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“Business Exists To Serve Society” – NewCo Shift

NewCo Shift Dialogs, in partnership with Work Market

Walmart’s Kathleen McLaughlin on the Mission and Vision of a Retail Giant

Walmart is perhaps the most successful and the most reviled company in the history of American retail — and as this fascinating conversation with Kathleen McLaughlin reveals — it also may be the most misunderstood. McLaughlin traces Walmart’s recent conversion to sustainability to Hurricane Katrina, and addresses some of the companies thorniest problems, from workers’ wages to charges of greenwashing. Below is the full video of our conversation at NewCo’s Shift Forum, and the transcript, edited for clarity.

John Battelle: Walmart is the largest company in the world, the largest private employer in the United States, and the largest target of everyone who wants to complain about corporate America. You guys are large in every way.

In order to prepare for this, I read a lot about Walmart. I was surprised, to be honest, by what I learned. Over and over, you are quoted as saying the opposite of the perception of Walmart, which is it’s a rapacious, profit-seeking, cost-cutting machine.

You’ve said over and over again: “Business exists to serve society,” and “Walmart is a deeply mission-driven company.” My first question for you is, what’s that mission?

Kathleen McLaughlin: Walmart was founded about 50 years ago by Sam Walton in the back woods of Arkansas, literally, with a singular mission, which is to help people save money, live better. That’s the mission, that’s the purpose. It’s deeply felt.

I’m still relatively new to Walmart. I went to Walmart about three and a half years ago, never having worked with the company, having worked with a lot of other retailers, in fact, so I was skeptical myself. “What was I going to find?”

That is the mission of the company. It started with his insight that people across America in small towns and rural areas didn’t have access to simple products — a mop, a broom. Any choice [was] very expensive, and that was his insight.

This idea, this philosophy of business of “Business exists to serve society,” how did that come about? Was that Sam? Was that the founder, or is this something that’s more recent?

He would have agreed with that statement, but he would have defined it differently than we define it today. In fact, I think business has gone through an evolution in general in terms of the meaning of that statement. It’s still a topic of big debate.

In his mind, it meant serve the customer. Walmart’s all about serving the customer, “save money, live better,” and that’s why he started it.

When I got into business back in 1990, I joined McKinsey & Company. I didn’t have an MBA, so I was sent for, literally a month, to a training program, a crash course MBA where I was taught how to calculate net present value, and that’s what I applied, probably for the next decade, in my consulting.

It didn’t matter if I was doing strategy work, organization, or operations, the litmus test of whether it was a good idea or not was, “Does it create shareholder value?”

I’d say all through the late ’80s, ’90s, that was the litmus test, shareholder value. What started to happen in the ’90s is ideas that had been floating around in academic circles for a while about double bottom line, triple bottom line, and so on, started to come more in the consciousness of business, and people started to talk more about stakeholder management, stakeholder optimization.

I would say, now, the leading companies would articulate it in terms of not only serving the customer, not only creating value, optimizing across stakeholder groups, but strengthening the systems that we rely on for business, because you can’t separate any more economic impact, environmental impact, social impact.

The interconnections among these things are too great, whether it’s globalization or technology, many forces have driven this. Short-term decisions come home to roost at quicker and quicker cycle times than ever before, so it’s a false trade-off to say, “Do I serve the shareholder, do I serve customers, or do I serve society?” They’re one and the same.

Fortune magazine came out a couple of years ago with a new list, the Fortune “Save the World” list, or “Change the World” list. This is a new list, and they created it to highlight companies that are changing the world through the core business.

Not having a notion anymore of philanthropy, or even CSR, as some sort of separate set of undertakings, but through the business itself, using the assets of business, yes, to create business value and to strengthen the systems that business relies on for society simultaneously.

I want to get into a number of items that relate to that, but let’s start with you. You have the title, Chief Sustainability Officer, and I was surprised a couple of years ago to learn how aggressive Walmart has been in that space.

Not just talking the talk, but actually setting aggressive milestones, measuring yourself every year, reporting those progress against those milestones to Wall Street, and making it an important part of how, internally, you measure success. Can you tell us what those are?

