Running Head: Corporate Governance Framework of Wal-Mart

Corporate governance framework

Each business organization Walmart operates is expected to have a complete set of
policies providing guidance to associates for whatever country they are working in. Walmart
runs by several global policies, which are designed to give associates a set of rules that are
the same for all locations. This Statement of Ethics is an example of a global policy. If any
part of this Statement of Ethics goes against local policies or laws, then the local policy or
law must always be followed. Its our responsibility to know all of the local laws and policies
that might affect our area of business. Some local laws, practices, or even local customs could
be more hassle-free than Statement of Ethics.
3 Basic Beliefs
Since Sam Walton founded Walmart, it has always been a values-based, ethically led
company. The values that guide its decisions are the 3 Basic Beliefs:
1) Respect for the individuals
2) Serving to Customers and
3) Striving to excellence
What law applies?
Walmart conducts business in many countries around the world. Its associates are
citizens of many countries and, as a result, its operations are subject to many different laws,
customs, and cultures. The number of laws and regulations around the world that affect
Walmart increase and become more complex each year. When its possible, this Statement of
Ethics will be modified to conform to changes in laws and customs. In some instances, the
laws of two or more countries will conflict. When an individual encounters a conflict, he/she
can contact the Global Ethics Office or his/her in-country Ethics Committee to understand
how to resolve the conflict.
Whos covered by this ethical statement?

Running Head: Corporate Governance Framework of Wal-Mart

Associates and Directors This Statement of Ethics applies to all associates worldwide,
and all members of the board of directors of Wal-Mart Stores, Inc. It also applies to the
associates and directors of all Walmart-controlled subsidiaries and Third Parties .Walmart
expects its suppliers, consultants, law firms, public relations firms, contractors, and other
service providers to act ethically and in a manner consistent with this Statement of Ethics. If
Walmart hires a service provider, it should take reasonable steps to make sure the service
provider is aware of Walmart Statement of Ethics, has a reputation for integrity, and acts in a
responsible manner consistent with their standards.
Corporate governance guidelines
The following Corporate Governance Guidelines have been adopted by the Board of
Directors of Wal-Mart Stores, Incto assist the Board in the exercise of its responsibilities to
the Company and its shareholders.
These Guidelines should be interpreted in the context of all applicable laws and the
Companys Certificate of Incorporation, Amended and Restated Bylaws and other corporate
governance documents, and are intended to serve as a flexible framework within which the
Board may conduct its business and not as a set of legally binding obligations. These
Guidelines are subject to modification and the Board shall be able, in the exercise of its
discretion, to deviate from these Guidelines from time to time, as the Board may deem
appropriate or as required by applicable laws and regulations.
1. Director Qualifications
The Board will have a majority of directors who meet the criteria for independence
required by the New York Stock Exchange. The Compensation, Nominating and
Governance Committee is responsible for reviewing with the Board, on an annual basis, the
requisite skills and characteristics that the Board seeks in Board members as well as the
composition of the Board as a whole, including an annual evaluation of whether members

Running Head: Corporate Governance Framework of Wal-Mart

qualify as independent under applicable standards. It is the sense of the Board that a size of
seven to sixteen directors is appropriate. However, the Board would be willing to consider a
somewhat larger size in order to accommodate the availability of an outstanding candidate.
2. Director Responsibilities
The basic responsibility of the directors is to exercise their business judgment to act in
what they reasonably believe to be in the best interests of the Company and its shareholders,
and to perform their duties of care and loyalty. In discharging that obligation, directors
should be entitled to rely on the honesty and integrity of the Companys senior executives and
its outside advisors and auditors, to the fullest extent permitted by law. The directors also
shall be entitled to have the Company purchase reasonable directors and officers liability
insurance on their behalf, with the benefits of: (i) indemnification to the fullest extent
permitted by law and the Companys Certificate of Incorporation, Amended and Restated
Bylaws and any indemnification agreements; and (ii) limitation on liability to the Company
as provided by state law and the Companys Certificate of Incorporation. The specific duties
and responsibilities of the Board will include, among other things, overseeing the
management of the business and affairs of the Company; selecting and recommending to
shareholders appropriate candidates for election to the Board; reviewing and, where
appropriate, approving the business plans, major strategies and financial objectives of the
Company; evaluating Board processes and performance and the overall effectiveness of the
Board; evaluating the performance of the Company and of senior management; requiring,
approving and overseeing the implementation of the Companys succession plans; reviewing
compliance with applicable laws and regulations and adopting policies of corporate conduct
to assure compliance with applicable laws and regulations and to assure maintenance of
necessary accounting, financial, and other controls; and showing, through its actions, its
awareness that the Companys long-term success depends upon its strong relationship with its

