Paranoia strikes deep.
Into your life it will creep.
It starts when you’re always afraid.
— Stephen Stills
Life used to be nice at Wal-Mart. Competitors could not match its prices. Suppliers begged for the privilege of selling to it. Local governments used tax-exempt financing to lure stores. A soaring share price made low-level employees rich, and the Walton family became one of the wealthiest in the world.
In the 1990s, under David Glass, the successor to the founder Sam Walton, Wal-Mart stock rose more than 1,100 percent, a compound growth rate of almost 30 percent a year. When Mr. Glass stepped down in January 2000, he was hailed as one of the greatest corporate bosses ever.
Since then, plenty has gone right under his successor, H. Lee Scott Jr. Last year, Wal-Mart earned more than $11 billion, twice what it made in Mr. Glass’s last year at the helm. It is the largest retailer in the world.
But its stock has lagged.
And now we are learning that paranoia has set in at Wal-Mart. The otherwise cost-conscious company spent millions to spy on employees and critics.
First we learned that a Wal-Mart employee taped phone calls between Michael Barbaro, a New York Times reporter, and Wal-Mart officials. This came after The Times reported on a Wal-Mart memo that suggested such clever tactics as forcing all shop clerks to spend some time hauling shopping carts in from the parking lot — the better to weed out unhealthy workers who might submit health insurance claims.
Wal-Mart fired the employee it said was responsible for taping the calls, a man named Bruce Gabbard, and said his actions were unauthorized. Then Mr. Gabbard started talking to The Wall Street Journal, saying the department he worked for had spied on critics. Wal-Mart quickly issued apologies to the critics and got a judge to order Mr. Gabbard to stop talking.
Mr. Gabbard said he told a Wal-Mart lawyer that “I’m the guy listening to the board of directors when Lee Scott is excused from the room.”
Does that mean that Mr. Scott authorized spying on his own board when it was discussing his performance? If so, it would be a shocking breach of corporate etiquette and governance.
For a few days after that quote appeared, Wal-Mart declined to comment. But eventually a company spokeswoman, Mona Williams, did issue a denial: “We never would have authorized” bugging board meetings, she said, and Mr. Scott never listened to any such tapes.
“As far as we know,” she said, Mr. Gabbard “never shared the information with anyone else.”
On the day Mr. Scott was named president and chief executive, the company’s share price was over $65. Now it is under $48. Mr. Scott has reported profits of $13.9 million from cashing in options, but those were issued before he became the boss.
Of the 3.6 million options granted to Mr. Scott since he received the top job, just 415,627 options would be worth anything if exercised now, and they are not in the money by very much. The rest are under water.
During his tenure, the Morgan Stanley retail index, which covers most large American store chains, is up about 180 percent. Wal-Mart is down more than 25 percent.
Even more painful, Wal-Mart is getting blasted from all sides. Unions, angry at the company’s successful efforts to keep them out, have been forced to make concessions to keep Wal-Mart competitors in business. They complain about Wal-Mart workers on Medicaid, the government health program for low-income people, and encourage cities to keep Wal-Mart out. A class-action suit by women claiming employment discrimination is pending.
Trying to mend fences on the left, Wal-Mart has angered some on the right. One group that got a Wal-Mart apology this month is upset over Mr. Scott’s comments favorable to government-financed health care and the company’s efforts to force suppliers to reduce carbon emissions. It says Wal-Mart has quotas to assure the hiring of women and minorities and gives money to gay rights groups.
Wal-Mart is successful, but Mr. Scott’s inability to convert that success to a rising share price may have colored his judgment. It appears that the company grew paranoid about its critics, and created a security operation that went too far. At best, management controls were sorely inadequate.
It is time for the Wal-Mart board to bring in an outside investigator, one without previous ties to the company. That investigator should learn, and tell the public, what went on in the spying operation, and just who knew the details.
A generation ago, when President Richard M. Nixon lost his job because of a spying operation that went too far, it was Senator Howard H. Baker Jr. who repeatedly asked a question that must be asked at Wal-Mart: “What did the president know, and when did he know it?”
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