It really started 10 years ago with Hurricane Katrina, where Walmart found itself inadvertently in the middle of the storm, almost as a first responder. We happened to be there. We had trucks, we had products, we had warehouses, and so Walmart was able to leap in and really, literally, save lives in that event.

That got the management team at the time thinking about, “Wow, OK, so as a business, we have assets that we could deploy in a way we’d never thought of before, and in a way that’s good for customers, our associates, and for society, but also, ultimately, our business, by protecting those communities.”

At the time, the CEO, a fellow named Lee Scott, really had an epiphany with the leadership team at the time and said, “We ought to be that kind of company every day. What would that look like if we took our assets and applied them in this way?”

He set out three big goals — to be powered 100 percent by renewable energy, to generate zero waste in the operations, and then to create more sustainable products. Really, for the last 10 years, the company’s been working on that in a way that’s gotten deeper and deeper and broader.

We just recently reset our next set of goals for the next decade, and they’re in three big arenas. One is around creating economic opportunity, and that’s through jobs in the retail workforce, starting with our own, but working more broadly in retail, particularly around helping frontline, entry-level workers who may not have substantial skillsets to come in, get that first job, and then acquire skills on the job and move up more quickly. That’s one piece of it.

The second part of economic opportunity is through our purchase orders, so investing in women-owned businesses, or investing in local manufacturing, those kinds of things.

The purchase order is an asset. We’re spending $300 billion a year north of that in purchase orders. That’s a lot of development capital, not just in this country, but in China. We talked about blockchain and other things. That’s one.

Second, in terms of sustainability, we’ve gone beyond just our own operations to say, “What about the entire supply chain?” We recognize, as a big retailer with substantial supplier relationships, when we work with our suppliers to shift the way food gets produced, or apparel, electronics, or you name it, we can change the entire industry.

We’re now working hand-in-hand with suppliers, with governments, with folks like EDF, Nature Conservancy, and others to look at supply chains holistically and address the environmental and social hot spots that are most egregious along those chains. I could give lots of examples, but that’s a major, major priority for us

You’ve told me about the supply chain of a cookie, and I hadn’t quite thought about the supply chain of a cookie.

Right. The cookies contain palm oil, typically, they contain flour. The palm oil is a big driver of deforestation. The wheat comes from row crops, which depending on where they’re grown, can be a big driver of water quality issues, dead zones in the Gulf, runoff of nutrients, and emissions.

One of the largest contributors of emissions is agriculture, and row crops, specifically, so yeah, we’re working on all of those things.

How do you affect change in behavior in the supply chain?

I’ll give a couple of examples. If I take row crops, for example, we’ve been working with our suppliers to have them identify acreage that they can bring under more sustainable agricultural practices to lower emissions, to improve water quality, to improve soil health.

They’re committing those acres into a program that we then track. We’re up to, now, 30 million metric tons coming out of that initiative alone in the supply chain over the next few years.

We have a project in the Midwest of this country where we’re working in three states with six of our suppliers and Nature Conservancy, EDF, field-to-market local ag retailers, and so on, co-op associations, and farmers to accelerate adoption of more sustainable agricultural practices.

It’s good for their economics. It’s good for the drinking water of places like Des Moines or Toledo who had boil water advisories because of this problem in the last couple of years. It’s ultimately great for our customers, and it’s great for the environment.

I have to say that that warms my heart. The cynic in me, when the election occurred, I would say that sustainability isn’t exactly on the Trump administration’s top 10 list. Is that fair? I don’t know. That’s my sense.

When a new administration comes in, business tends to salute and say, “OK, what’s the deal? How do I succeed in this new regime?” Shareholders and Wall Street start to say, “Why are you wasting all this money tracking soil, emissions, and water quality? You could be saving three cents a share if you didn’t do that.”

Are you getting any of that pushback? Is this changing your point of view about your commitment to sustainability?

Not at all. Climate change is real. We have a very aggressive plan to get at it. We’re the first retailer, actually, that has an approved set of plans in accordance with the science-based targets from the UN for our industry, what we need to do in terms of absolute emissions reduction.