Running Head: Corporate Governance Framework of Wal-Mart

customers, associates, suppliers and the communities, including the global community, in
which it operates.
3. Board Committees
The Board will have at all times an Audit Committee, a Compensation, Nominating
and Governance Committee, an Executive Committee, a Global Compensation
Committee, a strategic Planning and Finance Committee, and a Technology and eCommerce Committee. The members of the Audit Committee and the Compensation,
Nominating and Governance Committee will be independent directors under the criteria
established by the New York Stock Exchange, any other exchange on which the Companys
securities are traded, and any other applicable rules or regulations. Committee members will
be appointed annually by the Board upon recommendation of the Compensation, Nominating
and Governance Committee with consideration of the desires of individual directors. It is the
sense of the Board that consideration should be given to rotating committee members
periodically, but the Board does not feel that rotation should be mandated as a policy.
At the beginning of the year each committee will establish a schedule of agenda
subjects to be discussed during the year (to the degree these can be foreseen). The schedule
for each committee will be furnished to all directors. During the year, the chairperson of each
committee, in consultation with the appropriate members of the committee and management,
will develop the agenda for each meeting. All meetings of each committee shall be held
pursuant to the Amended and Restated Bylaws of the Company with regard to notice and
waiver thereof, and written minutes of each meeting, in the form approved by the
relevant committee, shall be duly filed in the Company records.
4. Director Access to Officers, Associates and Outside Advisors
Directors have full and free access to officers and other associates of the Company
and the Companys outside advisors. Any meetings or contacts that a director wishes to

Running Head: Corporate Governance Framework of Wal-Mart

initiate may be arranged through the CEO or the Secretary or directly by the director. The
directors will use their judgment to ensure that any such contact is not disruptive to the
business operations of the Company. It is the expectation of the Board that directors will
keep the CEO informed of communications between a director and an officer or other
associate of the Company, as appropriate. At least once per year management will report to
the Board regarding management development and succession, including diversity initiatives
and progress and long-term strategic planning. Inclusion of the CEO and other executives on
the Board provides the Board with information and insight about the Company. Other
executives may attend Board meetings or committee meetings at the invitation of the
Chairperson of the Board or the CEO to provide information and insight to the Board.
5. Director Compensation
The form and amount of director compensation will be reviewed and recommended
by the Compensation, Nominating and Governance Committee to the Board for
approval in accordance with applicable legal and regulatory guidelines. The Compensation,
Nominating and Governance Committee will conduct an annual review of director
compensation. The Compensation, Nominating and Governance Committee will consider that
directors independence may be jeopardized if director compensation and perquisites exceed
customary levels, if the Company makes substantial charitable contributions to organizations
with which a director is affiliated, or if the Company enters into consulting contracts with (or
provides other indirect forms of compensation to) a director or an organization with which
the director is affiliated.
6. Director Orientation and Continuing Education
Each new director must participate in the Companys Orientation Program, which
should be conducted within a reasonable period of time after a director is first elected to the
Board. This orientation will include familiarizing new directors with the Companys strategic

Running Head: Corporate Governance Framework of Wal-Mart

plans, its significant financial, accounting and risk management issues, its compliance
programs, its Statement of Ethics, its principal officers, and its internal and independent
auditors. In addition, the Orientation Program will include a visit to the Home Office of the
Company to meet with senior management, including the Chief Legal Officer regarding his
or her legal duties as a director, and tours of Company facilities to understand better the
Companys business and culture. All other directors are also invited to attend the Orientation
Program. In addition, each director is expected to maintain the necessary level of expertise to
perform his or her responsibilities as a director. The Company may, from time to time, offer
continuing education programs to assist the directors in maintaining such level of expertise.
7. CEO Evaluation and Management Succession
The Compensation, Nominating and Governance Committee will conduct an annual
review of the CEOs performance, as set forth in its charter. The Board will review
the Compensation, Nominating and Governance Committees report in order to ensure that
the CEO is providing the best leadership for the Company in the long- and short-term. The
Compensation, Nominating and Governance Committee should make an annual report to the
Board on succession planning. The entire Board will work with the Compensation,
Nominating and Governance Committee to nominate and evaluate potential successors to the
CEO. The CEO should at all times make available his or her recommendations and
evaluations of potential successors, along with a review of any development plans
recommended for such individuals.
8. Annual Performance Evaluation
The Board and the committees will conduct annual self-evaluations to determine
whether they are functioning effectively. The Compensation, Nominating and Governance
Committee will receive comments from all directors and report annually to the Board with an
assessment of the Boards performance, as well as the performance of the committees. This

