporate agents to uphold integrity and make the right decisions so that the company's ethical foundation and business reputation is maintained. Guided by this focus on integrity, Wal-Mart's managers and directors have been able to act, and to develop business strategies in line with the company's ethical beliefs and the observed interest of shareholders.

Hotlines: Wal-Mart operates an Ethics hotline and mail system that allows associates to report, on an anonymous and confidential basis, any ethical misconduct by their supervisors to the next level of management (Wal-Mart Statement of Ethics, 2005). The company encourages associates to make such reports, maintaining that failure to report policy or ethical concerns by managers could cause harm to one's fellow associates and the company in general (Wal-Mart Statement of Ethics, 2005). The ethics office, upon receipt of policy or ethical concerns from associates, is required to forward the same to the Internal Audit Department if the matter relates to an accounting issue or to the Legal Department if the issue is a non-accounting one (Wal-Mart Statement of Ethics, 2005).

Code of Conduct/Ethics: Wal-Mart's code of ethics presents the ethical responsibilities of the company's directors and managers, as well as associates at all levels. The code requires directors and managers to always act in the interest of shareholders and the organization by:

i) Seeking assistance from the Ethics office whenever they are faced with associate reports of policy or ethical concerns

ii) Acting according to the law at all times

iii) Being fair and honest at all times

iv) Never abusing, concealing misrepresenting, or manipulating information

v) Avoiding conflict of interests between personal affairs and their corporate duties

vi) Never acting unethically

vii) Never discriminating against anyone

viii) Never instructing an associate to act unethically

ix) Reporting ethical or policy violations to the Ethics office

x) Cooperating with investigations of ethics violation

The code of ethics generally presents managers and directors with clear guidelines on how to conduct business appropriately and how to make ethical decisions. Violation of the code's provisions attracts "disciplinary action, up to and including termination" (Wal-Mart Statement of Ethics, 2005, p. 4). Directors and managers are required to observe certain duties and responsibilities in the conduction of their corporate duties. These duties have been categorized as i) duty to shareholders and the company, and ii) duty to associates

Duty to Associates

Corporate agents are required to treat each other with respect in line with the founder, Sam Walton's "basic belief of 'respect for the individual'" (Wal-Mart Statement of Ethics, 2005).

Non-Discrimination: Zimbardo (see Rhode, 2006) provides an 11-step plan for promoting diversity and civic virtue in an organizational setting. Step no. 8 calls for respect for human diversity, and identifies this form of diversity-appreciation as the key to reducing prejudice and in-group conflict in the organization. Wal-Mart, in its code of ethics, restates its commitment to ensuring that its associate base reflects the diversity of the communities and customers it serves (Wal-Mart Statement of Ethics, 2005). In this regard, the code prohibits managers, directors, and any other corporate agent from discriminating against customers, suppliers, or associates on the basis of marital status, veteran status, sex, age, color, race, or any other legally-protected status.

Ethical Compliance Mechanisms

Wal-Mart employs the following restraint mechanisms in this category:

i) Executive compensation -- shareholders employ an incentive-based compensation scheme for managers and directors. This compensation is often tied to share performance and is mostly administered in the form of stock options (Arjoon, n.d.).

ii) Resetting shareholder expectations such that they are a more realistic view of the returns a company can consistently and legitimately achieve

iii) Elevation of the interests of customers, employees, and the community through CSR -- managers and directors are likely to be more sensitive to ethical dilemmas if they perceive their organization as being ethically and socially responsible.

Recommendations for Improvement

Well, evidently, Wal-Mart has done a lot to restrain the power and authority of its managers and directors, and to consequently ensure that they use the authority bestowed upon them for the sole purpose of administering the interests of the organization. Nonetheless, there still are huge gaps in the statement of ethics, especially in regard to i) guiding associates and managers on how to resist group influences; ii) promotion of moral behavior through a compensatory reward system. Cialdini's principles of social influence could be included in the corporate statement of ethics so that employees are more aware of the causes of social influences, and accordingly, how these can be addressed to minimize the risk of negative influence (Bersnstein, 2010). Further, the company should include a reward system for outstanding ethical performers. This would complement the disciplinary system already in existence, and would create the image that the company is more committed towards guiding its agents to act ethically, as opposed to obliging them to.

Conclusion

There is no doubt that most of the corporate failures witnessed in recent years have been caused primarily by corporate greed and mismanagement of power and authority. Wal-Mart is a perfect demonstration that effective power-restraint and corporate governance mechanisms are integral to organizational success and competitiveness. Judging from Wal-Mart's case, therefore, one can rightly conclude that legal compliance and ethical compliance mechanisms can go a long way in minimizing the risk of self-interest and keeping managerial power in check.