It makes good business sense. The kinds of things we’re doing are things like advocating. We were one of the first to sell CFLs and LEDs. That was a great growth idea for our business.

The work we’re doing on fertilizer reduce costs of agriculture. We’re working in China across about 600 factories on energy efficiency, which was reducing the draw down on local coal-fired plant and other things, again, saving emissions. That reduces their cost as well.

It’s smart business, and we’re excited to continue working on it.

I think people don’t think about Walmart this way, but we’re in the valley, and we think about platforms. Walmart is a massive platform. You’re an economic system into yourself.

For entrepreneurs who have a new gadget, a new CPG product, getting onto the Walmart platform is a make-or-break for them. I have a friend who runs a soil company in Minneapolis, and he told me that as soon as you guys announced your sustainability goals around the supply chain in November, his phone started to light up, because he could help convert soil to sustainable use.

He was struggling for years to get anyone to pay attention, but as soon as the economic might of Walmart got behind it, things changed. I think that’s interesting to think of the power of a very large company to make change as opposed to all the startups that we often celebrate.

I want to pivot to, you talked about sustainability in terms of your employees and training them. Walmart gets beat up a lot for the very large number of your associates who are on federal programs, and they say, “Well, they’re on minimum wage at Walmart, and they’re getting food stamps, or they’re getting welfare. They’re not making a living wage.”

How do you respond to that?

We have about 1.2, 1.3 million associates in the US alone, so it’s a massive employee base. We have a number of entry-level positions. Our focus is on getting people to move up in life. We promote about 160,000 people a year.

75 percent of our store managers started out as hourly associates. The CEO of Walmart started as an hourly. The CEO of Sam’s Club started as an hourly associate.

What we’ve tried to do the last couple of years is say, “OK, how do we make that advancement, a story that everybody participates in? How do we help people move up systematically much more quickly?”

What we’ve been doing is investing in our company, and then through the foundation in the industry as a whole, to accelerate advancement. One of the things we did was raise the floor, so the starting salary or wage at Walmart is $9 going to $10 after completion of a 90-day initial training program.

We want people to acquire skills that allows them to perform better, so they’re really starting at $10 at that point.

What we’ve done is invest in a series of additional training programs that helps people acquire marketable skills on the job that will help them advance more quickly at Walmart or in another retailer or related industries.

We’ve also been working on changing our scheduling regime. We’ve always given folks lots of notice. You hear about people, last minute. People have three weeks’ notice.

What we’ve been trying to do is create options that allow people to have more flexible scheduling or fixed, depending on their family situation, all kind of things like that to help associates come in and acquire the skills they need to move up.

What we’ve been doing through the foundation is working more broadly across the industry to make some of these best practices the norm across the industry. Employer practices, investments in training tools, through tech providers. Why should you have to go to school to earn skills? Could you play a serious game and get a skill?

Most recently, we’ve been working with the National Retail Federation on a package of skill-building programs that people can do anywhere, any time, and earn a certification so that those skills that they’ve acquired are portable. People have something to show that they’ve actually earned those skills.

We think it’s pretty vital for the economy to have a much better functioning entry-level job system in retail, in the service sector, so that folks are better equipped to move up within those sectors or adjacent sectors.

You mentioned the Walmart foundation. I don’t want to let you get out of here without talking about that. You’re the president of the foundation. The foundation, I think I saw last year, report was something like $1.5 billion in grants. That’s the goods, services, and cash you gave away last year. That’s a really large number, and I imagine it makes you rather popular. You have an approach that feels different to me. Tell us how you run the foundation, because you really changed it when you came.

Yeah. Our approach is as an institution, as a company, Walmart is trying to change systems. I’ve just talked about employment.

We’re trying to change the employment system in retail, so it’s a place you come, you get skills, you move up, not a place you come and you leave, and you come. That’s what we’re trying to do.

Supply chain, we’re trying to rewire the way products get produced, consumed, end-of-life, cycled back to the beginning again.

We have a lot of assets as a company to do that. Our strategy is to figure out how can we deploy those assets in a way that strengthens business, but also addresses those issues systemically with other leaders in this system, and then use philanthropy to address market failure, use philanthropy to go where business can’t go, to accelerate the environmental or social outcomes.