Running Head: Corporate Governance Framework of Wal-Mart

will be discussed with the full Board following completion of the assessment. The assessment
will focus on the Boards and each committees contribution to the Company and specifically
focus on areas in which the Board and each committee believe improvement could occur.
Strengths of corporate governance structure
Wal-Mart satisfy itself on its strong culture, with various references to Sam Waltons
personal life story, the history of the company and how Waltons personal values become core
beliefs for the company. Wal-Mart public information showed that its customer-focused
culture shoot from the companys pursuit of low prices products and authentic customer
service. Walton had three basic beliefs on which the company was build which are respect
for the individual, service to customers, and strive for excellence. In addition, there were two
key rules that supported these three basic beliefs: the Sundown Rule (attending to requests the
same day they were received); and the Ten-foot Rule (offering greetings whenever one was
within 10 feet of a customer) (The Wal-Mart Culture, 2004). This Waltons philosophy
leads Wal-Mart different from the rivals with aggressive hospitality - striving to be the most
friendly, giving better service over what customers expected, and generally exceeding
customers expectations. Moreover, Wal-Mart good concept also involved stores offering
customers a variety of name-brand goods at deep discounts that were part of an everydaylow-prices strategy.
Another vehicle for company growth was aggressive international expansion. The
International Division was sat up to manage oversee growing opportunities (About WalMart, 2004). This division is one of the high growth rate departments in the company. WalMart said in financial report (2003) that sales of International Division had reached more than
forty billion dollar and growth rate was more than fifteen percent compare to the previous
year. Moreover, the operation profit increased fifty five percent from the year 2002. This
division is believed that if trend in the United States goes down in one day, this international

Running Head: Corporate Governance Framework of Wal-Mart

market will be replaced that position. John Menzer, president and CEO of the International
Division says that We need to be the growth of Wal-Mart some day when the United States
slows down (as cited in Molin, 2004). Within thirteen years in International Market, WalMart has expanded its store throughout global market. There are almost a thousand stores in
nine countries around the world. Not all stores are newly established by Wal-Mart itself;
joint venture or buy local companies also the strategies that it uses in order to expand into
each country.
Weaknesses of corporate governance structure
Even though Wal-Mart already expanded into nine countries and has planned for
more, it is still much behind its competitors. Many European retailers such as Carrefour and
Ahold have a couple of decades more international experience than Wal-Mart. Carrefour, a
giant Frances retailer, is one of Wal-Mart main competitor in Global retailers. While
Carrefour had already entered in 31 countries, Wal-Mart had only nine (Wal around, 2001).
The advantage of first come first serve is obviously in this case. Better locations were
already reserved by Carrefour. New comer like Wal-Mart has to bring other strategies to
persuade the customer to go shopping at its store.
Wal-Mart should realize that it is new in globalization, in contrast, it strongly believes
in its strength which is size and prices. Large scale of stores was brought to judge its
intensity. Although, Wal-Mart accustomed to enjoy its power in the United States, but this
extraordinary rule cannot fit all. At the time of Wal-Mart entry, the competitors were already
powerfully investing in store automation. Molin (2004) reported that misreading of the
competitors and the cultures lead Wal-Mart made numerous bad decisions in international
business.
When Wal-Mart is the world's largest retailer, it is obsessive about numbers. It is
number one, after all, and it wants everyone to know. In global business world, only larger

