April 17, 2001

Wal-Mart Booted Out of the Domini 400
    by Mark Thomsen

KLD cites lack of leadership on labor controversies among reasons for removal.

KLD & Co., Inc., a leading corporate social research firm based in Boston, decided recently to drop Wal-Mart (ticker: WMT) from its Domini 400 Social Index (DSI). The primary reason is that Wal-Mart has not sufficiently ensured that its domestic and international vendors operate factories that meet adequate labor and human rights standards.

“Wal-Mart is a market leader in retail, yet has not taken a leadership position on labor issues and has been unresponsive to calls for change from shareholders,” said Kyle Johnson, Domini 400 Social Index Project Manager. “Given that we had removed Nike for similar reasons back in 1997, we could not justify keeping Wal-Mart,” he added.

According to Johnson, the chain of events that led to KLD’s decision began in January of 2000. It was then that Wal-Mart began discussing labor issues in earnest with the Interfaith Center on Corporate Responsibility (ICCR), a representative of religious group shareholders. The talks centered on trying to improve Wal-Mart’s standards and policies for vendors, as well as the possibility of piloting an independent monitoring program at some of their vendor’s facilities.

In May, a report released by the National Labor Committee (NLC) alleged that Wal-Mart goods were being made at a sweatshop in southern China. The report said that workers at the Qin Shi Factory were “indentured servants held under prison-like conditions.” NLC is the same small New York-based anti-sweatshop organization that uncovered the connection between Wal-Mart’s Kathie Lee products and sweatshop conditions in Central America.

For months after the report’s release, Wal-Mart claimed it never had any relationship with the Qin Shi Factory. The retailing giant was soon caught in its own lie. In the October 2, 2000 issue of Business Week, an investigative report revealed that Wal-Mart had indeed manufactured Kathie Lee bags at the Qin Shi Factory until December 1999. Wal-Mart subsequently retracted its statement, but did not admit to anything else.

In that same Business Week article, Johnson notes, a Wal-Mart spokesperson said the company may soon begin independent monitoring with ICCR. The very next month, however, Wal-Mart announced it was canceling the independent monitoring plan.

In addition to this chain of events, KLD said it was well aware of other difficulties that Wal-Mart has had over time. These problems include employee relations, the company’s position as the largest retailer of firearms in the U.S., and management’s resistance to unions. While these were not considered primary issues, Johnson says KLD did take them into consideration.

KLD is somewhat conservative when it comes to removing a company from the Index based on qualitative analysis of social performance. Since DSI’s inception, 22 companies have been dropped because of exclusionary screens. For example, Sara Lee had to be removed when it was purchased by Philip Morris(ticker: MO) in 1992 because the DSI employs a tobacco screen. Since 1990, only 15 companies have been booted for qualitative reasons. The latest was Battle Mountain Gold Co. (ticker: BMGOB.OB), a mining corporation, for ill-treatment of indigenous peoples living near its operating facilities.

Johnson says Wal-Mart needs to improve on a number of fronts. “Their vendor contracting policies are subpar, their standards for vendors miss a key element by not allowing unions to bargain collectively, and they have no independent monitoring program,” he said bluntly. “We hope for public reporting, but they did the opposite by trying to cover up. They are mediocre at best.”