It’s quite strategic and coordinated to accelerate the improvements in this system. You talked about the $1.4 billion. $400 million of that, $300 million, is cash. The rest is in-kind, and it’s a good example of how this works. We give away about $1 billion worth of food a year. That’s unsold food out of our stores that if we didn’t give it away, it would be food waste.

Again, business problem, food waste. Do you want to pay someone to come and take food waste away and put it in the dump, or if it’s edible, can you actually get it into the hands of people who need it?

One of the challenges with that is a lack of capacity in the charitable meal system to absorb fresh food.

Walmart, through philanthropy, through cash grants, has spent a lot in the past number of years helping Feeding America and the food bank system, build out a much stronger cold chain and a much stronger logistics capability to be able to pick up food, not just from Walmart, but from other grocers as well, so that they can get fresh food, which is more nutritious, out of landfills, into the charitable meal system, into the hands of people who need it.

Again, it’s a strategy where we’re trying to use the assets we have — the food, the logistics know-how. We’ve got dozens of people around the country who are on food bank boards, because they’ve got expertise in operations and logistics.

The food, the expertise, the donations to strengthen IT systems around optimization or cold-chain capacity, and it all works together systemically to create a stronger charitable meal infrastructure.

I want to ask you about the shift in work. We’ve heard it all day today and yesterday. We’re going to have a panel on AI and labor tomorrow.

Walmart is the largest employer, and some would argue that, thanks to Amazon and what Amazon represents, drones will be dropping off our stuff. We don’t need to go to a store any more, and all those millions of retail jobs are gone in the next generation. Will Walmart be entirely online in 20 years?

We don’t think so. We actually have a pretty sizable e-commerce business. We’re really excited about where we’re going, which is we intend to provide a suite of solutions for customers that would include bricks and mortar as well as home delivery, as well as pickup at the store, as well as “order today and get it tomorrow.”

We think people will always want to have that experience of shopping. It’s part of our culture. It’s a gathering place for people. It’s a pass-time for a lot of people. Is it less footage and fewer stores? Perhaps, we think it will always be in the mix.

For us, as we look at it, it’s one of the reasons that we’re so excited about investing in building skills. We think it needs to be very dynamic. The skills we’re building today for people who have particular roles in the store, those roles will evolve over time as our model evolves, and it’ll be a new set of skills that we need to equip people with. That’s how we’re trying to build it.

We’ve got one question here.

Audience Member: Hi. I, obviously, respect the mission and the intent. I’d like to come back to the question he asked earlier about the government benefits package and how that supports Walmart.

You didn’t really answer specifically about that lower-tier level of folks, which is a pretty high number, that if they were getting a living wage, might involve prices rising for the average consumer, but it wouldn’t be an effective government subsidy for Walmart.

Can you talk a little bit more about how you feel about that, and how you think, as a society, we should be thinking about free markets and corporations paying their way?

It is a societal question. If you look at Walmart and our starting wage at $9, going to $10 after 90 days, that’s a very competitive starting wage in the retail sector. I think you’ll find that our average wage — and that as a starting wage — puts us in a quite competitive zone.

It’s a question for society. Where do you want to put that first rung on the ladder? There’s a study that’s coming out today about skills among entry-level workers in this country, not just in retail, but in the service sector in general.

There is a substantial skills gap. What the studies had found is two-thirds of the people of 20 million people in the service sector do have high school education. A third of them don’t.

Yet even though two-thirds have high school, two-thirds have substantial literacy issues. 75 percent have substantial numeracy gaps. We have a much broader systemic issue here, which is what do we do with a large population that has a particular skill level? How do we help equip them with the skills so that they can start at wherever society wants to put the rung. That’s fine, the first rung in the ladder.

Wherever we put it, there’s going to still be this question of, “How do you take people with that skill level and help them move up?” That’s what we’re focused on.

Society, let’s figure out where we want to put that first rung, but then how do we invest in those people and give them the skills that they need to succeed in life, and to go on to bigger positions of responsibility?


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