Running Head: Corporate Governance Framework of Wal-Mart

size cannot imply that Wal-Mart is better and successful. In fact, Wal-Mart also came under
criticism for its impact on small retail businesses. Independent small shops have to go out of
business after this giant chain stores come into play. Some research said that after Wal-Mart
has been in town for eight to ten years, that town is just a ghost town. This phenomenon is
not happening only in the United States, but it also has the same consequence in everywhere
that this giant chain store comes into play. In some countries, Wal-Mart has banned from
local communities because it obliterates local business. In short run Wal-Mart is like a
custodian but when look cautiously, it is a killer.
There are both advantages and disadvantages in Joint Venture or acquisition of local
businesses. These arrangements helped Wal-Mart understand a new market and avoid
problems with local distributors. Partnerships are also the best sources of information on
local sales trends and retailers performance data. Moreover, these strategies facilitate market
presence and allow quicker market penetration. However, the acquisition of local chain
retailers in some countries can make people feel that they will occupy by the foreigner. This
also effect in purchasing banned from local customers. Especially, in the country that people
are nationalism such as Germany. The acquisition of Wertkauf and Interspar mislead the
establishment in Germany that soon after caused huge number of problems to Wal-Mart.
The biggest barrier that Wal-Mart is facing when trying to grow in Global market is
the opposition at the local level. The company is seldom accepted from community groups
when it opposes plans to build new stores. It is not only the protection for local business
itself but also the differentiation in culture. The retail giant had some problems with
consumers and has had to make some adjustments. Some research says that Wal-Mart is
behind the locals in their knowledge of taste. One of a good example is the difficulty of
Sams clubs in Brazil. The Brazilian consumers never pay for a membership fee and they do
not have much room to store a big volume of purchases (Lewis, 1998). It is undeniably that

Running Head: Corporate Governance Framework of Wal-Mart

10
Wal-Mart had to change its strategies in order to fit this culture. Another problem in culture
different is data collection. I receive calls all the time from U.S. retailers looking for data on
local market trends, but the data just does not exist the way it does in the U.S. Walter
Frascgetto, an Arthur Andersen partner based in Mexico City, supported (as cited in
Anderson, 1994). As a result, the retailers were forced to strongly rely on their own physical
observations.
Relationships with suppliers were a major problem for Wal-Mart in International
Market. First of all, the company tried to apply the same standards it used in The United
States with local suppliers. But the relationship among retailers and manufacturers was quite
different from the USA. In America, Wal-Mart is the biggest retailer. All suppliers have to
follow its rules and conditions. The prices and standards are set from Wal-Mart only. This is
why Wal-Mart can buy and sell cheaper. However, Wal-Mart was banned from the
manufacturers in some countries, when it attempted to sell many products at price below cost.
And this reaction was sometimes extreme. Some local suppliers neither refused to give
special discount nor to sell products to Wal-Mart. Also, some producers rejected delivery
system; they refused to send goods to Wal-Mart distribution center. Even a discount in
exchange was ignored. This, combined with irregularity of delivery by suppliers and
problems with inventory control, lead shot in products on the shelf.
Furthermore, Wal-Mart has been known not only for setting the tone with its venders for
buying and selling, but often for only dealing directly with vender by passing sales
representatives. A research says that more than 100,000 independent manufacturers
representatives initiated a public information campaign to fight Wal-Marts effort to remove
them from the selling process, claiming that the company eliminated manufacturers right to
choose how it sells its products.

Running Head: Corporate Governance Framework of Wal-Mart

11
In addition, the largest retailer also using its market power to force suppliers to
become more efficient. Sam Walton told Nations Business in April, 1988 that Our suppliers
must commit to improving their facilities and machinery, strive to improve employee
productivity. Yet, in an attempt to keep cutting costs, Wal-Mart is tough on its suppliers. If
you are good with data, are sophisticated, and have scale, Wal-Mart should be one of your
most profitable customer, said a retired consumer-products executive (Bianco and Zellner,
2003). On the other hand, it is easily to get dumped if the prices and qualities are not meet
standardize. Venders have to shift their operations to China or elsewhere in order to get lower
cost, if they still want to be Wal-Marts accounts. The evident demonstrates that
Manufacturers have been forced to lay off workers after Wal-Mart cancelled orders when
another vendor cut its price a few cents more (Lohr, 2003). These bad reputations make
Wal-Mart become one of the most jeopardy customers. Despite a decade of effort, Wal-Mart
still have not create a strong supply chain in the international marketplace.
In the business world, dealing with government rules and regulations is unavoidable.
When Wal-Mart is in the United Stated, it is so powerful but in elsewhere, it is just a
foreigner. This problem became clear when Wal-Mart entered into China. China has
population above one million and has cities up to 170 cities. But despite some early
successes, Wal-Mart was plagued by problems that defy quick solutions. The examples of
these problems are supply chain, strong local and foreign competition, and lots of
governments red tape. Everyone knows that rules and regulations of Communist countries
are very strict and limited. The Communist government has boxed foreign retailers into
selected countries to limit competition. Moreover, some selected products are controlled and
nominated by local suppliers only. For instance, liquor and tobacco must be bought locally,
and Chineses favorite vegetables have to be bought nearby too (Groeber, 2002).

Running Head: Corporate Governance Framework of Wal-Mart

12
Even though Wal-Mart has had outlets in China since 1996, it has yet to open a store in a
booming city. Molin claims that the company only operates 34 stores there and like other
retailers entering the country, has run into red tape in its expansion efforts (2004). This
evidence demonstrates that Wal-Mart struggling to operate in China.
Implication and its implementation organizational values
Due to the complexity that characterized the implication and implementation to
organizational value, Wal-Mart has strategic issues to address to maintain its market
leadership position. However, any business that competes globally like Wal-Mart will
continually appraise its performance to seek for the effectiveness of it business-level strategy
and take corrective actions to remain competitive.
The first strategic issue that is most challenging to Wal-Mart is public resentment.
There has been wide spread resent from unions, communities, press, government and
regulatory agencies against Wal-Marts market dominance. Some argue that Wal-Mart has run
off a lot of retail businesses using its unique core competencies, capabilities and resources
which many competitors cannot replicate. According to Barley et al., (2007), the same
products can be purchased from different types of retail stores but it is difficult to replicate
the convenience, price and diversity of merchandise found at Wal-Mart (p.368). Some
communities are even seeking legal ways to keep Wal-Mart away from establishing in their
communities. However, negative press has been another factor responsible for Wal-Marts
battered public image. Governments and regulatory authorities have not helped matters either
accusing Wal-Mart of gross violation of labor laws, environmental laws and trade regulations.
Barley et al.,(2007) pointed out that Wal-Mart has become a poster company on political
issues related to trade, health care , the environment, discrimination, worker pay and general
anti corporate sentiment ( p. 386). This accumulated resentment against Wal-Mart resulted
from reluctance and lack of effective strategy to positively position its image before the

Running Head: Corporate Governance Framework of Wal-Mart

13
American consumers as socially responsible corporate body. Wal-Mart also needs to relax its
anti-unionization policy and afford its employees to free elect to organize themselves into
unions.
The second strategic issue is a pending federal law suit instituted against Wal-Mart by
a group of employees alleging gender discrimination against female workers. It is very clear
that in the past Wal-Mart was fined heavily to the tune of $198 million in the case of Savaglio
vs. Wal-Mart Stores (Barley et al., 2007, p.371). I believe Wal-Mart has good strategies but it
should be more proactive and thorough in developing its compensation and incentive
policies. The issue of discrimination should be addressed and the equal pay for equal work
Federal Law should be respected. However a peaceful resolution and out of court settlement
will be ideal for Wal-Mart to save its image from be further dragged to the gutters by the
press.
The third strategic issue is that Wal-Mart is recording declining domestic revenue and
increasing revenue from overseas markets. This calls for an articulate strategy to harness the
opportunities where they potentials seem to be optimum. Wal-Mart Internationals strategy is
to prioritize where the greatest growth and great returns exist (Barley et al., 2007, p.375).
Wal-Mart should articulate effective business-level strategy to focus on the right challenges
for their long-term and short-term success in the global market place. Wal-Mart should allow
Wal-Mart International some degree of flexibility to localize its strategies to reflect the taste,
preferences and consumers expectations in their host countries. Just like Barley et al.(2007)
pointed out that Wal-Mart should be looking abroad for future sales growth and struggle
against the urge to centralize operations and eliminate decision making from frontline where
manager have face-to-face contact with customers (p.375).
From the above analysis and strategic issues I will offer two recommendations that
will strengthen Wal-Marts competitive advantage. As the global leader in retail business Wal-

Running Head: Corporate Governance Framework of Wal-Mart

14
Mart has been quite impressive but it need to launder its battered public image and reposition
itself as a socially responsible corporate organization. Wal-Mart should deepen its efforts in
encouraging environmental safety , respect for labor regulations and engage more
communities in discharging its corporate social responsibilities to show that it cares for it
business environment just like it cares to maximize profit. It will be a proactive move to
resolve the pending law suit and settle out of court to save the company from further damage
to its already questionable public image.
Finally, Wal-Mart should take advantage of the global growth opportunities to
expand its international operations but it must learn from the experience of local retailers to
make the right strategic moves. Wal-Mart must be willing to be their uniformity in operation
and centralization of decision making to allow its overseas operations acculturate to the local
business culture.